During the campaign, then-candidate Donald Trump repeatedly stated his intent to renegotiate or withdraw from NAFTA, impose punitive tariffs on US imports from Mexico, and seek to prevent US companies from shipping jobs to Mexico. Since his inauguration, President Trump has remained a critic of NAFTA, calling it the “worst trade deal ever” and a cause of significant US manufacturing job losses. Today, United States Trade Representative (USTR) Robert Lighthizer officially began the process of renegotiation by providing formal notice of the Trump Administration’s intent to initiate negotiations with Canada and Mexico in order to modernize and strengthen NAFTA.
How will renegotiation of NAFTA be conducted?
The Trade Promotion Authority (TPA) law governing the conduct of trade negotiations sets forth the steps that must take place before formal negotiations commence. These steps are necessary for the resulting trade agreement to be considered by Congress under the so-called “fast track” trade negotiating authority, under which Congress is required to vote on legislation implementing the trade agreement with an up-or-down vote with no amendments permitted. First, the President, via the USTR, must consult with the House Ways and Means Committee, the Senate Finance Committee, and other congressional committees on the negotiations. Second, 90 days prior to the initiation of negotiations, the President must provide formal notice to Congress of his intent to negotiate and the objectives of the negotiations. Third, 30 days prior to formal initiation of negotiations, USTR must publicly post more detailed negotiating objectives and a description of how the agreement will further those objectives.
After consulting with the Senate Finance Committee, the House Ways and Means Committee, and other committees of jurisdiction earlier this week, today USTR Lighthizer sent to Congress a formal notification of the Administration’s intent to begin negotiations with Canada and Mexico to “moderniz[e]” NAFTA. As a result, NAFTA renegotiations will formally begin no earlier than mid-August 2017. However, the Administration will be developing its strategy during this 90-day consultation period, so companies with an interest in NAFTA renegotiation would be well advised to communicate their positions or concerns to USTR and the relevant Administration and congressional stakeholders.
What issues might be addressed in a renegotiation of NAFTA?
President Trump has not yet clearly articulated his specific goals for a NAFTA renegotiation, but his overall goal appears to be eliminating provisions that encourage the off-shoring of US manufacturing. While this is difficult to achieve broadly through NAFTA negotiation, one route frequently mentioned by Administration representatives to pursue this goal is renegotiation of the rules of origin. Specifically, the Trump Administration would seek to restrict access to the US market for Mexican- and Canadian-origin goods and/or restrict access to the overall North American market by lowering the amount of non-NAFTA origin inputs that could be permitted in NAFTA-qualifying goods. Commerce Secretary Ross has highlighted the auto and auto parts sector as a particular focus of rules of origin changes.
In the first draft notification of the Administration’s intent to renegotiate NAFTA that Acting USTR Vaughn sent to Congress at the end of March 2017, the Administration called for revising the trilateral relationship to “respond to new twenty-first century challenges” and outlined a nineteen-point strategy for renegotiation. The list included rules of origin, Chapter 19 panel review, as well as a number of proposed subjects that had been incorporated into the Trans-Pacific Partnership agreement, to which both Canada and Mexico are parties. The President’s spokesman subsequently distanced the White House from the draft.
The formal notification sent to Congress today broadly discusses the need to update NAFTA, but lacks the specifics of the earlier draft notification. The notice provides that the Administration’s “aim is that NAFTA be modernized to include new provisions to address intellectual property rights, regulatory practices, state-owned enterprises, services, customs procedures, sanitary and phytosanitary measures, labor, environment, and small and medium enterprises.” The notice also specifies that “establishing effective implementation and aggressive enforcement of the commitments made by our trading partners” is an important goal for trade agreements generally, and that this goal “should be improved in the context of NAFTA.” While unmentioned in the notice, renegotiation may also address or otherwise facilitate resolution of longstanding sources of trade friction. These could include restrictions on US dairy exports to Canada or settlement of the longstanding trade disputes involving Mexican sugar exports to the United States or even possibly softwood lumber from Canada.
On April 29, 2017, President Trump signed an Executive Order (EO), directing a “performance review” of all existing trade agreements to which the United States is a party. The EO directed the US Department of Commerce and the USTR to determine in particular whether US trade agreements were resulting in US job creation, and whether those agreements were being violated. Commerce Secretary Ross indicated that NAFTA would be a “big part” of this report. Presumably the results from this report, which are due by November 2017, will be fed into any NAFTA renegotiation.
What is Congress’s role in NAFTA renegotiation?
As noted above, for trade negotiations to be conducted under “fast track” negotiating authority, Congress must be notified at least 90 days in advance of the beginning of any negotiations so that it can provide input to the President – which was the legal basis for the notice issued today. Thereafter, the Administration will brief the relevant congressional committees throughout the negotiation to obtain their input and guidance. Whether congressional approval of the completed NAFTA renegotiation will be required depends on the nature and extent of changes negotiated. In all likelihood, the negotiations will be broad enough such that congressional approval will be required. If so, in addition to voting on approval of the agreement, Congress would work with the Administration to shape the implementing legislation.