Eased Tariff-Shift Rules, De Minimis Changes Seen as Possibilities for New NAFTA

Liberalized tariff-shift rules and higher de minimis levels for Canada and Mexico could be included in the expected NAFTA renegotiation, industry sources said in recent interviews. As the administration works toward the statutorily required notice to Congress of plans to reopen NAFTA discussions, law firms and industry stakeholders are discussing what provisions they will lobby for the administration to change or add to any completed agreement. The new administration provides an opportunity for companies to “push outside the traditional boundary” of trade negotiations, and companies’ personnel who were traditionally compliance-focused are now in a “new frontier” of engagement in government-business dialogues, Crowell & Moring attorney Jini Koh said in an interview. “I think that’s new to companies.”

Businesses could potentially find success within those dialogues through “precision lobbying” to liberalize NAFTA’s rules of origin to allow more products at the subheading and heading levels to tariff-shift into more subheadings, Koh said. “I can see that being a way to lobby to get some changes to help your specific company or your specific industry in a way that may not create a lot of noise,” she said.

Under current NAFTA rules, companies often get “burned” by the specific limitations allowing subheading-to-heading shifts but barring certain heading-to-subheading shifts, Koh said. More liberal tariff-shift rules would facilitate U.S. production and assembly, and could wall off supply chains from the potential impacts of any effort to increase regional value content requirements, she said. Koh said she could see industry pushing to raise the $1,000 threshold under which certificates of origin aren’t required to qualify for NAFTA tariff benefits. Changes to drawback provision are another area of potential interest (see 1705120016)

The Express Association of America (EAA) is “ready to go forward” in advancing its NAFTA priorities with the Trump administration and Congress after the Senate confirmed Lighthizer on May 11, EAA Executive Director Mike Mullen said in an interview. The group would like to see Canada and Mexico agree to raise their $20 and $50 de minimis levels, respectively, during renegotiations, he said. “That would be the optimum situation,” Mullen said. “If that’s too big of a stretch for Canada and Mexico, we’d like to see them come up to a somewhat commercially more meaningful level, particularly in the case of Canada.” He added that if value-added tax (VAT) collection deters Canada and Mexico from boosting their de minimis levels, perhaps the parties could discuss developing an innovative mechanism to collect VAT away from the border. EAA would also like to see Mexico increase its $300 informal entry threshold to the U.S.’s and Canada’s $2,500 level, Mullen said.

NAFTA would also benefit from provisions protecting the free flow of data across borders, which aren’t issues between the U.S. and its NAFTA partners, “but we see no reason not to crank them in there,” he said. Mullen added that his group would like to see the final version of NAFTA protect delivery services, and to include provisions that encourage the three countries to develop a common single-window system and that instruct the three parties to use an identical form for an export declaration and an import declaration as part of the same transaction. An identical import/export declaration should be “easily achievable,” he said. As EAA is “focusing down” on bringing specific express industry priorities to the administration’s table for NAFTA talks, the group will likely channel its advocacy work for single-window provisions through the U.S. Chamber of Commerce and the National Retail Federation (NRF), Mullen said.

Retail Industry Leaders Association (RILA) Vice President for International Trade Hun Quach agreed that it would be great if a renegotiated NAFTA reflects single-window progress, adding that the deal would benefit from identifying customs enforcement provisions that might be made more transparent and streamlined, perhaps record keeping and customs verification language. Streamlining requirements and verification processes among CBP, the Canadian Border Services Agency, and Mexican Customs would also be useful, she said. Further useful items to cover during the course of the renegotiation could be exploring whether goods on the current NAFTA apparel “short supply list” are, actually, in short supply in North America, as well as updating rules of origin to reflect new fabrics and new local supply chains, Quach said.

The American Apparel and Footwear Association (AAFA), NRF, RILA, and the U.S. Fashion Industry Association (USFIA) on May 16 sent a letter to Lighthizer urging the administration to renegotiate provisions to make customs enforcement "smarter and more streamlined," to facilitate regional value chains, to help digital trade, and to "recognize advancements in trusted trader programs," among other things. The letter asked the administration to "do no harm" to current supply chains and to enhance economic cooperation with NAFTA partners through renegotiation. "Any changes should afford ample transition so that companies can stay compliant as they work with government partners to incorporate modifications to their practices and procedures," the letter says. A lobbyist added that a U.S. textile association is traveling to Mexico "sometime in the next few days" to coordinate with Mexican counterparts on elements of the renegotiation.

Paperwork efficiency should be another consideration for renegotiations, Allen Gina, co-founder of CT Strategies and former CBP assistant commissioner for international trade, said in an interview. In some developing countries, “the norm is a gentlemen’s agreement or a handshake” essentially through some type of self-certification process, he said. During negotiations, USTR will consider the extent to which any proposed language can be enforced by customs, Gina said. Negotiations could also touch on validation and documentation processes, he said. “One [consideration] is, what’s going to be provided to validate?” Gina said. “Does the community at large believe that’s going to be acceptable? How are you going to determine the credibility of whatever it is being provided?”

For its part, RILA is still waiting to see how the administration and Congress will specifically approach the NAFTA renegotiation before the group pitches new customs provisions as part of its push to modernize the deal, Quach said, adding that it’s unknown the degree to which talks will target customs, if at all. She also expressed a more fundamental concern, citing the administration’s lack of clarity on whether NAFTA will remain a trilateral deal or split into two bilateral agreements.

Gina suggested that negotiations take into account whether any efforts to tighten enforcement could drive U.S. commerce out of the country. That concern arose when Gina was at CBP and overseeing the 100 percent screening requirement years ago, he said. Gina said that from a trade enforcement perspective, terms of reference are equally important as are overall negotiating objectives. He added: “When words say ‘shall’ versus ‘must,’ or ‘recommend’ versus ‘required,’ that’s a big, significant difference when you’re trying to subsequently enforce or police any type of agreement, and it applies here to free trade agreements.”

Email ITTNews@warren-news.com for a copy of the letter to USTR signed by RILA, NRF, USFIA and AAFA.