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Trump Administration Ready to Renegotiate NAFTA
USAgNet - 04/05/2017

The Trump administration has indicated its intention to renegotiate the North American Free Trade Agreement. Currently, a draft letter is being circulated by the U.S. Trade Representative to members of Congress for their review. Stephen Vaughn, acting U.S. Trade Representative, wrote in the draft notification letter that the persistent U.S. deficit in goods trade with Canada and Mexico 'demands that this administration take swift action to revise the relationship to reflect and respond to new 21st century challenges.'

The draft notification letter outlines the Trump administration's objectives in renegotiating NAFTA, with a focus on reducing the trade deficit and strengthening rules of origin to support domestic production. While a far cry from President Trump's previous statements to pull out of NAFTA entirely, the proposed changes align with his 'Buy American, Hire American' campaign theme.

One proposal seeks to reinstate temporary tariffs, often referred to as snapbacks, on goods that pose a serious injury or threat of serious injury to U.S. companies. The ramifications of snapbacks are that Mexico or Canada could implement counteractive measures through blocking certain U.S. goods, increasing import duties, or establishing other nontariff barriers. On a commercial level, if implemented, U.S. companies will find it harder to conduct business in Mexico and Canada. This has obvious implications for both supply and distribution chains.

Another NAFTA proposal seeks to improve dispute settlement procedures between foreign investors and host states. Currently, a company that wishes to contest a state action of a NAFTA signatory country may institute a private arbitration against the state. NAFTA arbitrations act as a substitute for domestic judicial review that cannot be reviewed by domestic courts. Not having to contend with unfamiliar judicial processes provides comfort to foreign businesses, so curtailing these procedures will also change the amount of risk involved in cross-NAFTA supply chain relationships.

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