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De Minimis Stalling Completion of NAFTA Customs Chapter

Disagreement on de minimis thresholds is the one obstacle to closing an updated NAFTA customs chapter, an area where talks have progressed significantly during the ongoing renegotiation of the pact, according to three sources with knowledge of discussions. Advancement on the de minimis issue principally depends on Canada’s level of willingness to increase its $15 (USD) threshold, after Canadian negotiators declined to engage on the issue following contentious U.S. proposals pitched during the fourth negotiating round in Arlington, Virginia, two of the sources said.

Canada appears to be using its low threshold, compared with the U.S.’s $800 level, as a bargaining chip to use later in talks to drive the U.S. away from its most contentious negotiating positions. The U.S. has put forth proposals to require 50 percent U.S. content and 85 percent NAFTA content for automobiles, eliminate NAFTA’s binational antidumping and countervailing duty dispute settlement process, and allow U.S. agriculture producers in a certain region to band together and use seasonal data as a basis for AD and CV duty case petitions on perishable imports.

“The Canadians have basically said, ‘We’re not dealing, come back to us with another topic,’” Dickinson Wright attorney Daniel Ujczo said in a Dec. 1 interview. That statement was somewhat surprising, given that Canada appeared willing to engage on the issue prior to the negotiation, he said. Further complicating the issue is an internal debate among U.S. government officials and customs brokers about whether $800 is too high a level and about data requirements on de minimis entries, he said. “There is still a very robust debate in the U.S. as to whether $800 should be the level, and Canada and Mexico are aware of that,” Ujczo said. “They may be wanting that to play out domestically in the U.S.” The issue will likely linger as negotiations move into 2018, he said.

The U.S. negotiating position on de minimis isn’t very strong, a cleared NAFTA adviser said. “For [Canadians], this was always a U.S. priority that they would be giving, and the U.S. would be getting,” he said. Amid the fourth negotiating round, sources said Canada was seriously considering raising their de minimis level (see 1710130030), a discussion that Canada now appears to be punting as opposed to pulling back from, the adviser said. Canada will likely also look for a way to avoid any goods and services tax revenue losses propelled by a prospective de minimis increase, but it’s unlikely the Canadians would agree to a level above $300, he said.

The NAFTA negotiation has encountered several unconventional proposals writ large compared with other modern trade talks, and that’s forcing intense deliberations on how to respond, the adviser said. “It takes longer work for how you deal with those particular measures,” he said. “De minimis will come back.”

The U.S. continues to push for a NAFTA-wide $800 de minimis, as stated in the Office of the U.S. Trade Representative’s updated NAFTA negotiating objectives released last month. But it’s “highly unlikely” Canada comes up that high, and the country has faced some “significant advocacy” from its domestic retail industry, as de minimis remains one of the few points of leverage Canada has, Ujczo said. “At the end of the day, I think the U.S. would be willing to take a lesser value.”

On the other hand, Mexican officials during a meeting with Washington officials this week signaled flexibility toward pitching a counterproposal to the U.S.’s pitch for $800, but whether Mexico will pitch a uniform de minimis level for commercial and postal shipments will probably have to be sorted out at the negotiating table, Ujczo said. Mexico currently has a $50 de minimis level for commercial shipments and a $300 level for postal shipments. The discussion with Mexico hasn’t gotten that specific yet, Ujczo said. “In contrast to Canada, Mexico’s saying, ‘We’re willing to deal on this issue, let’s come up with a creative solution,’ whereas I think Canada’s position is, ‘We’re not even dealing, let’s talk about something else,’” he said.

Meanwhile, eight U.S. state governors are pushing the Canadian government and the USTR to advocate for raising Canada’s de minimis level through NAFTA talks. A Nov. 21 letter from governors of states including Virginia, Maine and Montana -- to name a few -- to Canadian Foreign Affairs Minister Chrystia Freeland and U.S. Trade Representative Robert Lighthizer says increasing the Canadian de minimis threshold would benefit commerce in both their countries, reducing delays, costs and red tape for smaller shipments.

Another business source with knowledge of NAFTA discussions agreed that de minimis was the final hurdle to closing the customs chapter, adding that the bulk of the progress in that area has comprised provisions that align and build off of the World Trade Organization Trade Facilitation Agreement (TFA), which entered into force in February (see 1702220007). Negotiators are calling the agreed-upon customs provisions, with the exception of de minimis, the “TFA-Plus” provisions. There was no de minimis level standardized in the TFA, which is contributing to the NAFTA de minimis impasse, she said.

Although there has been near-conclusive progress on the rest of the customs chapter, details have been scarce regarding specific areas of consensus, though all three NAFTA parties have said “it’s perfect,” and that the deal will have a “platinum” customs standard, Ujczo said. Customs issues like publication transparency, comment and review procedures, standard predictable timelines for reviewing comments, and express shipment regulations (outside de minimis) are making great progress, “because anything we do here is going to help the other countries’ … commitments under TFA,” the business source said. TFA provisions include requirements for transparency of information on cross-border procedures, enhanced trader appeal rights, and reduced fees and formalities associated with the import and export of goods. The NAFTA parties have already agreed to language that would prevent governments from requiring paper certificates of origin (see 1710130030).

Email ITTNews@warren-news.com for a copy of the governors' letter to Freeland and Lighthizer.