BY Janet Kopenhaver, AWPA Director of Government Relations
FACTS – Timeline
On August 31, the White House sent to Congress a formal notification of the Administration’s intention to sign a trade agreement, 90 days from now (by November 30th) with Mexico, and Canada “if it is willing.” Under Trade Promotion Authority (TPA) rules, the submission of this notification starts the 90-day clock for signing the new agreement. Getting the process started by Aug. 31 was critical to the Trump Administration because the president wants to get a deal done by December 1 – before the current President of Mexico – Enrique Pena Nieto – must step down to make way for President-elect Andres Manuel Lopez Obrador. The fear is that Obrador might want to make changes to the agreement before signing off on it.
Under this timeline, the text of the agreement needs to be released 60 days before it can be signed – which is September 30th. This is also the date when the public will learn whether Canada is in or out of the pact (see below). If Canada is not included in that final text, it would be legally difficult – if not impossible – to include the country later.
Concurrent with the 90-day Congressional clock is the deadline for the International Trade Commission (ITC) to complete its report on the agreement. The ITC has 105 days to complete their report on the agreement. (RUMOR – It has been heard that they might have already started.)
After the formal agreement is signed, it is sent to Congress, which then has 60 days to vote on it. While a remote possibility, it is UNLIKELY that a vote will take place in the lame duck congressional session.
FACTS – Canada
When the notification was sent to Congress, Canadian and the US negotiators had failed to reach an agreement on several pending issues. (Thus, the reason for including the “if it is willing” phrase to keep options open.) The remaining issues to be agreed upon include dispute settlement, market access, and rules of origin, as well as specific details about the sunset/review/termination process.
dispute resolution problem is over a provision in NAFTA known as Chapter 19, which allows one country to challenge another country over tariffs or duties imposed against for subsidies and dumping products into another market. It is basically a fast-track version of going to the World Trade Organization (WTO) and complaining about unfair trade practices. However, instead of waiting years for a WTO case, a NAFTA Chapter 19 board decides quickly. The Trump Administration wanted this provision deleted and Administration officials confirmed that they had eliminated the provision in their agreement with Mexico, but the Canadians have insisted that it is essential and must remain.
Another dispute settlement issue is Chapter 11, which gives companies a mechanism to sue foreign governments for changing rules on them and hurting their profits. It has been referred to as the “Investor State Dispute Settlement” or ISDS. Officials have reported that the United States and Mexico struck a compromise on this: It will still apply in full to some industries, especially energy, but it will be lessened for other industries. Specifically, it has been reported that sector-specific ISDS would replace the existing Chapter 11 protections by limiting ISDS to specific sectors (oil and gas, infrastructure, energy generation and telecom).
FACTS – Automobile Sector
The US and Mexico agreed to an increase in the percentage (75%) of an automobile that would need to be made in North America to qualify for tariff-free trade. The new agreement also requires that a certain percentage (40% to 45%) of cars be made by workers earning at least $16 an hour. Mexico would also be required to take steps toward strengthening its labor union, although the details are unclear.
The President announced that if a deal with Canada could not be reached, the United States would impose tariffs on automobiles from Canada.
FACTS – Sunset
Mexico fought off a Trump demand that the agreement would expire in five years. Instead, the two sides reached a 16-year deal that will include a review in six years, with an option to extend it for another 16 years. Mexico did not want a treaty that ended every five years because that could discourage long-term investment.
It is at this point unknown whether a three-nation trade pact can be replaced with a two-nation agreement under congressional rules.
TPA rules might not apply to a final trade agreement that does not include Canada.
Both Mexico and Canada want the Trump steel and aluminum tariffs to be removed. An Administration official stated that the 232 negotiations are on their own track separate from NAFTA. It is widely presumed that Mexico would not agree to any of the proposed changes unless there was a path for Mexico to escape these tariffs, as well as any future Section 232 tariffs on automobiles.
Despite Trump’s threats to withdraw the US from NAFTA, it is unknown whether he could actually do so, without support and approval from Congress.
Rumors – Section 232 Steel Tariffs?
It is rumored that the US-Mexico bilateral agreement, includes agreement that the steel and aluminum tariffs would be replaced with quotas. It is uncertain what the structure of the quotas might be. If this is true and they use the quota model imposed on South Korea, they would be absolute quotas, applied on a quarterly basis. (NOTE: It was most recently announced that countries facing quotas could seek product exclusions as a means of relief from tariffs or quotas.)
It is also rumored that a certain level of US imports from Mexico would be exempt from any Section 232 tariffs on auto imports. The rumor is that 2.4 million vehicles would be allowed into the US from Mexico with no tariffs. Any cars imported over that level could face any Section 232 tariffs, if the President choses to impose such tariffs. Further, a value cap of $90 million would be allowed in for auto parts; and any amount above this value could face Section 232 tariffs.
It is also believed that Mexico retained its right to bring a case against any US Section 232 action at the WTO.