NAFTA to United States-Mexico Trade Agreement to...?

by Dickinson Wright
Contact

Dickinson Wright

The United States and Mexico announced on August 27, 2018 a “preliminary United States-Mexico Trade Agreement” (interchangeably referred to in the official US press materials as a “preliminary agreement in principle”) that purportedly “modernizes and rebalances” the existing US-Mexico trade relationship. The United States Trade Representative (USTR) Robert Lighthizer intends to issue on Friday, August 31, 2018, the formal notice to Congress as required by the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA-2015) (aka the “handshake”) that will start the 90-day consultation period before the US can sign the deal. The anticipated late November 2018 signing date provides Mexico with time to secure passage from its legislature and receive official signature before the December 1, 2018 transition to the new President of Mexico, Andrés Manuel López Obrador (AMLO). The US thereafter will proceed to ratification/implementation by Congress, which will not occur until after the next Congress is seated in 2019.

Surprise!

The most surprising development of the day was Mexico’s willingness to proceed with the “handshake” regardless of Canada’s involvement in the proceedings. Mexico’s current and next Presidents, Enrique Peña Nieto (EPN) and AMLO, each stressed their desire for Canada to be a part of any new agreement. However, the current Secretary of Foreign Affairs, Luis Videgaray Caso, subsequently made several public statements advising that the official notice will issue Friday even should Canada not agree to the terms of the deal. Secretario Videgaray’s comments came as quite a surprise (including to those seated on dais with him) as it was anticipated that Mexico would hold out for a trilateral deal throughout the week, as well as attempt to obtain further concessions from the US on the sunset clause. As previously advised in our briefing notes, there are technical challenges (e.g., the bilateral deal envisions 3-way rules of origin on autos and other sectors) and political hurdles (e.g., will Mexico voters believe their country “caved” to President Trump if Canada cannot agree to the same deal) with a bilateral-only deal in Mexico. Nevertheless, all indications are that Mexico is ready to proceed to signature.

Canada Back at the Table

Canada now will participate in the negotiations regarding the agreement, formerly known as the North American Free Trade Agreement (NAFTA), in a challenging environment where the US and Mexico have reached agreement on nearly every clause. The major outstanding Canada-US issues remain supply management (dairy), Chapter 19 dispute resolution, and intellectual property rights (IPR). On a positive note, the official public documents and statements suggest a possible lane for resolution to the dairy issue. Specifically, the USTR fact sheets indicate that the parties agreed “[i]f supporting producers, to consider using domestic support measures that have minimal or no trade distorting or production effects, and ensure transparency of domestic support and supply management programs.” The permissive language may afford opportunities to narrowly target the negotiations on the negative impact of Canada’s alleged slippage of excess/waste dairy product into the global market, as opposed to the broader and politically untenable elimination of supply management as well as the equally unreachable dismantling of Class 7 (diafiltered/ultrafiltered milk). In the event the dairy issue is narrowly tailored, there are potential solutions for reaching a win-win solution.

On the negative side, Chapter 19 received no attention in the bilateral negotiations and USTR Lighthizer’s comments appeared to suggest that he has a clear path to seek its elimination, which is notably a “red-line” for Canada. Regarding IPR, the official materials indicated that the US-MEX agreement in principle establishes biologics (10 year patent protections), copyrights (moving from 50 years to 75 years), safe harbor/take-down rules for internet service providers (ISP), and requiring border agents to stop counterfeit/pirated goods, that extend beyond where Canada previously has been willing to go in trade or bilateral negotiations.

The list of potential challenges to a trilateral deal also expanded in the US-MEX agreement in principle. The financial services provisions included the broadly worded language found in USTR’s July 2017 Statement of Objectives which may be problematic to Canada; particularly, as there has not been much discussion to date on these matters. Several other areas in the US-MEX agreement in principle such as de minimis shipments and grain/wheat grading standards touch on existing Canada-US disputes, further adding to the wide ground to cover in less than a week.

Friday’s Notice

Against this backdrop, the most likely scenario is that the US and Mexico will issue the formal notice on Friday to “start the clock” on the 90-day consultation period. In the unlikely event that the “Canada issues” are resolved, the parties will proceed to consultation and signature. However, as previously advised in our briefing notes, it is likely that the parties will use the 30 day interim between the issuance of the notice and the date upon which the text of the agreement must be published on USTR’s website to resolve any remaining issues with Canada. This scenario was not envisioned by TPA-2015 but it is unlikely that Congress will disrupt the negotiations unless it becomes clear that no deal with Canada is possible. Consequently, the negotiations with Canada likely will continue throughout September.

Section 232 Steel and Aluminum Tariffs

It is highly unlikely that there will be an announcement regarding the Section 232 steel and aluminum tariffs and Mexico’s retaliation this week. The US and Mexico are discussing a quota-based structure for the steel and aluminum imports into the US and more time is needed. Secretario Videgaray’s announcement that Mexico would agree to the Friday notice eliminated any leverage Mexico had to speed up that process. Canada may be able to raise the issue in its discussions; however, progress will be unlikely given the long list of issues. The lifting of the tariffs on Mexico, and potentially Canada, likely will be announced during the 90-day consultation period between the “handshake” and signature.

Congress as the “Wildcard”

While we try to remain optimistic, it is unlikely that the discussions between the US and Canada over the coming days will have a positive tenor and tone. The comprehensive and fait accompli nature of the US-MEX bilateral deal, the “ticking clock”, and the existing (steel and aluminum) and threatened (autos) Section 232 tariffs, do not foster a favorable negotiating environment. The three parties possess the most highly skilled negotiators on the globe; however, the time needed to get up to speed on the new deal and stake out positions is limited. A good outcome for the week is to make any progress that propels the parties to reach a deal during the ensuing 30 days.

Prior planning prevents pitifully poor performance and one should be prepared for a potential collapse of negotiations between Canada and the US. At present, there is a strong consensus in the US Congress—including leadership in the key trade committees—as well as the business communities for a trilateral deal. Congress can use its consultative role in TPA-2015, including measures such as disapproval resolutions, to compel a trilateral deal. As repeatedly advised in our prior briefing notes, however, TPA-2015 does not prevent a bilateral deal as a matter of procedure. Rather, it is the political determination of Congress, driven by the practical considerations of North America’s inextricably intertwined supply chains, which foster a trilateral agreement. It must be emphasized that this Congressional support is not unlimited in duration. The US-MEX agreement in principle contains many key “wins” for Congress on autos, labor, IPR, agricultural interests and “pet projects” for certain members. Should this drag on, members of Congress will begin to balance those interests against what will be cast as Canada trying to protect dairy and lumber (via Chapter 19), and cheating US intellectual property holders. Attempting to “wait this out” is not an option.

Withdrawal

President Trump mentioned in his comments that he intends to withdraw from the existing NAFTA at the time he presents the new deal to Congress. Dickinson Wright has been predicting this scenario since our late-2017 briefing notes as a political strategy to eliminate a safe “status quo” vote for Congress. Specifically, Congress will have the option of voting for the President’s NAFTA or run the risk of no NAFTA at all. There are several procedural challenges to this approach, including the 6 month notice required to withdraw from the NAFTA and the legal grey area as to whether the President can withdraw without the consent of Congress. USTR attempted to brush off these concerns today and suggested that some type of solution will be reached. Dickinson Wright will continue to monitor.

Automotive Rules of Origin

Further to prior briefing notes, the following are the key elements of US-MEX auto rules of origin:

  • A top-line regional value content of 75% (up from 62.5% in the current NAFTA);
  • 70% of all steel, aluminum, and glass used in the production of the automobile must originate in North America;
  • Up to seven components, including most of the powertrain assembly, must originate in North America;
  • If a plant is used in the production of the automobile that provides less than the North American wage (approximately USD16.00), 40% (passenger vehicles) and 45% (light duty trucks) of that final vehicle’s assembly must be made with at least the North American Average Wage;

    • In calculating the final vehicle produced at the North American Average wage, up to 15% (20% for light duty trucks) of that requirement may include R&D, marketing, sales, etc. salaries. Otherwise stated, companies may not work-around the wage requirement by simply bolstering professional salaries as workers “on the line” must be part of the calculation; and
  • The imposition of a 4 year phase-in period.

The US-MEX Agreement in principle also agrees that non-conforming passenger vehicles within the existing footprint, as defined by the passenger vehicle capacity per plant, will be subject to no higher than the most favored nation (MFN) rate of 2.5%. Non-conforming light duty trucks in the existing footprint will be subject to the current 25% tariffs.

Non-conforming autos and trucks produced at new investment locations will not be guaranteed the 2.5% MFN rate. As a result, in the event the US imposes Section 232 auto tariffs, new investment in Mexico will have exposure to such tariffs. Contrary to other reports, Mexico and the US did not agree to a fixed tariff rate higher than 2.5% for new investment.

Labor

The labor provisions of the US-MEX agreement in principle require review by all parties operating or utilizing production in Mexico. The new terms will direct Mexico’s ongoing domestic labor reforms, define a “persistent pattern of non-enforcement of law”, require adherence to the International Labor Organization (ILO agreement), among other provisions that go well beyond Mexico’s existing commitments. Management-labor relations policies in Mexico will require revision for most companies.

Chapter 20

Mexico and the US agreed to maintain the current state-state dispute resolution mechanism.

Chapter 11

Mexico and the US agreed to a modified investment state dispute settlement regime (ISDS) that provides protections for the oil, gas, infrastructure, and telecommunications sector (those sectors that routinely deal with government procurement) and more limited protections for all other sectors.

Seasonality

The US withdrew its seasonal produce proposal.

Sunset

The US and Mexico agreed to a 16 year sunset clause that requires the parties to review the agreement every six years and, if approved, renew the agreement for 10 years. If the parties are unable to agree to renew the agreement, they will attempt to work out all differences during the remainder of the term.

Dickinson Wright will continue to monitor all developments and provide analysis. Companies meanwhile must prepare for the various contingencies as well as make ready for a quick review of the text of the agreement that will likely be released at the last minute in September. Time is short to develop analysis and, if necessary, prepare congressional outreach strategies.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dickinson Wright | Attorney Advertising

Written by:

Dickinson Wright
Contact
more
less

Dickinson Wright on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.