New NAFTA Solves State-to-State Dispute Problem; USTR Official Defends de Minimis Footnote
The Canadian Minister-Counselor for Trade said negotiators on the new NAFTA solved the roster problem in the old Chapter 20 of NAFTA, which was that any country could block the appointment of panelists in a dispute (see 1807230029). "That particular issue is a dramatic improvement from NAFTA 1 and NAFTA 2," Colin Bird said March 8 during an International Trade Update conference hosted by Georgetown's law school. President Donald Trump said on March 8 about the U.S.-Mexico-Canada Agreement that "we’ll be submitting [it] to Congress very shortly," and said the deal is "a great deal for the United States."
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In the revision mentioned by Bird, all three countries have committed to creating their rosters before the treaty enters into force. The appointments don't expire until there is a replacement in place, which was not the case in the original NAFTA. This change is important for enforceability of the agreement, which is a concern of both Democrats and Republicans in Congress who are considering whether to ratify the USMCA.
Bird said that while the new deal offers $450 million in additional agriculture access for U.S. producers, the cost of retaliation from Canada and Mexico because of Section 232 duties is $1.8 billion annually.
Steel and aluminum duties, and the retaliation for them, are a major hurdle for USMCA ratification in all three countries, and Mexico's chief NAFTA negotiator Kenneth Smith Ramos said "to the degree that we can keep ... irritants between Mexico and the U.S. to a minimum, and resolve issues such as the Section 232," by resolving the metal tariffs and not beginning auto tariffs, it would make a big contribution to getting Mexican ratification.
Smith Ramos said complaints by Democrats about the strength of the labor provision and its enforceability, in his view, are more political posturing than true critiques.
Bird said the labor chapter solves the Guatemala case problem (see 1808280008), and Smith Ramos said it's the strongest labor chapter in any trade agreement ever negotiated. He said some of those raising this issue are Congress members who "in all fairness would not vote for a trade agreement anyway."
One of the questions for the panel was on the footnote that suggests the U.S. might lower its de minimis to be closer to Canadian and Mexican levels. Assistant U.S. Trade Representative John Melle, who is responsible for the Western Hemisphere region, said for a footnote, "it's gotten an incredible amount of attention." He said the USTR office is talking very intensely with Congress about it. He said that Canada and Mexico are far from setting de minimis based on the cost of collections, the benefits to consumers and the opportunities created for e-commerce vendors, even though they raised the levels.
Smith Ramos said de minimis was "a very tough part of the negotiation," and from Mexico's perspective, a too-high de minimis level would result in "tons and tons of products coming in from Asia in a very expeditious manner, in a way that avoids all the specific rules in North America," which means the benefits of the new NAFTA would not stay in the region. Also, it is a revenue problem for Mexico to dramatically increase the amount of products that would "come in without paying any taxes whatsoever."
Bird said raising the de minimis to the levels the U.S. was seeking would have favored U.S. e-commerce companies over Canadian companies that sell online, because orders from the U.S. would not be subject to sales taxes, and Canadian ones would.