The Trump administration has announced its intention to “modernize” the North American Free Trade Agreement through negotiations with Mexico and Canada. As part of that effort, the Office of United States Trade Representative is seeking public comments and will hold a hearing. The scope is broad; USTR has solicited “comments on matters relevant to the modernization of NAFTA in order to inform development of U.S. negotiating positions.”
It’s Gonna Be Yuuge
Every aspect of the agreement is open for discussion. To quote from the Federal Register notice, the points on which public input is sought include:
(a) General and product-specific negotiating objectives for Canada and Mexico in the context of a NAFTA modernization.
(b) Economic costs and benefits to U.S. producers and consumers of removal of any remaining tariffs and removal or reduction of non-tariff barriers on articles traded with Canada and Mexico.
(c) Treatment of specific goods (described by HTSUS numbers), including comments on—
(1) Product-specific import or export interests or barriers,
(2) Experience with particular measures that should be addressed in negotiations, and
(3) Addressing any remaining tariffs on articles traded with Canada, including ways to address export priorities and import sensitivities related to Canada and Mexico in the context of the
NAFTA.
(d) Customs and trade facilitation issues that should be addressed in the negotiations.
(e) Appropriate modifications to rules of origin or origin procedures for NAFTA qualifying goods.
(f) Any unwarranted sanitary and phytosanitary measures and technical barriers to trade imposed by Canada and Mexico that should be addressed in the negotiations.
(g) Relevant barriers to trade in services between the United States and Canada and Mexico that should be addressed in the negotiations.
(h) Relevant digital trade issues that should be addressed in the negotiations.
(i) Relevant trade-related intellectual property rights issues that should be addressed in the negotiations.
(j) Relevant investment issues that should be addressed in the negotiations.
(k) Relevant competition-related matters that should be addressed in the negotiations.
(l) Relevant government procurement issues that should be addressed in the negotiations.
(m) Relevant environmental issues that should be addressed in the negotiations.
(n) Relevant labor issues that should be addressed in the negotiations.
(o) Issues of particular relevance to small and medium-sized businesses that should be addressed in the negotiations.
(p) Relevant trade remedy issues that should be addressed in the negotiations.
(q) Relevant state-owned enterprise issues that should be addressed in the negotiations.
In short, every aspect of NAFTA is up for review.
Make Rules of Origin Great Again
The one that particularly interests me, and that is of most practical importance for importers and exporters, is rules of origin. For a product made in a NAFTA country to qualify as an “originating good”, it must either have entirely North American content or include outside content that has undergone an approved tariff shift. For some but not all items, a minimum “regional value content” also is required.
Each end-product has its own rule of origin. The requirements for some products permit extensive use of non-NAFTA materials, and thus are relatively easy to meet. Others, however, effectively exclude materials from any country other than Canada, Mexico or the United States.
This plethora of diverse requirements underlies my long-held view that there is no such thing as NAFTA as a unitary arrangement for merchandise trade. Instead, there are hundreds of individual NAFTAs, one for each separate tariff shift rule. It also supports my contention that NAFTA is not a “free trade” agreement at all, but instead is managed trade, since it requires manufacturers to source materials based on seemingly arbitrary origin dictates rather than commercial preferences. But enough about that for now.
The tariff shift-based origin rules, and all the other provisions of NAFTA, were crafted a quarter-century ago. They surely can use some updating. Indeed, they predate digital trade and thus do not specifically address this bigly (or is that big league) economic sector at all.
The USTR review provides importers and exporters with an opportunity to seek beneficial revisions to the rules of origin and other areas covered by NAFTA. Based on the concern about trade deficits with Canada and Mexico expressed in the administration’s 2017 Trade Policy Agenda, proposed amendments tending to increase imports from those countries may not be sympathetically greeted. Another point to consider is that the origin rules for NAFTA often vary from those for other United States bilateral trade agreements; perhaps it is time that these should be harmonized.
Comments and requests to appear at the hearing are due by June 12, 2017. The hearing will be held on June 27.
