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Talks Begin with Canada on Preliminary U.S.-Mexico Trade Agreement

The United States has begun discussions with Canada on that country’s possible inclusion in the preliminary trade agreement that the United States and Mexico announced on 27 August. Because the United States would like the agreement to be signed in late November following a 90-day congressional review period, U.S. Trade Representative Robert Lighthizer has said the administration plans to formally notify Congress of the new deal with Mexico by 31 August.

Canadian Foreign Minister Chrystia Freeland said on 29 August as she arrived at USTR that “we are optimistic about having some very good, productive conversations this week.” A major Canadian newspaper has indicated that Canada may be willing to make a concession on one sticking point (ultra-filtered milk imports), although Canadian Prime Minister Trudeau insisted on August 28 that he would continue to fight for Canada’s highly-protected dairy industry. In addition, Canada has expressed significant differences with some of the intellectual property rights and dispute settlement provisions included in the U.S.-Mexico agreement. Should Canada not be ready to join the agreement by 31 August, the Trump administration had said it will notify Congress that it has reached an agreement with Mexico and that it is open to incorporate Canada to that deal at a later date.

However, a number of U.S. lawmakers have expressed doubt that the current tri-lateral agreement could be replaced by a bi-lateral deal under the Trade Promotion Authority provisions in U.S. law. Pat Toomey, a Republican senator on the Finance Committee with jurisdiction over trade agreements, has noted that: “NAFTA was enacted with legislation, it required legislation to pass Congress and be signed into law in order to become operative. Similarly, a change to NAFTA requires legislation. What the administration submitted to Congress in setting up the opportunity to use TPA, and the expedited process TPA allows, contemplated a revision to a tri-party agreement. So, it’s my understanding that this has to be a tri-party agreement.”

The new agreement has a number of provisions designed to limit assembly in Mexico of components from outside the region. For example, at least 40 percent of automotive parts would have to be assembled by workers earning at least US$16 per hour, which in conjunction with more stringent origin rules in auto trade would limit the use of non-originating components from Asia and other regions. There are also certification requirements for local producers as well as new textile and apparel rules (summarised below) that are believed to be aimed at Asian suppliers, including mainland China.

The section on intellectual property addresses national treatment of copyrights, clauses on common names and trademark protection. These are all issues that the United States has repeatedly raised with mainland China. In addition, the preliminary deal addresses new digital trade issues by, for example, limiting a government’s ability to require disclosure of proprietary computer source code and algorithms. This section also targets prohibitions being applied to digital products which are distributed electronically. The data and financial services obligations also prohibit local data storage requirements, while the environment section contains a prohibition on shark-finning (the practice of cutting the fins from sharks and leaving them to die).

Some U.S. observers see many of these provisions as a way for the United States to counter the trade practices of mainland China. USTR has acknowledged that some of the new provisions in the agreement were actually based on provisions the United States had pushed for in the Trans-Pacific Partnership talks. In some cases, those provisions were described by observers in 2016 as “aimed at China.” Some trade experts believe the U.S. withdrawal from the TPP made such goals harder to achieve, but this new agreement has brought these “new issues” to the fore once again.  

The Office of the U.S. Trade Representative states that the U.S.-Mexico agreement includes the following provisions, among others.

Rules of Origin and Market Access

  • 75 percent of auto content must be made in the United States and Mexico
  • 40-45 percent of auto content must be made by workers earning at least US$16 per hour
  • stronger rules of origin, including for industrial products such as chemicals, steel-intensive products, glass and optical fibre
  • procedures that streamline certification and verification of rules of origin and new co-operation and enforcement provisions to help prevent duty evasion before it happens
  • new provisions for transparency in import licencing and export licencing procedures
  • prohibition on (i) requirements to use local distributors for importation, (ii) restrictions on the importation of commercial goods that contain cryptography, and (iii) import restrictions on used goods to remanufactured goods
  • updated provisions for duty-free temporary admission of goods to cover shipping containers or other substantial holders used in the shipment of goods
  • new provisions covering trade in specific manufacturing sectors, including information and communication technology, pharmaceuticals, medical devices, cosmetic products and chemical substances

Textiles and Apparel

  • limit on rules that allow for some use of non-NAFTA-originating inputs in textile and apparel trade
  • requirement that sewing thread, pocketing fabric, narrow elastic bands and coated fabric, when incorporated in apparel and other finished products, be made in the region in order for those finished products to qualify for trade benefits
  • textile-specific verification and customs co-operation provisions that provide new tools for strengthening customs enforcement and preventing fraud and circumvention

Agriculture

  • agreement to not use export subsidies or World Trade Organisation special agricultural safeguards for products exported to each other’s market
  • improved commitments to increase transparency and consultation regarding the use of export restrictions for food security purposes
  • when supporting producers, agreement to consider using domestic support measures that have minimal or no trade distorting or production effects
  • improved transparency for import checks
  • new provisions on geographical indications
  • first-ever agreement to protect the confidentiality of proprietary formulas for food products in the same manner for domestic and imported products

IPR

  • enforcement authorities must be able to stop goods suspected of being pirated or counterfeited at all areas of entry and exit
  • enforcement against counterfeits and piracy occurring on a commercial scale
  • first U.S. free trade agreement to require all of the following to protect U.S. rights holders from trade secret theft, including by state-owned enterprises: civil remedies, criminal remedies, prohibition on impeding licencing of trade secrets, protections for trade secrets during the litigation process, and penalties for government officials who wrongfully disclose trade secrets
  • full national treatment for copyright and related rights
  • minimum copyright term extended to 75 years for works like song performances
  • ten years of data protection for biologic drugs and expanded scope of products eligible for protection

Digital Trade

  • prohibition on application of customs duties and other discriminatory measures to digital products distributed electronically (e-books, videos, music, software, games, etc.)
  • limit on government ability to require disclosure of proprietary computer source code and algorithms

De Minimis

  • Mexico will increase from US$50 to US$100 the value of shipments that may enter free of customs duties or taxes and with minimal formal entry procedures

Financial Services

  • prohibition on local data storage requirements when a financial regulator has the access to data it needs to fulfil its regulatory and supervisory mandate
  • updated provisions to allow for the cross-border transfer of data
  • a separate annex on commitments relating to cross-border trade, including application of the national treatment and market access obligation to an expanded list of cross-border services

Labour

  • all labour provisions brought into core of the agreement and made enforceable
  • commitment by Mexico to specific legislative actions to provide for the effective recognition of the right to collective bargaining
  • agreement to take measures to prohibit the importation of goods produced by forced labour, to address violence against workers exercising their labour rights and to ensure that migrant workers are protected under labour laws

Environment

  • all environment provisions brought into core of the agreement and made enforceable
  • prohibition on some of the most harmful fisheries subsidies, such as those that benefit vessels or operators involved in illegal, unreported and unregulated fishing
  • new protections for marine species like whales and sea turtles, including a prohibition on shark-finning
  • obligations to enhance the effectiveness of customs inspections of shipments containing wild fauna and flora at ports of entry and ensure strong enforcement to combat IUU fishing
  • first-ever articles to improve air quality, prevent and reduce marine litter, support sustainable forest management and ensure appropriate procedures for environmental impact assessments
Content provided by Picture: HKTDC Research
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