Do No Harm: Following the NAFTA Renegotiations, Round One

16 August 2017 Publication
Authors: Alejandro N Gomez-Strozzi Marcos Carrasco Menchaca

On Wednesday, Aug. 16, 2017, the United States, Canada and Mexico initiated round one of the renegotiation of the North American Free Trade Agreement (NAFTA) in Washington, D.C. The lead negotiators from all three sides laid out their objectives.

Canadian Minister of Foreign Affairs Chrystia Freeland began the opening remarks by pointing out that NAFTA is the biggest free trade area in the world. She noted that the U.S. had an $8.1 billion surplus with Canada in 2016, and that Canada is the largest “client” of the United States. Among Canada’s objectives for this week’s negotiations are to modernize the agreement, cut red tape, harmonize and make the agreement more progressive (e.g., with regard to labor, the environment, gender and indigenous rights). She concluded by saying that “good fundamentals lead to good results.”

Mexico’s Minister of Economy Ildefonso Guajardo Villareal then began his opening remarks by saying NAFTA is more than a free trade agreement; it has made us think of ourselves as a region. He referred to the original negotiations in 1991, commenting that this is the first time we will renew our partnership face-to-face. “We are not looking to the past,” he said, “but to the future.” Among Mexico’s stated objectives are strengthening North American competitiveness and advancing innovation. “This is our chance to be pioneers again,” he said. The first challenge is to find common ground.

The U.S. Trade Representative Robert Lighthizer has previously said the U.S. will take a “do no harm” approach to the renegotiations. On Wednesday he set out more specific objectives on behalf of the United States. “This is an historic day for the United States,” he began. He emphasized that this is the first time we are working together to renegotiate NAFTA. It is a 23-year-old agreement that needs updating. To modernize the agreement, the United States will consider digital trade, e-commerce, intellectual property, transparency and science-based agricultural trade.

Ambassador Lighthizer said the tough work begins after modernization, with the balancing of interests among the three member countries. He explained that he “completely agrees” with President Trump in that he is not interested in merely tweaking and updating a few chapters. “NAFTA has fundamentally failed,” he said.

Now, the United States will focus on balancing trade and reciprocity. The U.S. negotiators will review the rules of origin, particularly in the auto industry. Ambassador Lighthizer pointed out that rules of origin should be verified, not deemed. While he did not expand on this point, it could be an indication that U.S. Customs may increase its reviews of NAFTA claims to ensure that imports fully satisfy the rules of origin. The objectives on the U.S. side also include labor, protecting against currency manipulation, respecting national sovereignty, and protecting against third-party dumping and state-owned enterprises (SOEs).

We expect the NAFTA renegotiation process will move relatively quickly, so our clients will want to consider how the changes will impact their supply chains. Gardere’s international trade partners Michelle Schulz and Alejandro Gomez will be representing various industries throughout the first round of negotiations. They, along with the rest of the international trade team, will continue to monitor developments in the NAFTA renegotiations.

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