NAFTA News

We are pleased to present NAFTA NEWS, a periodic newsletter offering important information and insight as the renegotiation of the North American Free Trade Agreement takes shape in 2017.

Through the Manatt and ManattJones offices in Washington, D.C., and Mexico City, and the TACTIX head office in Ottawa, the firms are collaborating to provide their respective clients with critical information and experienced judgment to help global companies and North American industry associations navigate the choppy NAFTA waters. Each edition of NAFTA NEWS provides our readers with need-to-know information and political insights from the three NAFTA national capital cities.

Highlights

  • All three NAFTA partners have commenced formal internal consultations ahead of trilateral negotiations; opportunities to engage differ for industry and individuals.
  • Conclusions, commitments and concessions made during TPP talks will influence initial negotiating positions.
  • The Trump administration has yet to designate the lead U.S. negotiator.

Canada

In two critical respects, Canada’s NAFTA negotiators will be challenged by a process that differs dramatically from all previous international trade negotiations in which they have been involved.

  • First, whereas countries historically have launched trade negotiations as a means to expand access to foreign markets, the U.S. administration comes to the NAFTA table with an agenda to restrict access to domestic markets it wishes to protect.
  • Second, Canada’s underlying philosophical approach to trade negotiations has been to seek agreements in which all parties come away with a belief that they have made important gains. President Donald Trump’s administration, on the other hand, views international trade negotiations as a zero-sum game.

These fundamental differences in approach point to an exceedingly tough negotiation to modernize NAFTA, from Canada’s perspective.

Canada and the TPP

It may be, however, that Canadian negotiators have an ace up their sleeve—the Trans-Pacific Partnership (TPP). With the news that Canada’s chief negotiator for the TPP, Kirsten Hillman, is being posted to Washington, D.C., as another key Canadian player in the NAFTA negotiations, interest in how the TPP may influence NAFTA has heightened.

Although President Trump withdrew the United States from the TPP in January 2017, the 11 remaining signatories met in Chile in March and again in Toronto last month to explore if and how they could proceed without the United States. The TPP 11 (so named to reflect the number of countries remaining at the TPP table) would require changes to the original 6,000+ page agreement to reflect the withdrawal of the United States, but Canada’s continued participation in the discussions indicates the government sees the TPP 11 as offering a potentially advantageous position as it prepares for the challenging NAFTA negotiations.

If Canada were to successfully conclude TPP 11 negotiations, the country could become a key gateway to the North American market for the other TPP countries, most notably Japan. Taking the TPP 11 together with the recently concluded Comprehensive Economic and Trade Agreement with the European Union (CETA), and with no U.S.-EU agreement anywhere in sight, Canada could be nicely positioned as the North American hub around which trade with the EU and several Asian countries flows.

The TPP could influence the NAFTA negotiations in another way. It is reasonable to believe that issues that are covered in the TPP but either are not included in the original NAFTA or have become outdated since NAFTA went into force—increased labor mobility among service-based professionals, labor standards, e-commerce, environmental standards and intellectual property regime changes—would form at least part of the Canadian negotiators’ wish list for NAFTA modernization.

But there is no way of knowing for sure at this time. Taking the sound advice of former Canadian Prime Minister Brian Mulroney to “keep your heads down and your mouths shut” until the formal negotiations commence, the Canadian government will not be discussing its NAFTA negotiating strategy in public.

Fact-Based Negotiations

The Canadian government is interested in gathering input from key stakeholders. To that end, the government initiated several sectoral roundtables earlier this year to gather industry information and, in a June 3, 2017, publication of the Canada Gazette, launched public consultations to obtain input from a broader range of interested parties. These consultations are scheduled to conclude on July 18.

These consultations are in aid of the government’s careful preparations for the NAFTA table, buttressing the fact-based approach to the negotiations that Canada will be pursuing. The government has been explicit in calling for support from, among others, Canadian industry, underscoring the important role Canada’s business community can play in providing the facts and figures necessary to conduct a fact-based negotiation.

Mexico

The Mexican government announced its own public consultation process in February of this year. The private sector is represented by the Business Coordinating Council through the Strategic International Negotiation Council. Although Mexico does not have a formal comment process akin to the U.S. Federal Register Notice or the Canada Gazette Notice, the consultative mechanism, known as the “room next door,” is well established and was implemented successfully during the TPP negotiations. Mexico’s private sector, like its counterparts in the United States and Canada, has been clear that the first priority is to do no harm to the existing agreement.

Given the uncertainty surrounding the scope and length of the renegotiation process, the private sector, together with the Mexican government, has been preparing for any possible approach. To do so, a comprehensive review has been undertaken to identify weaknesses, strengths and production capacities of the sectors with the greatest interaction with the U.S. and Canada to ensure that Mexican negotiators are well prepared. At the same time, Mexican officials have stressed that they are prepared to listen to proposals for updates and modifications to NAFTA but will not support any changes that undermine the current trading relationship within the region.

According to media reports, Mexican Secretary of the Economy Guajardo advised that concessions on contentious issues made by Mexico during the TPP negotiations will not be the country’s starting point in talks to modernize NAFTA. Guajardo clarified that concessions granted during the TPP negotiations involved access to new markets, whereas the NAFTA calculation will necessarily be different. He also noted Mexico believes that NAFTA negotiations cannot be separated from U.S.-Mexico bilateral issues such as immigration and security. This does not mean, however, that Mexico is asking for a negotiation of security and migration issues alongside the NAFTA renegotiation; rather, any lack of progress on NAFTA, or undue U.S. pressure, will inevitably have an impact on these other areas of the bilateral relationship. All of these statements, however, should be viewed as logical opening negotiating positions. Once talks begin, the pressure to conclude a revised agreement quickly will likely lead to TPP language serving as a baseline, especially for those disciplines not covered in the existing NAFTA text.

Though both the U.S. and Mexican governments have indicated a desire to complete the negotiations quickly (possibly by mid-December), the reality is that they could extend beyond that date. It is important to note that Mexico’s political calendar could lead to changes in the Mexican negotiating team as the talks are wrapping up. Candidates who wish to run for president or for legislative seats must resign currently held public offices six months prior to the July 1 election. Secretary Guajardo, for example, is a potential 2018 senate candidate.

Meanwhile, Mexico continues its bilateral negotiations with Brazil. During the just-completed round in Brazil, Mexico proposed the inclusion of an e-commerce chapter that would be the first such chapter ever signed by Brazil. Also on the table are services, rules of origin, sanitary and phyto-sanitary measures, and the elimination of cell phone roaming charges. The next round will occur in Mexico in late August—likely just after the opening NAFTA round. Mexico is clearly serious about its efforts to explore alternatives and to diversify its trading patterns to the extent possible.

United States

The United States has not yet identified its lead NAFTA negotiator. Past Office of the U.S. Trade Representative (USTR) practice suggests that John Melle, a 29-year veteran of USTR and currently the assistant USTR for the Western Hemisphere, would take the position, but no announcement has been made. Melle was formerly the deputy assistant USTR for NAFTA and would thus bring a deep understanding of the agreement and long-standing personal relationships to the negotiations.

Elsewhere, U.S. Trade Representative Robert Lighthizer is bolstering his team. In early June, USTR announced that Jeffrey Gerrish, a steel attorney, would be nominated as deputy U.S. Trade Representative. Gerrish and Lighthizer previously worked together at Skadden Arps, where Lighthizer was the head of the international trade practice before leaving in January. Combined with General Counsel Stephen Vaughn’s background representing the steel industry at Skadden, there is a clear trend in the recent hirings. Recently, the steel industry ramped up its call for stronger rules of origin in the renegotiation, pitting them against automakers.

USTR closed the public comment period for its NAFTA negotiating objectives on June 14, which was a two-day extension from the original June 12 deadline. The government received more than 12,000 comments during the period, although about 10,000 were short and not substantive. These 10,000 comments, largely of the “get out of NAFTA” variety, have been catalogued but are not the main focus of the review. The remaining 2,000 substantive comments are being more thoroughly reviewed. While this decision might not sit well with those people who chose to submit comments urging a withdrawal from NAFTA, the career staff are operating under the assumption that there will be a negotiation, not withdrawal, and thus those comments are not germane to the ongoing discussion.

During a hearing in the Senate Finance Committee, Lighthizer announced that public hearings on NAFTA renegotiation priorities will be held for three days—June 27, 28 and 29. Lighthizer also said that he “intends to move very quickly” to begin the talks after the Aug. 16 start date. When asked about a deadline for completion of the talks, Lighthizer declined to set one, saying that he expects a “very good agreement” to be reached “without any artificial deadline.” He did not rule out extending the talks into 2018.

U.S. officials have stressed the tension between the desire to get this done quickly and the desire to be comprehensive. They are undertaking a comprehensive review of NAFTA internally at the moment, but have cautioned stakeholders that it might not be possible to address all concerns for all sectors.

On Capitol Hill, the majority of members are not engaged on NAFTA yet. One senior staffer shared the view that members are not really focused on it right now but there is a general expectation that, in the end, there will be modernization to ensure President Trump a “win” as well as concessions for Mexico and Canada. This is not surprising since most members tend to focus on the immediate issues before them.

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TACTIX Government Relations and Public Affairs

TACTIX is a strategic advisor to leading Canadian and Fortune 500 companies. Since 1996, TACTIX’ highly skilled professionals have created innovative solutions to complex government relations threats and opportunities, helping clients achieve their business objectives and deliver results for executive leadership and shareholders.

TACTIX delivers sound judgment, with integrity and insight. With office locations in Ottawa and Toronto, and with trusted associates in other key provincial capitals to be called upon as required to meet client needs, our senior strategic advisors have considerable expertise and experience in dealing with governments across Canada.

[For further information: www.tactix.ca]

ManattJones Global Strategies LLC

ManattJones Global Strategies LLC is a strategic consulting firm with over 16 years of experience in providing senior government and corporate executives with intelligence, advice and stakeholder engagement support to drive market entry and business expansion efforts in Mexico and other Latin American countries. Likewise, as a consulting subsidiary of Manatt, Phelps & Phillips LLP, we are able to seamlessly connect Latin American clients to the full range of legal and consulting services of this top-ranked U.S. law firm.

From our offices in Mexico City, Monterrey (Nuevo Leon), Los Angeles and Washington, D.C., our truly binational and biliterate team has deep regional expertise and an invaluable presence on the ground. We have a proven track record of success, expert knowledge of the market and regulatory environment, and connections at the highest levels of business and politics. In addition, we will work with local strategic partners and business associations to support your business when necessary.

[For further information: https://www.manatt.com/ManattJones-Global-Strategies]

Manatt, Phelps & Phillips LLP

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[For further information: https://www.manatt.com/Federal-Government-Affairs-and-Public-Policy]

This newsletter has been prepared by TACTIX Government Relations and Public Affairs; ManattJones Global Strategies LLC; and Manatt, Phelps & Phillips LLP to provide information on recent developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.

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