US launches five dispute actions in WTO challenging China, EU, Canada, Mexico and Turkey

/, , , ,

Merco Press / REUTERS / Yuri Gripas / 17 July

 

The United States launched five separate World Trade Organization dispute actions on Monday challenging retaliatory tariffs imposed by China, the European Union, Canada, Mexico and Turkey following U.S. duties on steel and aluminum. The retaliatory tariffs on up to a combined US$28.5 billion worth of U.S. exports are illegal under WTO rules, U.S. Trade Representative Robert Lighthizer said in a statement.

“These tariffs appear to breach each WTO member’s commitments under the WTO Agreement,” he said. “The United States will take all necessary actions to protect our interests, and we urge our trading partners to work constructively with us on the problems created by massive and persistent excess capacity in the steel and aluminum sectors.”

Lighthizer’s office has maintained that the tariffs the United States has imposed on imports of steel and aluminum are acceptable under WTO rules because they were imposed on the grounds of a national security exception.

Mexico said it would defend its retaliatory measures, saying the imposition of U.S. tariffs was “unjustified.”

“The purchases the United States makes of steel and aluminum from Mexico do not represent a threat to the national security,” Mexico’s Economy Ministry said in a statement.

“On the contrary, the solid trade relationship between Mexico and the U.S. has created an integrated regional market where steel and aluminum products contribute to the competitiveness of the region in various strategic sectors, such as automotive, aerospace, electrical and electronic,” the ministry added.

Lighthizer said last month that retaliation had no legal basis because the EU and other trading partners were making false assertions that the U.S. steel and aluminum tariffs are illegal “safeguard” actions intended to protect U.S. producers.

 

Merco Press / REUTERS / Yuri Gripas / 17 July

 

Amlo and the realities of Mexico’s oil reform

/, , , , ,

Petroleum Economist / Craig Guthrie / July 9

 

The Mexican president-elect needs a strong oil and gas sector to fund a promised social transformation

The investor-friendly tone Mexican president-elect Andres Manuel Lopez Obrador, widely known as Amlo, struck in the run-up to his landslide victory on 1 July is fueling confidence he will tweak rather than dismantle the energy reforms that are enticing international oil companies to the country.

Prospects of an Amlo presidency had stirred concerns among investors for months ahead of the vote—he’s the first leftist Mexican president since the 1930s, and has forged an anti-elitist platform calling for a reordering of the political landscape. And yet the peso gained more than 2% against the US dollar in the hours after the result.

“This can be a presidency ruled by reason and legality,” Ixchel Castro, manager of Latin American oils and refining markets research with Wood Mackenzie, tells Petroleum Economist, while pointing to the currency market’s reaction and the links he’s built with Mexican business elites. “There may be change in the emphasis of the energy reforms, but we see a reversal as highly unlikely”.

Launched by outgoing President Enrique Peña Nieto in 2013, the reforms ended Pemex’s 75-year monopoly over the energy sector. So far, auctions in January and March jointly lured at least $100bn in oil exploration investment commitments from more than 70 different firms—useful revenue for a president who has promised sweeping social changes to tackle crime, corruption and poverty.

Amlo made opposition to the reforms a bedrock of his failed 2013 presidential bid, and told a rally just four months ago that he would never allow Mexican crude to return to the hands of foreigners. But a reversal in tack since has seen his top business adviser and nominee for chief of staff, Alfonso Romo, lead a pro-business public relations drive towards international investors.

Romo told Reuters on 25 June that there could be more auctions of oil drilling rights, as long as a review of contracts that have already been awarded to private companies showed no problems. “We will revise them and everything good will remain,” he said, noting that Amlo had said this directly to investors in New York.

But it’s not expected to be all smooth sailing for foreign oil investment under Amlo’s watch. Uncertainty over the long-term goals of his populist agenda will likely continue to unnerve companies looking to establish a steady pipeline of projects.

“Amlo will likely enjoy the benefits from the existing contracts that have been awarded, especially in terms of oil barrels produced, fiscal revenue received and jobs created. By the third year of his administration he can claim that Mexico is producing more oil under his presidency,” Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Centre wrote in an e-mail.

“But he will be reluctant to continue the bidding rounds. The one possible exception that I see would be in deep waters and in farm-outs from Pemex.”

Mexico plans to auction 37 onshore areas and nine in the shale gas-rich Burgos Basin on 27 September, as well as the farm-out of seven onshore areas with Pemex on 31 October.

Amlo’s approach to a planned re-shaping of Pemex is seen as the next critical indicator of his eventual intentions on the country’s energy direction.

While the president has pledged to resurrect Pemex into a strong national oil company through cost-cutting, this comes amid a significant decline in domestic energy production—from 3.4m barrels of oil a day in 2004 to 1.9m b/d in 2018.

“Pemex must be forced to compete in order to become stronger,” said Wood. “If the reform process is stopped, Pemex would gain from a strengthening of its position in the short-term. But in the long term its competitiveness and productivity could be severely damaged.”

 

Petroleum Economist / Craig Guthrie / July 9

 

 

Trump and Mexico’s New Leader, Both Headstrong, Begin With a ‘Good Conversation’

/, , ,

The New York Times / Michael D. Shear and Ana Swanson / July 2

 

WASHINGTON — President Trump reached out to Mexico’s new populist president-elect on Monday in an early, but potentially short-lived, show of détente, saying the two leaders engaged in a “good conversation” about border security and the North American Free Trade Agreement.

The two countries remain locked in a heated dispute over the fraught issues of immigration and trade, areas that may face difficult complications from the election of Andrés Manuel López Obrador, a leader known for being as strong-headed and nationalist-minded as Mr. Trump — and just as willing to engage in a public clash of ideas.

Mr. López Obrador, who has said Mexico will not be a “piñata” for foreign governments, has said he will stand up to Mr. Trump to protect his country’s interests. And he may find himself under pressure by an electorate that, weary of Mr. Trump’s hectoring and disparaging comments about Mexico, will demand that he cede no ground, leaving little room to manage the relationship.

“There are going to be so many opportunities for this to go wrong,” said Duncan Wood, the director of the Wilson Center’s Mexico Institute. “If there are too many provocations, if there are too many insults against Mexico, López Obrador will not be able to just sit back and take it. His character shows that he will respond, and that could lead us down a dark path.”

Relations between Mexico and the United States are already tense, particularly over trade and the future of Nafta, which has enabled companies to create critical supply chains across North America. Talks to revise the trade pact among Mexico, the United States and Canada have stalled over dramatic changes proposed by the Trump administration, including altering protections for investors and rules for manufacturing automobiles in North America.

Mr. López Obrador has been a longtime critic of the 1994 trade pact and has given no indiction he will be more willing to accommodate Mr. Trump’s demands than the current Mexican government. Among other things, Mr. López Obrador has blamed Nafta for triggering an influx of grain from the United States that ultimately forced Mexican farmers off their land.

But Mr. López Obrador has pledged to continue to renegotiate Nafta — a promise that could ultimately put him in the position of defending the trade agreement against the frequent criticisms of Mr. Trump, who has called it the “worst” trade deal in history and blamed Mexico for siphoning off American jobs. Mr. López Obrador’s advisers have said they will start working with the current Nafta negotiators soon to ensure a smooth transition when the new administration takes office on Dec. 1.

The president-elect has also taken a far more critical view than his predecessor of corporations — which have among the most to win or lose with a revised Nafta. He has long criticized the role of multinational corporations in Mexico and once promised to turn the presidential palace into a public park. He has promised to review dozens of outstanding oil and gas exploration contracts for corruption, potentially delaying hundreds of billions of dollars in foreign investment. His election has put the value of the peso and Mexican government bonds on a more volatile path.

During the campaign, Mr. López Obrador and his advisers worked to reassure voters and industry that he would provide continuity for the private sector.

Known as an anti-establishment candidate, Mr. López Obrador is a divisive figure with Mr. Trump’s flare for capturing attention. After a failed bid for the presidency in 2006 against Felipe Calderón, Mr. López Obrador held a faux inauguration ceremony for himself, appointed a shadow cabinet and protested in the middle of the capital for weeks.

Mr. Trump and Mr. López Obrador spoke for 30 minutes Monday morning after the latter ’s landslide victory Sunday night. The call came just hours after Mr. Trump congratulated Mr. López Obrador in a rare, friendly tweet that said: “I look very much forward to working with him.”

The incoming Mexican president in turn pledged never to “disrespect” the United States government. In a tweet of his own, Mr. López Obrador said there was “respectful treatment” on the call.

Any period of gracious talk may be short lived, however, with Mr. Trump almost certain to continue his tirade about the 2,000-mile border with Mexico, and Mr. López Obrador virtually guaranteed to fire back in ways that his predecessors did not.

Mr. López Obrador “has committed to a louder, more combative posture with the U.S.,” said Carlos M. Gutiérrez, the former secretary of commerce under President George W. Bush. “He’s getting ready to take it up a notch.”

Mr. Trump campaigned for the presidency by demanding a wall across the southern border and suggesting that people being “sent” from Mexico into the United States are “bringing drugs. They’re bringing crime. They’re rapists.”

More recently, Mr. Trump has escalated his language against Mexico, accusing Democrats in a tweet of wanting “illegal immigrants, no matter how bad they may be, to pour into and infest our Country, like MS-13.”

 

The New York Times / Michael D. Shear and Ana Swanson / July 2

 

Mexico’s incoming leftist President could open US-Mexico energy relations

/, , , ,

The Daily Caller /Jason Hopkins / July 2

 

The election of Andrés Manuel López Obrador as Mexico’s next president has investors around the world on edge, waiting to see how the leftist leader will approach the oil and gas industry.

López Obrador handily won Mexico’s presidential election Sunday, capturing over 53 percent of the vote — more than double the percentage of the second-place finisher. His victory brings a new era of progressive populism to the U.S.’ southern neighbor. A member of the National Regeneration Movement Party, López Obrador touts a far-left pedigree: universal access to public colleges, an expansion of welfare programs, increased investment in industries and other big government proposals.

The president-elect’s calls for energy reform, however, has been the most striking to international observers. López Obrador pledged during the campaign to hold a referendum on reforms the country made several years ago that embraced measured degrees of privatization of the country’s oil sector.

Outgoing President Peña Nieto opened the country’s petroleum industry in 2013 to foreign investment, ending a decades-old monopoly held by Pemex, the country’s state-run petroleum company. The move was intended to revive Mexico’s oil and gas production, which is plagued with rampant inefficiency, debt and outdated equipment.

During the 2018 campaign, López Obrador derided these pro-market reforms. While promising to honor existing oil contracts, he believes the country should prioritize nationalization of the industry once again.

“As a long-time ally of national labor unions and a supporter of a strong [Pemex], [López Obrador] may seek to maximize national investment and employment in the sector, hedging Mexico’s political risk, even at the cost of economic efficiency,” David Goldwyn, chairman of the Atlantic’s Global Energy Center Advisory Group, noted Sunday.

Such reforms could have major implications for Mexico-U.S. energy relations, which hold very deep ties.

The U.S. currently exports a large amount of gas across the border and the Mexican government, in turn, sends heavy crude to American consumers. As crude oil imports to the U.S. has declined over the years, the trade imbalance between the two countries has shifted. U.S. energy exports to Mexico now exceeds its imports, according to the Energy Information Administration. These issues may come up as the Trump administration is set to renegotiate key agreements within the North American Trade Agreement with Mexico and Canada.

López Obrador, for his part, is no fan of Trump. The longtime Mexican politician wrote a book entitled “Oye, Trump” (“Listen, Trump”) that blasts the American leader for his calls to build a border wall and his “attempts to persecute migrant workers.” The book includes a number of speeches López Obrador has given. In one such speech, he compared Trump to Hiter, saying “Trump and his advisers speak of the Mexicans the way Hitler and the Nazis referred to the Jews, just before undertaking the infamous persecution and the abominable extermination.”

 

The Daily Caller /Jason Hopkins / July 2

 

NAFTA negotiations: Mixed feelings for US companies on Mexican border

/, ,

America CGTN / Steve Mort / June 18

 

The U.S., Canada, and Mexico say talks on the North American Free Trade Agreement (NAFTA) will press ahead despite Washington’s steel and aluminum tariffs. But recent tensions between the U.S. and Canada are casting doubt on whether a deal is possible.

At Allen Russell’s warehouse in the border city of El Paso, materials are processed for shipment to factories in Mexico. His company depends on those shipments being tariff-free under NAFTA, so he rejects President Trump’s claim that the trade deal is the worst ever made.

“It is not the worst trade deal. It has done more for North America than could even have anticipated.”

Russell’s business provides U.S. corporations with manufacturing facilities employing around 8,000 people in Mexico, where labor costs are lower. He fears that without NAFTA, his cost of doing business will rise.

“The American consumer is going to pay the bill,” according to Russell. “The product is just going to be more expensive. It doesn’t mean anybody is going to move from Mexico to the US to produce the product.”

The US-Mexico border region is one of the largest in the world. Its population exceeds 2.5 million, with an economy to match. Mexico is Texas’ largest export market, with cross-border trade worth hundreds of billions annually.

More than 1/5 of that trade crosses the border in El Paso.

Thomas Fullerton, a professor at the University of Texas at El Paso, studies the region’s economy and the potential impact should NAFTA talks fail.

“It will throw a monkey wrench into how things operate rather seamlessly at this point,” he explained. “Existing operations will probably remain in place, but the level of investment and business formation will plummet.”

But not everyone is so sure. Nicole Grado’s company sells packaging. Up to 90 percent of her customers ship internationally. She’s looking for ways to diversify her business and says she’s confident other US companies could thrive without NAFTA.

“There would be changes, but I think it’s like everything: you adjust to those changes and you adapt,” the CEO said. “You figure out ways to continue moving forward.”

While the outcome of the NAFTA talks remains far from certain, business on the border continues. El Paso’s economy is projected to grow two percent in 2018.

But most here hope a long-term deal can be reached soon, to avoid the lingering uncertainty hanging over this region’s economy.

 

America CGTN / Steve Mort / June 18

 

Mexico minister calls for ‘flexibility’ in reworking Nafta

/, ,

The Daily Star / Reuters, Tokyo / June 12

 

Mexican Economy Minister Ildefonso Guajardo said on Monday the only way countries re-negotiating the North American Free Trade Agreement (Nafta) will find a solution is through “sufficient flexibility” to narrow differences.

Guajardo said US, Mexican and Canadian negotiators will be “engaging strongly” in July to reach an agreement that is “feasible, workable and benefits the three nations involved.

“The only way we will find that solution is if countries involved have sufficient flexibility to be able to find that narrow strip where we have to land,” he said.

“An agreement that does not give us certainty, does not give us rules that have to be obeyed and mechanisms to settle disputes will not be of help for the business community.”

He said there was a “high chance” there will be an agreement on renegotiating Nafta, but the timing depends on how flexible each country can be.

The United States, Canada and Mexico have been in months of negotiations to rework Nafta, which President Donald Trump says harms his country.

White House economic advisor Larry Kudlow has said Trump will seek to replace Nafta with bilateral deals with Canada and Mexico, something both countries say they oppose.

US trading partners have been furious over Trump’s decision to impose tariffs on steel and aluminum imports from Canada, the European Union and Mexico as part of his “America First” agenda.

Fears of a global trade war come as Trump’s decision to back out of the G7 joint communique torpedoed what appeared to be a fragile consensus on a trade dispute between Washington and its top allies.

 

The Daily Star / Reuters, Tokyo / June 12

 

Mexico’s central bank chief sees risk from protectionism to economy: paper

/, ,

Reuters / Reuters Staff / june 4

 

MEXICO CITY (Reuters) – Protectionist trade measures could hit Mexican economic growth and inflation, Mexico’s central bank governor said in comments published by newspaper Reforma on Monday, in the wake of U.S. import tariffs on Mexico, Canada and the European Union.

 

Mexico now faces new tariffs of 25 percent on steel and 10 percent on aluminum after temporary exemptions expired, prompting Latin America’s second biggest economy to slap tariffs on U.S. products such as pork and cheeses.

 

“It’s an element of risk, the fact that protectionist measures are beginning to spread and that it generates a less favorable environment for international trade,” Mexico Central Bank Governor Alejandro Diaz de Leon said.

“The fact of this risk – which is already materializing in some actions against international trade – is an element of worry due to its influence on the side of growth and on the side of inflation,” he added.

The flurry of tariff hikes come as talks drag on among Mexico, Canada and the United States to overhaul the North American Free Trade Agreement (NAFTA).

 

Reuters / Reuters Staff / june 4

 

 

Canada’s Freeland to visit Washington this week for NAFTA talks

/, ,

Reuters / Reuters Staff / May 28

 

OTTAWA (Reuters) – Canada’s Foreign Minister Chrystia Freeland will go to Washington on Tuesday to meet with the U.S. trade chief, officials said on Monday, as officials press for a deal on reworking the North American Free Trade Agreement (NAFTA).

Freeland will be in Washington on Tuesday and Wednesday, said her spokesman Adam Austen. The United States, Mexico and Canada have spent months struggling to settle deep differences over what a new NAFTA should look like.

“We’ve said all along we are ready to go (to Washington) at any time,” Austen said by phone, but declined to comment when asked about the chances of the three nations sealing a deal.

A spokesman for U.S. Trade Representative Robert Lighthizer said Freeland would meet the U.S. trade chief on Tuesday, but did not give details of the meeting. A Canadian official said that NAFTA would be on the agenda during the talks.

Mexican Economy Minister Ildefonso Guajardo said last week there was about a 40-percent chance of concluding the NAFTA talks before Mexico’s July 1 presidential election.

Guajardo will not be at the Tuesday meeting in Washington.

The Mexican minister’s office said that he and his deputy Juan Carlos Baker would be in Paris through Thursday for high level meetings of the Organization for Economic Co-operation and Development (OECD) and the World Trade Organization.

Earlier, the European Commission said Lighthizer and U.S. Commerce Secretary Wilbur Ross are scheduled to be in Paris on Wednesday for meetings with Europe’s top trade official on the sidelines of the OECD event.

Meanwhile, the Mexican economy ministry said Guajardo and Baker would be holding bilateral talks with ministers from Mexico’s top trade partners while in Paris. The United States is easily Mexico’s most important trading partner.

Guajardo and Freeland have held several rounds of talks with Lighthizer, who says he wants a quick deal to avoid the talks overlapping with election campaigning in Mexico.

The negotiations are moving slowly as Mexico and Canada try to grapple with U.S. demands to impose tougher minimum content requirements for autos built in the region, along with several other contentious proposals.

 

Reuters / Reuters Staff / May 28

 

NAFTA Sticking Points: 9 Issues Standing In The Way Of A Deal

/, ,

Huffington Post / Alexander Panetta / May 22

 

From cars to milk to pharmaceuticals, there’s plenty left to resolve.

WASHINGTON — The NAFTA negotiations could continue for a while, with U.S. trade czar Robert Lighthizer signalling he wants significant changes in multiple areas and isn’t interested in a quick, limited deal.

Here are some key flashpoints involving Canada:

—Autos: This is the sticking point countries have spent the most effort trying to solve. The U.S. wants to stem the loss of manufacturing jobs to Mexico. Canada broadly shares that goal. However, the issue has prompted some concern, and not only from Mexico. While the U.S. has significantly softened its earlier demands, it still wants 40 per cent of every car built in a high-wage jurisdiction; 75 per cent of all parts to be North American; and 70 per cent of steel to be North American.

Critics of the plan say it could backfire: if auto-makers decide they don’t want to deal with all this red tape, they can just ignore NAFTA and simply pay the 2.5 per cent U.S. tariff on cars. Critics say that won’t create jobs — just more expensive cars, and less economic activity.

—Pharmaceuticals: It’s the stated goal of U.S. trade policy to make other countries pay more for drugs, so that foreigners shoulder more of the burden of research and development costs. The U.S. has a particular gripe with Canada: it’s reduced Canada’s ranking in an annual report card on intellectual property, partly over policy changes at Canada’s Patented Medicine Prices Review Board.

The U.S. wants more transparency in how drug prices are set in Canada. Its industry is also pushing for greater ability to appeal pricing decisions. Such objectives place it in direct conflict with the Trudeau government, which wants to create a national pharmacare plan and intends to argue that its policy is consistent with that of President Donald Trump, who campaigned on controlling drug prices.

—Dairy: The U.S. has two problems with Canadian dairy policy. First, Canada limits imports and sets fixed prices under a supply-management system, and does the same for poultry and eggs. Second, Canadian producers who are protected from competition are at the same time selling surplus ingredients onto the world market for cheese-making, contributing to a global glut.

The U.S. has demanded an end to these surplus sales, and also an end to supply management within 10 years. Canada’s counterpoint is that the U.S. engages in its own protections, supporting farmers during boom-bust cycles; it argues that Canada’s system at least has the benefit of being stable, and not requiring periodic bailouts. If past history is any guide, a middle-ground compromise might be possible: in agreements with Europe and the TPP countries, Canada opened up its dairy market by several percentage points.

—Dispute settlement: NAFTA is enforced by three main systems for settling disputes: Chapter 11 lets companies sue governments for unfair treatment, Chapter 19 lets industries fight punitive duties, and Chapter 20 lets countries sue countries.

The U.S. wants to weaken two of the three, and entirely end Chapter 19. It’s a historically emotional issue for Canada, as Chapter 19 was the original make-or-break condition for free trade with the U.S.; it’s also been used to fight softwood lumber duties. However, some observers question the relevance of Chapter 19 today, as other forums exist for fighting duties.

Take the spat against Bombardier, in which duties were overturned in the U.S. court system. As for Chapter 11, Canada has less of a historical attachment, although it’s extremely popular with those business allies in the U.S. fighting to preserve NAFTA.

The Trump administration’s trade czar dislikes all these systems — Lighthizer sees them not only as a violation of national sovereignty: he argues that Chapter 11 helps companies do the dirty deed of outsourcing jobs. He argues that if companies want to shift plants elsewhere, the U.S. government should not be in the business of protecting their legal rights in, for instance, Mexico.

—De minimis: Americans are allowed to spend $800 online before they pay duties on a foreign purchase; Canadians can spend $20. It’s one of the lowest rates in the world. Lighthizer says it might not be necessary to match the U.S. amount, but he says that 40-fold difference is unreasonable. Retailers argue that shifting the de minimis level would fuel a commercial real-estate crisis, and disproportionately benefit American tech companies which enjoy economies of scale.

—Intellectual property: The U.S. complains about Canada’s border controls on counterfeit goods. It says it’s concerned that Canada doesn’t provide customs officials with the ability to inspect, seize, and destroy pirated goods moving through Canada to the United States. It complains that there were no known criminal prosecutions for counterfeiting in Canada in 2017, calling Canada an outlier among developed countries. It also bemoans what it calls excessive use of education-related exceptions to copyright laws, which it says have damaged the market for educational publishers and authors.

—Procurement: Canada’s aim is to increase companies’ access to public-works contracts abroad, expanding that access from federal contracts to state/provincial and local ones. Currently, subnational procurement rights are negotiated on a case-by-case basis. The U.S. has the opposite goal: It wants to limit the access Canadian and Mexican companies already enjoy at the federal level, restricted to whatever amount of contracts American companies win in the other countries.

—Sunset clause: One of the most controversial ideas of this negotiation. The U.S. has pushed for a clause in the deal that would cancel NAFTA after five years, unless every country agrees to keep it. Critics say this is a recipe for permanent uncertainty. They ask how a car company, for instance, is supposed to invest in all the assembly-line changes demanded in this deal, when the whole deal could be over in five years. They also point out that NAFTA already has a termination clause, which countries can invoke if they’re unhappy.

Prime Minister Justin Trudeau ridiculed the sunset idea in a public event in New York. He used a real-estate metaphor and made clear he was addressing President Donald Trump: What developer would build a skyscraper on a piece of land, Trudeau asked, if access to that land was only guaranteed for five years?

—Professional visas: Canada wants to modernize the list of professions eligible for a NAFTA work visa under Chapter 16. The current list of jobs eligible for these visas is decades old, and features almost nothing for the tech industry. Companies complain this makes it hard to send their own employees to branches across the border. The U.S. has put up some resistance, as any expansion of work-related migration risks being wrapped into the heated U.S. immigration debate.

 

Huffington Post / Alexander Panetta / May 22

 

 

A closer look at round seven of the NAFTA negotiations

/, ,

FROM: Lexology / Dentons / 19 de marzo de 2018

 

Round seven of the NAFTA negotiations concluded in Mexico City on March 5, 2018. The talks ended with United States Trade Representative, Robert Lighthizer, indicating that the US is prepared to walk away from NAFTA and replace it with separate bilateral agreements. He urged the parties to finish the negotiations quickly, “Now our time is running very short…I fear the longer we proceed, the more political headwinds we will feel.”1 Lighthizer alluded to several ‘political headwinds’ that could impact the future of negotiations, including the presidential election in Mexico, provincial elections in Ontario and Quebec, and the US midterm elections.

The talks were impacted midweek by an announcement from President Trump that his Administration would impose tariffs on steel and aluminum imports. The proposed tariff would be 25% for steel imports and 10% for aluminum imports.

The proposed tariff triggered controversy within the Republican Party and the Administration itself. US House Speaker Paul Ryan, backed by a number of Republicans who support the President, has urged President Trump to back away from threats of a tariff, fearing that it could spark a trade war.2 In a letter to the President, 107 House Republicans wrote, “We urge you to reconsider the idea of broad tariffs to avoid unintended consequences to the U.S. economy and its workers.”3 On March 6, Gary Cohn, President Trump’s economic advisor, resigned. Cohn was a voice of free trade in a White House that is ambiguous at best on trade agreements.4

While the tariffs announced by President Trump ultimately excluded Canada and Mexico “for now”, the threat of tariffs proposal loomed over the remainder of the negotiations. Reportedly, the proposed tariff was the starting point for many discussions and was often referred to as “the elephant in the room”.5 The tariff proposal further impacted negotiations when President Trump linked the tariffs to the NAFTA negotiations. On March 5, he tweeted “Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed”.6 Canadian Trade Minister Chrystia Freeland responded in her closing remarks by saying “Canada would view any trade restrictions on Canadian steel or aluminum as absolutely unacceptable.”7 Mexican Economy Minister Ildefonso Guajardo responded by tweeting “Mexico shouldn’t be included in steel & aluminum tariffs. It is the wrong way to incentivize the creation of a new and modern #NAFTA”.8 On March 7, President Trump announced that he would initially exclude Canada and Mexico from the proposed tariff. However, the exemption could be rescinded if Canada and Mexico do not agree to an updated NAFTA.9

Notwithstanding the short term exemption on steel, supported by the Steelworkers and Speaker Ryan, President Trump again tweeted on March 5 on the Canadian farm system and how Canada “must treat [US] farmers much better.” Thus, US agricultural demands remain on the table, while Canada continues to steadfastly defend its agricultural sector, including the supply management system. Whether and how the negotiators will successfully bridge this issue remains to be seen.

Limited progress was made in other areas, such as the rules of origin provisions. Jason Bernstein, the US negotiator for rules of origin, was called back to Washington on February 26 to consult with US industry representatives, thus halting negotiations. Talks amongst technical experts are scheduled to resume in advance of the next formal round of negotiations. Similarly, investor-state dispute mechanisms and the proposed sunset clause were not emphasized this round.

With respect to energy, we understand there is agreement to include both a standalone chapter on energy as well as energy related sections in other chapters. The standalone chapter, because it will likely include Mexico unlike certain energy provisions in the current NAFTA, will focus on “more interconnectivity across the networks of energy in North America” and will seek to recognize the changes Mexico has made to allow for foreign investment in its energy sector. 10

Negotiators did close a number of smaller chapters, including regulatory practices, sanitary and phytosanitary measures, and telecommunications. Additionally, Steve Verheul, Canada’s chief negotiator, commented that the parties were close to completing sections on technical barriers but required more time on sections regarding the environment.11 While reportedly half of the chapters are between 80-90% settled, Lighthizer commented that only 6 of NAFTA’s 30 chapters have been officially closed.

With respect to the sanitary and phytosanitary chapter that governs food safety, negotiators have settled on a fast-track system that would prioritize requests between the US, Mexico and Canada. This system is a first of its kind in international food safety agreements. Minister Guajardo said the chapter will help facilitate agricultural trade and it “guarantees animal and vegetable sanitation based in science.”12Additionally, sector annexes on proprietary food formulas and chemicals were closed this round. The annex protects the intellectual property of certain mixes and ingredients and allows for more regulatory cooperation for the use of chemicals. 13

The eighth round of NAFTA talks is expected to take place in Washington in April, subject to availability of Ministers who are traveling for other international meetings, including the upcoming Free Trade Area of the Americas summit.14

 

 

FROM: Lexology / Dentons / 19 de marzo de 2018