Unclear Whether Canada FTA Would Totally Return If NAFTA Disintegrates, NCBFAA Says

It’s unclear whether U.S.-Canada Free Trade Agreement (CFTA) provisions related to drawback, certificates of origin and import relief measures would spring back into force if the U.S. withdraws from NAFTA, according to a recent Q&A posted by the National Customs Brokers & Forwarders Association of America. NAFTA Implementation Act Section 107 states that some CFTA provisions will remain suspended until the suspension itself is terminated. This could mean that those suspensions would, by default, remain active in any post-NAFTA world, even though Canada and the U.S. formally agreed through a January 1993 exchange of letters to broadly suspend the operation of CFTA when NAFTA took effect, with the suspension “to remain in effect for such time as the two governments are Parties to NAFTA,” the NCBFAA said.

“This may imply that some official action may be required to ‘terminate the suspension’ for these provisions,” the Q&A says. “In other words, if the US withdraws from NAFTA, do the US and Canada then have to formally agree (through an exchange of letters or other means) to ‘terminate the suspension’ for these specific provisions?” According to an A.N. Deringer blog post, the Q&A came from Jon Kent, who lobbies for the NCBFAA.

The NAFTA Implementing Act amended certain provisions of the CFTA Implementation Act to address what would apply if CFTA re-enters into force, including language stating that a provision in the CFTA that phased out customs user fees for Canadian imports “will apply if the CFTA is in force (that is, if one or both of the countries is no longer a party to NAFTA),” the NCBFAA said. “With no precedent as a guide, it is not clear whether the CFTA will automatically take effect if the U.S. withdraws from NAFTA or whether the two parties must agree to terminate the suspension. There is room to interpret the language to reach either conclusion. Much will depend on what the two governments want the result to be.” Further, the Toronto-based Financial Post published a story Oct. 19 citing several trade analysts who said CFTA wouldn’t automatically reactivate in the event either the U.S. or Canada withdraws from NAFTA.

But as U.S., Canadian and Mexican negotiators continue to explore paths for an updated NAFTA deal, talks could cover expedited government responses to trade community requests for information on quotas or country-of-origin markings, special customs procedures for express shipments, creation of requirements to make customs laws publicly available, and development of a single-window entry point, the Congressional Research Service (CRS) said in a recent report. “Given the magnitude and frequency of U.S. trade with NAFTA partners, more updated customs provisions in NAFTA could have a significant impact on companies engaged in trilateral trade,” the report says. CRS also laid out possibilities that talks might seek to liberalize remaining dutiable agricultural products still subject to tariff-rate quotas and high out-of-quota tariffs, add provisions regarding the use of geographical indications, and address historical agricultural tensions among parties, such as country-of-origin labeling.

The report also notes the potential that the International Brotherhood of Teamsters could push for a change to NAFTA’s trucking provisions, which have officially provided Mexican commercial trucks full access throughout the U.S. since 2000. The U.S. delayed implementation of the provisions for many years, citing safety concerns. Teamsters has called for an updated NAFTA to include a provision re-establishing the pre-NAFTA status quo of requiring containers trucked into the U.S. by Mexican carriers to be transferred to a U.S. carrier inside of U.S. commercial zones spread along the southern border, before the cargo can proceed further into the U.S.

A U.S. proposal for new, “non-conforming” trucking language in NAFTA is a “restatement of the jurisdiction of the United States Congress and Department of Transportation over cross-border long-haul operations,” a cleared NAFTA adviser said. “As part and parcel of the U.S. approach on this, those regulatory criteria are restated.” NAFTA’s services chapter requires the parties to give no less favorable treatment to non-domestic service providers, including for transportation, than they accord to domestic service providers. The Federal Motor Carrier Safety Administration in January 2015 began allowing Mexican carriers to conduct long-haul, cross-border trucking services in the U.S., following a three-year U.S. pilot program that let Mexican trucking companies operate in this country (see 1501130018).

In a statement, Teamsters General President James Hoffa said the Office of the U.S. Trade Representative is proposing a “creative solution” for the issue, adding that Teamsters and its allies among independent truckers and highway safety advocates will be “pleased with the U.S. position.” He declined to provide specific details of the proposed text, but also noted that the U.S. position would allow Congress and the Transportation Department to “safeguard the livelihoods of American truck drivers and the personal safety of American families on U.S. highways under NAFTA 2.0.”

On another matter, as the administration has taken a critical approach toward NAFTA’s existing investor-state dispute settlement (ISDS) system, the CRS report provides data showing the U.S. government has fared better, for its part, than the Canadian and Mexican governments in NAFTA ISDS cases brought against it. Citing UN Conference on Trade and Development statistics, the CRS report says 10 ISDS decisions have been favorable to the U.S. government as correspondent, zero decisions unfavorable, three settled and one discontinued. On the other hand, Mexico has had eight favorable decisions, five unfavorable decisions, five settlements and four discontinued cases under NAFTA ISDS; and Canada has had six favorable decisions, five unfavorable decisions, five settlements and four discontinued cases. USTR didn't immediately comment.