LegiStorm

Summary:

The 115th Congress faces policy issues related to the Trump Administration’s renegotiation and modernization of the North American Free Trade Agreement (NAFTA). NAFTA negotiations were first launched in 1992 under President H. W. Bush and continued under President Bill Clinton. President Clinton signed the agreement into law on December 8 1993 (P.L. 103-182), and NAFTA entered into force on January 1, 1994. It is particularly significant because it was the most comprehensive free trade agreement (FTA) negotiated at the time, contained several groundbreaking provisions, and was the first of a new generation of U.S. FTAs later negotiated. Congress played a major role during its consideration and, after contentious and comprehensive debate, ultimately approved legislation to implement the agreement. NAFTA established trade liberalization commitments that set new rules and disciplines for future FTAs on issues important to the United States, including intellectual property rights protection, services trade, dispute settlement procedures, investment, labor, and environment. NAFTA’s market-opening provisions gradually eliminated nearly all tariff and most nontariff barriers on merchandise trade. At the time of NAFTA, average applied U.S. duties on imports from Mexico were 2.07%, while U.S. businesses faced average tariffs of 10%, in addition to nontariff and investment barriers, in Mexico. The U.S.-Canada FTA had been in effect since 1989. The Trump Administration has made NAFTA renegotiation and modernization a prominent priority of its trade policy. President Trump has characterized the agreement as the “worst trade deal,” and has stated that he may seek to withdraw from the agreement. He has focused on the trade deficit with Mexico as a major reason for his critique. On May 18, 2017, the Trump Administration sent a 90-day notification to Congress of its intent to begin talks to renegotiate NAFTA, as required by the 2015 Trade Promotion Authority (TPA) (P.L. 114-26). Negotiators began the talks on August 16, 2017. They have held eight formal rounds and are continuing talks on technical issues. Contentious issues in the negotiations include auto rules of origin, dispute settlement provisions, agriculture, government procurement, and other issues. Mexico’s President-elect, Andrés Manuel López Obrador, who enters into office on December 1, 2018, has stated that he supports NAFTA and would support a previously negotiated agreement. All three North American leaders have expressed interest in reaching a deal over the next several months. Congress will likely continue to be a major participant in shaping and potentially considering an updated NAFTA. Key issues for Congress in regard to NAFTA renegotiation or modernization include the constitutional authority of Congress over international trade, its role in revising or withdrawing from the agreement, U.S. negotiating objectives, the impact on U.S. industries and the U.S. economy, the negotiating objectives of Canada and Mexico, and the impact on broader relations with Canada and Mexico. The outcome of these negotiations will have implications for the future direction of U.S. trade policy under President Trump. NAFTA renegotiation presents opportunities to modernize the agreement. For example, the widespread use of the internet has significantly affected economic activities. A renegotiation could incorporate elements of more recent U.S. FTAs, such as digital and services trade and enhanced IPR protection. Many U.S. manufacturers, services providers, and agricultural producers oppose efforts to eliminate NAFTA and ask that the Trump Administration “do no harm” in the NAFTA renegotiation because they have much to lose. Other groups contend that NAFTA renegotiation should include stronger and more enforceable labor protections, provisions on currency manipulation, and stricter rules of origin.