CalChamber Urges Quick Negotiations to Modernize NAFTA, Keep Trade Strong

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A swift and efficient renegotiation of the North American Free Trade Agreement (NAFTA) will serve the interest of U.S. producers, employees and consumers, the California Chamber of Commerce said this week in a letter to the U.S. Trade Representative.

Given that the economy and businesses have changed considerably in the 25 years since NAFTA was negotiated, the CalChamber agrees with the premise that the United States should seek to support higher-paying jobs here and to grow the U.S. economy by improving U.S. opportunities under NAFTA.

Any renegotiation of NAFTA, however, must recognize the gains achieved and ensure that U.S. trade with Canada and Mexico remains strong and without interruption, the letter asserted.

The provisions of NAFTA have been beneficial for U.S. industries, agricultural enterprises, farmers, ranchers, energy companies and automakers, the CalChamber pointed out.

Support for NAFTA

The CalChamber actively supported the creation of the NAFTA among the United States, Canada and Mexico, comprising 484.3 million people with combined annual trade with the United States of around $1.069 trillion in 2016. Goods exports in 2016 exceeded $496.919 billion while goods imports totaled nearly $572.217 billion.

Before NAFTA granted the United States, Canada and Mexico “most favored nation” status and eliminated trade barriers over a 15-year period starting in 1994, Mexican tariffs on U.S. imports were 250% higher than U.S. tariffs on Mexican imports. Since 1993, trade among the three NAFTA countries has nearly quadrupled.

Renegotiation Timeline

On May 18, the Trump administration notified Congress of its intent to renegotiate NAFTA, touching off a 90-day trigger period for negotiations with Canada and Mexico to begin.

The CalChamber urges a quick and efficient process, and one that does not hinder ongoing trade and investment among the three NAFTA members.

Throughout the process, the Trade Promotion Authority with its objectives and procedures should be followed.

Negotiation Points

The CalChamber encourages re-examination of the provisions agreed upon by the three NAFTA countries during the already-negotiated Trans-Pacific Partnership (TPP), as these may provide a starting point for further discussion.

Other points of consideration include:

• Digital Trade/ E-Commerce: California is a leader in the field of e-commerce, which has a positive impact on all aspects of business and society. We need binding rules among the three nations that address current restrictions on cross-border data flows and forced localization of computing assets. E-commerce was never negotiated in the NAFTA’s original “pre-digital” universe. Since TPP has been shelved, it would be sensible for Canada, the U.S. and Mexico to adapt TPP’s e-commerce chapter into the NAFTA context. A modernized NAFTA is the perfect opportunity to set a precedent for an e-commerce trade policy.

• Intellectual Property Rights: California is also a leader in innovation and in related intellectual property, and needs more rights and protections for patents, copyrights, and trademarks. Although this area was included in the original NAFTA, the entire field needs to be updated and upgraded.

• Regulatory Practices: Regulatory barriers to trade is an area that needs to be revisited. Regulations need to be standards- and science-based.

• State-Owned Enterprises: This subject should be discussed to ensure that state-owned enterprises operate and conduct international transactions within the framework of the agreement.

• Services: As California becomes more of a service-oriented economy, it is important to remember that trade agreements are not just about trade in goods, but also, to a great extent, about services.

• Customs Procedures: With the World Trade Organization Facilitation Agreement, this subject has come to the forefront. Customs, trade facilitation and related logistics are an everyday subject for importers and exporters. The NAFTA could improve even further on this important subject. The de minimis levels below which no customs tax is charged should be in alignment with other agreements. Canada and Mexico need to raise their de minimis levels to assist importers. This would be especially helpful to small and medium-sized enterprises. To ensure the reliable and efficient movement of goods and services, customs procedures should be a North American priority.

• Sanitary and Phytosanitary Measures: Especially in agriculture and related areas, sanitary and phytosanitary measures are key to a smooth international transaction. The process included should be based on science and common sense.

• Rules of Origin: Each NAFTA country forgoes tariffs on imported goods “originating” in the other NAFTA countries. Rules of origin enable customs officials to decide which goods qualify for this preferential tariff treatment under NAFTA. Current NAFTA rules of origin are restrictive and complex. A modernized NAFTA should adopt changes to the rules that make it easier to qualify for NAFTA benefits and simplify the related administrative process.

• Energy: According to the U.S. Department of Energy, the 1994 implementation of the NAFTA did not apply to Mexico for energy commodities, due to its constitutional provisions. As a result, although the NAFTA promoted U.S. and Canadian energy market integration, it has been less successful in achieving energy market integration between the United States and Mexico. Recent regulatory reforms undertaken by Mexico in both the hydrocarbon and electricity sectors are anticipated to open its energy market to foreign investment, to present an opportunity for increased integration with the broader North American energy system, and to elevate the importance of its energy commodities in trade with the United States and Canada through NAFTA.

Staff Contact: Susanne Stirling

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Susanne T. Stirling
About Susanne T. Stirling
Susanne T. Stirling, vice president, international affairs, has headed the CalChamber’s International Trade Department since 1982. She serves on the District Export Council (appointed by the U.S. Secretary of Commerce), the National Export Council Steering Committee, the U.S. Chamber of Commerce International Committee, and the Chile-California Council. She studied at the University of Copenhagen and holds a B.A. in international relations from the University of the Pacific. She earned an M.A. from the School of International Relations at the University of Southern California.