NAFTA Renegotiations Update

By Patrick Togni

To many readers of this page, December thoughts regarding the North American Free Trade Agreement (“NAFTA”) might commonly arise in the context of preparing annual NAFTA certificates of origin.  Origin documentation and other aspects of NAFTA compliance have become commonplace as the realities of a North American trading region have taken root and affected the way that companies source and manufacture their goods over the past quarter century.

NAFTA’s place in the U.S. economy became a key focus during the 2016 presidential election.  Following the inauguration of President Donald J. Trump, the Trump Administration initially pivoted from positions taken during the campaign to terminate NAFTA to renegotiation with Canada and Mexico.  For much of 2017, this process has played out in hotel conference rooms from Mexico City to Ottawa and Washington, D.C.  Negotiating teams from Mexico, Canada, and United States (comprised of more than 30 different topical groups) have held five rounds of talks regarding the renegotiation and modernization of NAFTA.

While negotiations are not being conducted publicly, press reports indicate that several areas of contention exist, including a potential “sunset” clause that would limit the lifespan of any updated NAFTA to five years (unless the three Parties agree otherwise in advance of the expiration of any given five-year period) and the elimination of a binational panel review dispute settlement under Chapter 19 of the NAFTA.

Talks are expected to continue into 2018, but the ultimate resolution remains an open question.  At the conclusion of the Fifth Round of NAFTA renegotiations in November, United States Trade Representative Robert Lighthizer stated that “While we have made progress on some of our efforts to modernize NAFTA, I remain concerned about the lack of headway.  Thus far, we have seen no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement.  Absent rebalancing, we will not reach a satisfactory result.”  In recent days, some outside observers (including, for example, Goldman Sachs) have informed clients that a NAFTA “withdrawal announcement looks more likely than not[.]”  Stakeholders from a variety of industries and several states have advocated against NAFTA withdrawal or raised concerns regarding the potential unintended consequences of significant changes to NAFTA.

In sum, NAFTA renegotiations remain ongoing and have the potential to significantly alter the trading landscape in North Carolina and beyond.