Business interests who depend on NAFTA are trying to piece together a strategy for how to handle changes under a new deal, but there are differing opinions on what will happen to car rules of origin. Trade lawyer Daniel Ujczo, who chairs the Canadian-U.S. trade practice at Dickinson Wright, said in an interview that the U.S. trade representative is looking for a 75 percent North American content on high value parts, such as the engine and transmission, but may allow lower percentages for other tiers of parts. But Ujczo said his understanding is that the lower hurdle for parts doesn't eliminate the top-line requirement that 85 percent of cars' value must come from NAFTA partner countries in order to qualify for duty-free status.
The Commerce Department has not been able to keep up with the flood of product exclusion submissions -- the steel exclusion requests numbered 3,979 as of April 19, but just 120 have been posted for comments. For aluminum, there have been 396 exclusion requests, and 26 posted. No new filing has been posted since April 13 for aluminum, but the agency posted 44 steel product exclusion requests just on April 20th.
The U.S. agreed on April 19 to enter consultations on its Section 232 tariffs on steel and aluminum with the European Union and India. The action follows its announcement April 17 that it would consult with China on the matter. In all cases, the U.S. says the tariffs are not safeguards, as the countries allege, and that they are not subject to World Trade Organization dispute settlement because they are matters of national security.
U.S. Trade Representative Robert Lighthizer needs to tell his Mexican counterpart that a bill introduced in the Mexican Senate, if passed into law, "will have serious ramifications and negatively impact the effort to renegotiate NAFTA," 94 House Democrats said. The group sent a letter April 18 saying that the bill is implementing legislation for constitutional amendments that would change how labor law is enforced in Mexico. Lighthizer is meeting with Mexico's economy minister and Canada's foreign minister on April 19 and 20, and Mexico's Economy Minister Ildefonso Guajardo said April 18 that four more chapters of NAFTA should be closed shortly -- on energy, telecom, the environment and barriers to commerce. He said he expects NAFTA to be in the landing zone in two to three weeks, according to a Mexican media report. When Lighthizer testified in front of the House Ways and Means Committee last month, he agreed with Democrats that Mexico has not lived up to its labor standards under NAFTA, and that a secret ballot election for union representation is important (see 1803210044).
The way that companies can apply for product exclusions is procedurally unfair, and there are no mechanisms to prevent the product exclusion process from enabling anti-competitive advantages, Sens. Orrin Hatch and Ron Wyden wrote on April 19. Hatch, chairman of the Senate Finance Committee, and Wyden, ranking member, said that the application forms require "a minute level of detail," including the chemical compositions, dimensions, strength, toughness, ductility, magnetic permeability, surface finish and coatings of the products. Domestic manufacturers objecting to a request have to respond in similar detail.
House Ways and Means Committee Democrats sent a letter to the committee chairman April 17 complaining that they are not being kept in the loop about the NAFTA renegotiations by the executive branch, and saying that a public hearing should be held before an agreement in principle is announced. Another letter sent the same day from ranking member Richard Neal, D-Mass., and Subcommittee on Trade ranking member Bill Pascrell, D-N.J. said that "the Administration is currently signaling clear intentions to conclude the NAFTA negotiation in the very near term." The House Advisory Group on Negotiations, which by law should be "fully apprised of the negotiations," needs to meet with U.S. Trade Representative Robert Lighthizer "at this critical phase of the negotiations and before an agreement in principle is reached and announced by the Administration," they said. The advisory group last met in May 2017 with Lighthizer. They also asked Chairman Kevin Brady, R-Texas, to hold a hearing with administration witnesses so they can conduct the necessary oversight of negotiations. Brady's office did not respond to a request for comment.
Larry Kudlow, director of the National Economic Council, on April 17 downplayed the possibility of the U.S. rejoining the Trans-Pacific Partnership, telling reporters it is "more of a thought than a policy" at this point, according to a Bloomberg report (see 1804120027). President Donald Trump previously asked Kudlow to take the lead on re-entering the TPP. Trump later tweeted his dislike of the deal, which he exited on his third day in office in 2017. "While Japan and South Korea would like us to go back into TPP, I don’t like the deal for the United States. Too many contingencies and no way to get out if it doesn’t work. Bilateral deals are far more efficient, profitable and better for OUR workers. Look how bad WTO is to U.S." South Korea is not one of the 11 countries currently in the TPP.
Former chief trade counsels from both political parties said the administration is mostly ignoring Congress as it reworks trade deals, and partisanship will largely prevent Congress from acting to reclaim some of its power. Viji Rangaswami, a former chief international trade counsel for Democrats on the House Ways and Means Committee, said she hoped such a standoff could be avoided through consultation before an agreement is reached, but she said the Office of the U.S. Trade Representative could also choose to avoid a vote altogether. While some changes -- such as eliminating the antidumping and countervailing duties chapter -- would require amending NAFTA's implementation bill, other major changes -- such as eliminating the investor-state dispute settlement system, or changing auto rules of origin -- would not.
Senate Minority Leader Chuck Schumer, D-N.Y., visited a dairy cooperative in upstate New York to emphasize his desire that Canadians change their dairy supply management system as part of a NAFTA deal. Schumer, who traveled to Cayuga Milk Ingredients on April 16, said the cooperative lost $30 million in skim milk powder sales the day after Canada's Class 7 system was implemented. He also released a copy of a letter to the U.S. trade representative as part of the publicity around the event. In the letter, he said, "As I have expressed to you many times, I strongly believe that we should not miss this opportunity to protect our dairy producers from Canada’s recent predatory trade practices. ... This Class 7 system is likely a violation of Canada’s World Trade Organization (WTO) commitments, but addressing it quickly through NAFTA renegotiation is needed, rather than waiting for years for a WTO determination."
A bill updating export control procedures passed unanimously out of the House Foreign Affairs Committee after a hearing April 17. The last export control legislation expired in 2001, and the current export control regime has since operated under emergency powers.The bill instructs the administration to maintain a control list, to update it as emerging technologies evolve, and to adjust the level of control of items as conditions change. It also says the maximum fine in a civil case can be twice the value of the exports that were sold to a party that was ineligible to import those items, but if the value was less than $150,000, the maximum fine can be $300,000. In criminal cases, the maximum fine could be $1 million.