President Trump can officially begin renegotiating NAFTA tomorrow, August 16th. The negotiation process can only start 90 days after President Trump officially notified Congress of this intention, which took place on May 18th.

The North American Free Trade Agreement (NAFTA) became law in 1994. NAFTA is a comprehensive trade agreement that sets the rules of trade and investment between the U.S., Canada, and Mexico. NAFTA created one of the world’s largest free trade zones. Pursuant to the deal, each NAFTA country forgoes tariffs on imported goods originating in the other NAFTA countries.

Supporters of NAFTA believe the agreement has helped boost the economies of the NAFTA countries. According to the U.S. Chamber of Commerce, 14 million U.S. jobs depend on trade with Canada and Mexico. Others believe NAFTA has hurt the economy by creating incentives for companies to relocate manufacturing and other jobs offshore.

President Trump has called NAFTA the worst trade deal in history, and he believes NAFTA is responsible for sending millions of U.S. manufacturing jobs to Mexico. Instead of leaving the trade pact and scrapping it entirely, the Trump administration will renegotiate the agreement.

Since announcing the decision to renegotiate the trade deal, the United States Trade Representative (USTR), Robert Lighthizer, has been consulting with and receiving input from members of Congress, the public, and various trade associations and special interest groups. For example, members of Congress have supported the inclusion of a competition chapter in NAFTA as a way to demonstrate the U.S.’s leadership in promoting competition and fairness in trade.

The public has also been responsive to the USTR’s request for public comment, which resulted in more than 12,000 responses and testimony from over 140 witnesses during three days of public hearings. See our earlier post here regarding the public comments on matters relevant to the modernization of NAFTA.

The USTR released a detailed summary of the negotiating objectives related to the NAFTA renegotiation. The USTR has included deficit reduction as a key objective of the renegotiation. Another major goal is to improve market access in Canada and Mexico for U.S. manufacturing, agriculture and services.

We will be following the negotiations in the coming weeks and months to see how the renegotiation will impact trade policies and practices moving forward.

On the firm’s Energy Law Today blog, Fox Partner Mark V. Santo discusses the renegotiation of the North American Free Trade Agreement (NAFTA) and its potential impact on the natural gas trade between the U.S. and Mexico.

North America from space
Copyright: antartis / 123RF Stock Photo

“Mexico imports nearly all of its natural gas from the U.S. and exports to Mexico are expected to double by 2019, with Texas fields being the primary source. At least 17 pipelines currently carry four billion cubic feet of natural gas a day from Texas to Mexico, with four additional cross-border pipelines in the works. Mexico’s demand for U.S.-sourced natural gas has been a boon to domestic producers as it has greatly offset the oversupply of natural gas production. Without this outlet to Mexico, natural gas producers in the U.S. will face a severe downturn with wells shut, job losses and investment curtailed.

The U.S.-Mexico natural gas symbiotic relationship is just one example of the tri-nation supply chain intricacies and complexities forged under NAFTA. There are countless others, such as deep supply chains in agriculture, construction materials and autos to name a few….”

Mark notes the key provisions of the agreement that the Trump Administration will seek to alter. These provisions relate to the remedies available should a NAFTA nation’s exports injure the domestic market of another NAFTA member.

To read Mark’s full post, please visit the Energy Law Today blog.

North America from space
Copyright: antartis / 123RF Stock Photo

Public comment on NAFTA renegotiations has been extended until midnight tonight ET, according to an Alert by Nevena Simidjiyska published on June 13:

The process of renegotiating the North American Free Trade Agreement (NAFTA) with Mexico and Canada officially began on May 18 when the Office of the U.S. Trade Representative (USTR) notified Congress, triggering a 90-day period during which the administration will consult with Congress before NAFTA negotiations can begin. The USTR requested public comments on its negotiation of NAFTA, which were initially due by June 12. The USTR has extended its deadline to June 14 at 11:59 p.m. ET.

After originally calling for a complete withdrawal from NAFTA, the administration displayed a more lenient position in its announcement and notice to Congress. The administration continued to criticize NAFTA’s provisions on labor and environmental protection, digital trade, intellectual property protection, and state-owned enterprises, however, it called for modifying certain aspects of the agreement, rather than comprehensive revisions.

Canada and Mexico have shown a willingness to renegotiate portions of NAFTA, provided that the majority of the Agreement stays intact.  The two countries are likely to push back on certain topics, including the administration’s plan to increase local content for country-of-origin calculations, including that of automobiles, reduction in Canada’s protective measures of its dairy industry, and easing of Mexico’s restrictive policy on foreign investment in its energy sector.

The USTR requested public comment on its negotiation of NAFTA on a broad number of topics listed at the end of this article.  Parties may also testify at an open hearing scheduled for 9 a.m. on June 27, 2017 held in the Main Hearing Room of the U.S. International Trade Commission in Washington, D.C. Written comments and requests to testify must be submitted to USTR.  Although the deadline for submission was originally June 12, the deadline has been extended to June 14 at 11:59 pm ET.

To read Nevena’s full update on the USTR’s call for public comment on NAFTA, including topics open for public comment, please visit the Fox Rothschild website.

The U.S. Senate Finance Committee will hold a hearing on March 14th to consider the nomination of Robert Lighthizer, of Skadden, Arps, Slate, Meagher & Flom LLP, to serve as the next U.S. Trade Representative. The U.S. Trade Representative is the head of the Office of the United States Trade Representative (USTR) and is a Cabinet member who serves as the President’s principal trade advisor.

22680785 - washington dc us capitol building with us american flag background illustration

Lighthizer, who has focused his career on trade litigation and policy, was a deputy trade representative during the Reagan administration, and he was chief of staff for the Senate Committee on Finance. Lighthizer is a vocal advocate for an enforcement-focused U.S. trade policy.

Former King & Spalding LLP attorney Stephen Vaughn, who worked with Lighthizer at Skadden, is the current trade representative, on an interim basis.

The selection of Lighthizer as President Trump’s pick to serve as the new U.S. Trade Representative has not been as controversial as other recent Cabinet nominees. However, Lighthizer’s status as an advocate for the Brazilian government in a 1985 trade case appears to require a waiver before he can serve as the U.S. Trade Representative.

President Trump has promised to renegotiate international trade deals like the North American Free Trade Agreement (NAFTA) and punish companies that ship work overseas, and it appears that the selection of Lighthizer is consistent with this approach. President Trump said in announcing Lighthizer as his choice for the U.S. Trade Representative that Lighthizer would help “fight for good trade deals that put the American worker first.”

The USTR is an agency that negotiates directly with foreign governments to create trade agreements to resolve disputes and participate in global trade policy organizations. The USTR is responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and overseeing negotiations with other countries. The USTR works closely with Congress and specifically with the House Committee on Ways and Means and the Senate Committee on Finance, the two Committees with principle responsibility for international trade issues.

February 22, 2017 marked a major milestone for global trade.  The Trade Facilitation Agreement (TFA) entered into force on February 22nd after the World Trade Organization (WTO) obtained the needed acceptance from two-thirds of its 164 members.  Rwanda, Oman, Chad and Jordan submitted their instruments of acceptance to WTO Director-General Roberto Azevêdo, which brought the total number of ratifications over the required threshold for the TFA to take effect.  This is the most significant multilateral deal that has been concluded in the 21 year history of the WTO.

The TFA seeks to expedite the movement, release and clearance of goods across borders. The TFA also aims to simplify and clarify international import and export procedures and to make trade-related administration easier and less costly. The WTO forecasts that the TFA will create a significant boost for the multilateral trading system.

Implementation of the TFA is predicted to benefit all members and should slash members’ trade costs by an average of 14.3 percent.  Developing countries potentially have the most to gain from the implementation of the TFA.  The TFA is predicted to increase the number of new products exported by developing countries by as much as 20 percent, with least developed countries likely to see an increase of up to 35 percent, according to the study by WTO economists in 2015.

While the critical mass has now been reached, allowing the TFA to become effective, there are several remaining WTO members that may still ratify the TFA.

US President-elect Trump has promised to abandon the Trans-Pacific Partnership (TPP) trade deal as soon as he takes office. Trump has promised to leave the TPP, which took the Obama administration seven years to negotiate, and instead “negotiate fair bilateral trade deals that bring jobs and industry back on to American shores.”

The TPP is an agreement between 12 nations reached in October, 2015. The TPP sets forth a comprehensive trade framework covering goods and services, cross-border investments, intellectual property, the environment and many other topics of critical importance to companies engaged in international trade. The TPP aims to deepen economic ties between the member nations, cut tariffs and foster trade to boost economic growth.

The member nations are the US, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

64836950 - trans-pacific partnership concept, 3d rendering isolated on white background

 

The text of the TPP still has to be signed and then ratified by all 12 signatories and then implemented by the individual nations’ legislatures. To take effect, the deal has to be ratified by February 2018 by at least six countries that account for 85% of the group’s economic output. This means that Japan and the US will need to be on board.

Earlier this month the TPP cleared its main hurdle in Japan’s parliament, but approval by the US is much less certain. It is likely that after the transition from President Obama to President-elect Trump, the US will no longer continue to work toward implementing the TPP.

Click here to learn more about the TPP.

58021097 - peru flag with saudi arabia flag, 3d rendering

In the past two days, two more countries – Peru and Saudi Arabia – ratified the World Trade Organization’s Trade Facilitation Agreement (TFA).  Their ratification followed Mexico and Hondurus, who ratified the TFA earlier this month.

The submission of instruments of acceptance from Peru and Saudi Arabia means that more than 80 percent of the ratifications needed for the TFA to take effect have been obtained.   The TFA will enter into force once two-thirds of the WTO membership formally accepts it.  Now that Peru and Saudi Arabia have accepted the TFA, there are a total of 89 ratifications.

The TFA requires its members to establish and maintain a national committee on trade facilitation to facilitate implementation of the TFA.  Earlier this year, on June 8th, the WTO hosted an experience-sharing event to help members of the WTO identify best practices and the challenges faced by WTO members in establishing or maintaining national trade facilitation committees.

The TFA contains provisions for improving the movement, release and clearance of goods and increasing global merchandise exports.  According to the WTO, the TFA could add USD 1 trillion per year to global trade.  For a brief summary of the TFA, see our earlier post here.  The World Trade Report 2015 is available here.

Copyright: cmcderm1 / 123RF Stock Photo
Copyright: cmcderm1 / 123RF Stock Photo

Turkey ratified the Trade Facilitation Agreement (TFA), and presented its instrument of acceptance to the World Trade Organization (WTO) Deputy Director General Yi Xiaozhun on March 16, 2016.

Turkey is the 71st member of the WTO to ratify the TFA.  The TFA will enter into force once two-thirds of the WTO countries ratify a Protocol of Amendment and notify the WTO of their acceptance of the TFA.

Turkey has already begun to take steps to increase and facilitate trade with its neighboring countries. For example, the WTO noted in its recent Trade Policy Review of Turkey, that Turkey has launched a pilot project at a border gate with neighboring Bulgaria to reduce customs processing delays through coordination of customs procedures. A similar project is proposed to be launched at the border of Turkey and Georgia.

The implementation of the TFA has the potential to increase global merchandise exports by up to $1 trillion per annum, according to the WTO’s flagship World Trade Report 2015.  For a brief summary of the TFA, see our earlier post here.

In addition to Turkey, the following WTO members have also accepted the TFA: Hong Kong China, Singapore, the United States, Mauritius, Malaysia, Japan, Australia, Botswana, Trinidad and Tobago, the Republic of Korea, Nicaragua, Niger, Belize, Switzerland, Chinese Taipei, China, Liechtenstein, Lao PDR, New Zealand, Togo, Thailand, the European Union (on behalf of its 28 member states), the former Yugoslav Republic of Macedonia, Pakistan, Panama, Guyana, Côte d’Ivoire, Grenada, Saint Lucia, Kenya, Myanmar, Norway, Vietnam, Brunei, Ukraine, Zambia, Lesotho, Georgia, Seychelles, Jamaica, Mali, Cambodia and Paraguay.

spirits4The European Union (EU) has requested consultations, a World Trade Organization (WTO) dispute proceeding, with Colombia to address what it believes are discriminatory practices against spirits being imported from the EU into Colombia. The EU says that Colombian authorities treat imported alcoholic beverages from the EU in a manner that is inconsistent with the WTO.

The EU spirits face higher taxes than local brand spirits, and Colombia’s regional authorities impose market-access restrictions for imported spirits. The EU believes this creates a competitive disadvantage against EU spirits and is inconsistent with the non-discrimination obligations of the WTO rules.  Because the EU is the number one exporter of spirits into Colombia, it is most impacted by these discriminatory practices.

The EU and Colombia signed a comprehensive free trade agreement in 2013. The trade agreement aims at opening up both markets and committed Colombia to creating a level market for imported and local goods.  The August 2015 deadline has passed for these arrangements to come into effect, which has spurred the EU to initiate the consultations.

The objective of the consultations is for the parties to resolve the dispute themselves, without litigation. The bilateral consultation is the first step in the settlement process.  If the consultations fail, and the parties are unable to resolve the dispute within 60 days, the EU can request adjudication by a panel to rule on the compatibility of Colombia’s trade practices with the WTO rules.

Ostensibly, Investor-State Dispute Settlement (ISDS) provisions in international trade agreements create a necessary judicial mechanism which empowers international investors to bring actions against host states who act arbitrarily, to the detriment of the international investment.  ISDS has, however, long been criticized as a non-transparent, privately run judicial system through which wealthy investment entities can extract substantial judgments from hosts states who change their national policies.

A recent article in the Canadian Bar Association’s National Magazine, traces these these historic tensions in North America and Europe ,as well a growing number of states which are pushing on the use of ISDS after being burned by significant judgments.

As new international trade agreements, such as the Trans-Pacific Partnership, are discussed and debated is important that investors understand what recourse they may have when investing abroad and whether the protections they have historically enjoyed will still exists in the coming years and decades.