The NAFTA Renegotiations: All Systems Go

This morning, in a letter dated May 18, 2017, the United States Trade Representative sent to Congress the long awaited formal notice that the Administration intends to enter into re-negotiations with Mexico and Canada. This signifies that the NAFTA renegotiations have been formally launched.

In that letter, the Administration made clear the President’s objective to modernize the NAFTA, to work closely with various Congressional Members, and to do so “as soon as practicable, but no earlier than 90 days from the date of this notice.” In addition, the letter assures Congressional leaders that the USTR will be “developing our negotiating positions to ensure that they are consistent with Congressional priorities and objectives,” as outlined in Section 102 of the Trade Priorities and Accountability Act.

The date of this notice is important. Under US law, Congress will have 90 calendar days to consider the President’s notice. Under this timeline, negotiations could begin as early as mid-August 2017.

With the players and process now set, every indication is that formal talks between the three Parties will begin in earnest. How the negotiations will play out is still to be determined. What is certain is that companies will want to take a fresh look on their reliance of the current NAFTA rules and with expert eyes. They do not have the luxury of time.

What is Known – The Players

The last piece of the Trump NAFTA team was put in place on May 11th when the Senate confirmed Robert Lighthizer as the new United States Trade Representative who, along with Secretary of Commerce Wilbur Ross, will lead the US NAFTA renegotiating efforts. Other members of the team will come from the ranks of the US Department of the Treasury, Customs and Border Protection, and other federal departments. The team can be expected to be divided by industry sector and by NAFTA Chapter. Their marching orders will come from the President himself – to determine which NAFTA rules on which products and in which industries have resulted in a decline in US production and US jobs, and to reverse those trends.

On the other end of Pennsylvania Avenue, Congressional leaders will be organizing their Committee staff and filling the Congressional calendars with committee hearings. Their objective is equally transparent – to ensure that the negotiating authority granted to the Executive Branch is commiserate with today’s US trade policy objectives.

The International Trade Commission will be mobilized to update the available data on the economic gains and challenges to the United States under the current NAFTA rules. And economic think tanks, political pundits, and others are sure to be unveiling their own data and messaging in the months ahead.

Throughout all of this, US business executives will be arriving in the nation’s capital to help US negotiators develop their playbook. For weeks, a number of key trade associations have been working with their membership to understand their priorities for the pending negotiations.

What is Known – The Process

Once formal talks are concluded, Secretary Ross will have to send the final negotiated text to Congress for their approval. Timelines here shift to “legislative days” and therefore are hard to predict with any precision. Congress will want to ensure that US objectives have been met and they will have to concur with the inevitable need to re-write US trade legislation to comply with the new NAFTA negotiated agreement. But make no mistake, under current US trade negotiating authority, the President and his team have broad authority to move the goal posts.

For instance, the Executive Branch can use Proclamation Authority to raise tariffs and use it to modify existing rules of origin, subject to the Congressional consultation and layover requirements. But this does not require affirmative legislation and normally, US Congress does not act. In addition, the Executive Branch can proclaim changes to the NAFTA rules of origin (Annex 401), the automotive tracing requirements, the regional value content rules provided in Annex 403.3, and can modify without legislative action the critical definitions embodied in these rules. In fact, if Congress does not act within this 60 day layover and consultation period, the President’s NAFTA changes become US law.

What is Unknown – The Timeline (But Best to be Prepared)

The opening whistle for negotiations has been blown. Mexico wants the formal talks to begin as soon as possible and to conclude well before their Presidential elections scheduled for July 2018. The White House itself may want to accelerate talks. The legislative authority for them to negotiate US trade agreements lapses in July 2018.

So the real work now begins. What does this mean for your company and what questions should you be asking?