Trade Compliance

GHY discusses changes to international trade regulations and explores cutting-edge compliance strategies.

Trump Administration Updates NAFTA Negotiating Objectives

Posted November 20, 2017


Last week, the Trump administration published an updated list of its negotiating objectives for a modernized North American Free Trade Agreement, but the revamped goals show few signs of any desire to tone down a series of contentious proposals that have roiled the talks and called into question the trade pact’s future.

Touting the 17-page document as the administration’s “latest transparency action” that “builds on USTR’s unprecedented, rigorous consultations with Congress,” the update comes after Senator Ron Wyden, ranking member of the Senate Finance Committee, had accused the White House of breaking the law for failing to update the objectives since its initial summary was published in June.

The 2015 Trade Promotion Authority legislation requires USTR to “regularly update” its negotiating objectives. Wyden had put the nomination of two deputy USTR nominees on hold and pledged to delay others until the administration produced an updated summary.

Having now done so, the USTR boasts that the update “marks the first time USTR has released a second updated version of negotiating objectives” – which is to be expected considering that the U.S. since 2015 had not initiated new trade talks for which objectives could have been released.

In its introduction, the USTR states that the goals it seeks to achieve through the negotiations “are widely reported, and well known.” To that end, the document clearly indicates the administration’s intention to keep pushing forward on a range of potentially deal-breaking proposals like required American content for autos and radical changes to NAFTA’s dispute settlement provisions.

Regarding one of the thorniest proposals in the talks so far, the updated summary still includes a five-year “sunset clause” that would automatically terminate the agreement unless all three parties agree to extend it. The language, however, stops short of calling for termination and instead suggests the new NAFTA should “provide a mechanism for ensuring that the Parties assess the benefits of the Agreement on a periodic basis.” Such phrasing could leave the door open to framing the clause as more of review and less of an automatic termination trigger.

The update also sheds more light on the administration’s approach to dispute settlement and investment such as seeking to “establish procedures to ensure that panels are composed in a timely manner and with the appropriate expertise” and to “provide mechanisms for ensuring that the Parties retain control of disputes and can address situations when a panel has clearly erred in its assessment of the facts or the obligations that apply.”

Similarly, the document provides significant new details on the USTR’s investment objectives, saying the United States is seeking “meaningful procedures for resolving investment disputes, while ensuring the protection of U.S. sovereignty and the maintenance of strong U.S. domestic industries.”

The document also spells out the “rules that reduce or eliminate barriers to U.S. investment in all sectors in the NAFTA countries.” Those include: National treatment and most-favored-nation treatment; prohibitions on restrictions on transfers of investment-related capital; prohibitions on performance requirements, including forced technology transfer and technology localization; prohibition on expropriation without prompt, adequate and effective compensation, consistent with U.S. legal principles and practice; and a minimum standard of treatment under customary international law, again consistent with U.S. principles and practice.

Lighthizer last month denounced the investor-state dispute settlement mechanism, saying it was “bad policy” for the U.S. government to provide companies with incentives to outsource and political risk insurance for their investments. Instead, the USTR has proposed text that would allow parties to opt-in to the dispute settlement system, subject to conditions covering which companies can bring cases against foreign governments and limitations on what types of cases can be resolved under the provision.

On rules of origin, the administration changed its objective from a call to “ensure the rules of origin incentivize the sourcing of goods and materials from the United States and North America” to say it wants to ensure the rules “incentivize production in North America as well as specifically in the United States.” The U.S. rules of origin proposal calls for a 50% U.S. domestic content requirement and a regional value content of 85%, levels that Canada and Mexico say would be unworkable.