NAFTA Changes Include De Minimis, Agriculture Concessions, But Not Steel, Aluminum Tariffs
The U.S.-Mexico-Canada Agreement is not a rewritten NAFTA, President Donald Trump said Oct. 1. Instead, "This one is a brand new deal," he said during a White House event. Lawyers who have begun reading the text say the treaty builds on the Trans-Pacific Partnership and the original NAFTA, while including some important new provisions. Mark Warner, a Canadian-U.S. trade lawyer, said that while Trump's speech was full of puffery, "the auto stuff is significant. I don’t think anyone should say it’s not significant."
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Introducing a quota tied to a wage rate has never been done before in a free trade agreement, he said. "Whether the economics of it are good or bad, are right or wrong, that is a change that no other president could achieve," Warner said.
"Everyone in the world has a problem with Canadian dairy. He was able to get Canada to make more concessions on dairy" than any other party has before, he said. Warner said he had expected the U.S. to get its share of the TPP increased access number, and for Canada to drop Class 7 pricing. But instead, he said, the U.S. got the access that all the TPP members received, plus Europe's concessions, too.
Agricultural concessions from Canada were more than just on dairy -- Canada also agreed to a higher quota for eggs, turkeys and chickens, as well as changes to how American wheat is treated. "Canada has agreed to grade imports of United States wheat in a manner no less favorable than it accords Canadian wheat, and to not require a country of origin statement on its quality grade or inspection certificate," the Office of the U.S. Trade Representative said.
Another concession Canada granted was to raise its de minimis level from $20 Canadian to $150 Canadian, but for purchases between $40 Canadian and $150 Canadian, the buyer will have to pay sales tax, even if the buyer doesn't have to pay duties. USTR, describing the significance of the change, said, "Shipment values up to these levels would enter with minimal formal entry procedures, making it easier for more businesses, especially small- and medium-sized ones, to be a part of cross-border trade. Canada will also allow a period of 90 days after entry for the importer to make payment of taxes."
Warner said it won't really reduce red tape much because it's still a low threshold for sales taxes. But, he said, "It’s better than what they had before."
"They’ll have to go through the administrative costs of collecting it or paying someone to collect it," he said of express carriers or retailers. But, he said, these companies are not bearing the costs, the consumers are. So for the companies, he said, the question is: "Does the cost deter people from buying online?"
But one of the biggest problems that wasn't solved with the USMCA was dropping steel and aluminum tariffs. "The steel is staying where it is," Trump said in response to a question at the White House press conference on the deal, though he later said maybe quotas could protect the domestic steel industry. U.S. Trade Representative Robert Lighthizer said, "We are engaging in talks now with the effort of trying to secure the effect of our program and still take care of their needs."
Warner said Canada does not want quotas, "and at the end of the day, that’s what left it out." Warner said he understands that Canada thinks agreeing to quotas is giving the national security argument legitimacy, and that "we think we have the better argument in the WTO, we think the better argument is with the economics."
But, he said, does Canada really think Trump is going to lift the tariff with no quota? Or that Congress will step up and end the tariffs on NAFTA partners? He said agreeing to a quota that protects all of current production could be face-saving for Trump. One World Trade Organization case was resolved with the new agreement -- the treatment of U.S. wines in grocery stores in British Columbia (see 1805250026). It will be fixed by Nov. 1, 2019, the Canadians promised in a side letter.