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The NAFTA saga will continue—even after September

New NAFTA would govern North American shipments of export cargo and import cargo in international trade.

The NAFTA saga will continue—even after September

There are currently a great number of business owners, corporate executives and front-line workers across North America holding their breath in anticipation of what they believe will be the outcome of the NAFTA negotiations on or before September 30.

That’s the date set out by Washington to deliver the text of a deal with or without Canada before making public (within 30-days) the text to the bilateral trade deal the United States struck with Mexico on August 30. The US administration is following the time constraints designated by the Trade Promotion Authority, also known as fast track, to ensure the agreement is subject to a straight up-or-down vote by the US Congress. Any amendments would require the negotiations to be reopened.

The fast-track timing allows for a total of 90 days for consultation with Congress and stakeholders to consider the proposed agreement prior to beginning the legislative ratification process. This also coincides critically with December 1, when Mexico transitions power to its new President Andrés Manuel López Obrador. The current administrations both of Mexico and the United States would prefer to see the deal ratified by both countries in advance of Mexico’s new president taking power as there is concern from both countries that his administration could reject some of the provisions, forcing the parties back to the negotiating table.

However, Canadian officials have been taking a hard line in negotiations and have stated they would rather have no deal than bind Canada to a bad deal. They also feel that the US Congress would only support a trilateral free trade deal. However, that support was called into question recently when Republican Congressman and House Whip, Steve Scalise, made a statement suggesting Congress was growing impatient with Canada’s negotiating tactics.

That could be just tough talk in hopes of hastening the conclusion of negotiations that have been going on for more than a year in advance of a critical mid-term election and the initiation of a new government in Mexico. Canada hopes so, but also knows that President Donald Trump has demonstrated his willingness to staunchly uphold his negotiating positions.

With the deadline upon us, the question is, what happens if Canada and the US don’t sign a deal? As has been the case throughout the NAFTA negotiations, the answer isn’t black and white.

Canada could still insert itself into the bilateral deal. If no deal is reached by September 30th, there’s no reason Canada couldn’t continue to negotiate in hopes of inserting itself into the deal after that date. Speculation has emerged the Canadian delegation is loath to publicly accept a deal that most believe will contain concessions on access to the Canadian dairy market before the provincial election on October 1 in Quebec, where much of Canada’s dairy is produced.

Meanwhile the text of the US-Mexico deal will be made publicly available in accordance with US law. But that agreement is likely already being drawn up with placeholders to include Canada, and there’s no reason those placeholders couldn’t be filled just as easily at some future date. The US Congress may be willing to accommodate such changes to ensure there is a tri-lateral deal. However, the stakes are high; a misplayed wager will have political and economic consequences for all parties.

The US could withdraw from NAFTA. In the event no deal is reached between the US and Canada by September 30th, Washington could conceivable choose to officially withdraw from NAFTA as it puts its bilateral deal with Mexico before Congress.

This would set off a six-month timeline for the termination of the agreement, during which time the US and Canada could (and likely would) continue to negotiate to either find a way to include Canada in a trilateral deal with Mexico or negotiate a separate bilateral agreement with Canada.

There could be a zombie NAFTA. If Washington chooses to withdraw from NAFTA, only Congress can repeal the actual legislation associated with NAFTA. If Congress refused to do so, it would create what is often referred to as a Zombie NAFTA in which the agreement itself becomes defunct but many of the laws and provisions would continue to live on while others (such as the Chapter 19 dispute resolution mechanism) would no longer apply.

That would be almost as detrimental as a Congressional approval of US withdrawal from NAFTA as cross-border investment would likely grind to a halt in response to the uncertainty around the terms of trade.

However, if Congress were to approve the US-Mexico bilateral deal, it’s almost certain lawmakers would also approve a withdrawal from NAFTA as the bilateral deal would ultimately override the terms of NAFTA.

The US could impose tariffs on Canadian automobile imports. The threat of a 25-percent tariff on auto imports under Section 232 of the Trade Expansion Act of 1962—the same law the US used to impose tariffs on steel and aluminum—has been repeatedly mentioned by Trump administration officials. Such a move would have one of two effects. The first is that it could generate enough bad blood between Washington and Ottawa (and Canadians and Americans) to indefinitely stall free trade negotiations in spite of the economic consequences. The second is that it would become enough of a political liability to Canada’s governing Liberal Party that it would prompt Ottawa to offer greater concessions within a revised NAFTA to hasten Canada’s inclusion in a trilateral deal.

It should be noted, however, that one of the lingering issues in the NAFTA talks is that Washington won’t provide Ottawa with guarantees that it won’t impose the Section 232 tariffs on Canadian automobiles even in the event a deal is reached on NAFTA.

Congress could reject the US-Mexico bilateral trade deal. Despite some recent signs of frustration and impatience, members of Congress have signalled repeatedly they would prefer a trilateral deal over a bilateral one with Mexico. In response, they could refuse to ratify the bilateral deal, ultimately forcing resumption of talks between the US and Canada.

Resumption of negotiations would likely mean no deal could be reached until well into 2019 as the US would be in the midst of mid-term elections or a lame-duck Congress for the remainder of 2018 and a new Mexican administration would likely want to revisit whatever terms were agreed to by the current administration.

Canadian officials, emboldened by Congress’s preference for a trilateral deal, would be less inclined to concede provisions of the agreement they deem critical to Canada’s economic and industrial well-being, especially since 2019 is an election year in Canada. There’s also the possibility the makeup of Congress could change dramatically with the mid-term elections, shifting the focus of the negotiations to issues of greater concern to Democrats in Congress.

This would mean a prolonged period of uncertainty and diminished foreign investment in Canada, the US and Mexico, resulting in a softening of economic growth, which will ultimately hurt all three nations involved.

What does all this mean?

It means that the immediate period is really only another phase of negotiations that have been ongoing for more than year. September 30 will mark the end of this phase and October 1 will mark the beginning of the next phase. And we’ll know soon enough what the tone and pace of negotiations will be in that phase. The saga will almost certainly continue in one form or another.

Candace Sider is vice president of Government and Regulatory Affairs North America at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations.

New NAFTA would govern North American shipments of export cargo and import cargo in international trade.

Steel Tariffs: An Unlikely NAFTA Trump Card

It’s fair to say there was a collective sigh of relief emanating from Ottawa and Mexico City on March 8 when US President Donald Trump announced that Canada and Mexico would be exempt from steel and aluminum tariffs of 25 percent and 10 percent respectively.

The circumstances around the exemption are slightly vague. According to media reports, Canadian Prime Minister Justin Trudeau hosted a telephone call with President Trump during which he impressed upon the president that placing tariffs on Canadian steel exports would be detrimental to US interests given America’s reliance on northern steel. Furthermore, the Prime Minister emphasized that Canada was a stalwart ally of the United States and Washington needn’t worry about the national security implications of Canadian steel exports.

The latter point was in direct response to the purported rationale for the tariffs – to protect the US from over-reliance on foreign steel lest it be left (potentially by military adversaries) without sufficient material to develop military resources. Of course, the national-security argument was more a loophole to avoid the appearance of outright ignoring WTO rules on tariffs.

But if there was any relief north and south of America’s borders due to the announced tariff exemptions, it was likely short lived. As quickly as Washington tossed Ottawa and Mexico City a lifeline, it seemingly withdrew it by making the exemptions contingent on a favorable outcome to the ongoing NAFTA negotiations.

Said President Trump at the tariff announcement: “If we don’t make the deal on NAFTA, and if we terminate NAFTA because they’re unable to make a deal that’s fair for our workers and fair for our farmers …”

It’s quite possible the president didn’t finish his sentence because it is often his style not to do so, but it’s more likely he realized he was about to put forward an inherent contradiction. After all, if the tariffs are in place to ensure America’s national security and if Canada and Mexico are considered allies in America’s protection of its borders, then the outcome of negotiations over a free trade deal shouldn’t have any connection to the tariffs.

Critics were quick to point out that the president had simply used the tariff exemptions as a means of pressuring America’s NAFTA partners into concessions at the next round of NAFTA negotiations, which have been stalled by various impasses over core issues. Both the president and his trade czar Robert Lighthizer would prefer the negotiations wrap up as quickly as possible. Their haste is tied to the upcoming Mexican presidential election in July and the November mid-term elections in the US, either of which could shift the balance of power and make a renegotiated NAFTA challenging to ratify.

Yet if the incomplete sentence was indeed a veiled threat, it’s difficult to see how Washington could effectively follow through with it. If Canada and Mexico don’t offer concessions at the next round of NAFTA negotiations and the president subsequently removes the tariff exemptions on Canadian and Mexican steel, it will be clear to all that the tariffs never had anything to do with national security and everything to do with forcing other countries to offer the US trade concessions.

The confirmation of that premise could become a political liability to leaders in some of America’s key trading-partner countries who would then be forced to retaliate with counter-tariffs. In addition, it could further stall the NAFTA negotiations, putting the entire process in jeopardy and could raise the ire of the WTO with which the US is only now beginning to reconcile its differences.

The more likely explanation is that the comment was simply the kind of opportunistic posturing we have come to expect from the president in reference to the NAFTA negotiations and a means of warding off some of the anticipated resentment from the many nations – including key allies, such as the EU – that weren’t exempt from the tariffs.

From the perspective of Washington, there’s little to lose in this game. The NAFTA negotiations are already stalled and such comments could have the effect of hastening their conclusion. If they don’t, the US is no worse off.

Of course, only time will tell which card Washington intends to play. In the interim, it’s fair to assume US negotiators will maintain a uniform poker face on the matter while their Canadian and Mexican counterparts ponder whether or not to call the president’s bluff.

Candace Sider is Vice President, Government and Regulatory Affairs, North America, at trade services firm Livingston International.

New NAFTA would govern North American shipments of export cargo and import cargo in international trade.

NAFTA Risk Analysis No Easy Feat For North American Industry

It is not surprising to note the conclusion of the fifth round of NAFTA negotiations has left more than a few industries anxious. The negotiations, which hitherto had been a trilateral demonstration of mutual good will and diplomacy eroded quickly into unveiled attacks on the positions of each party to the beleaguered trade deal after the fourth round of negotiations.

The impasse has led many observers to question whether or not the fate of the trade deal was already sealed; that the course had already been set for a US withdrawal.

It is in such instances that corporations tend to begin scenario planning and risk analysis in an attempt to determine how their business will be affected and how to mitigate disruption. In many cases, they work with third-party organizations such as accountants, lawyers, actuaries and trade-services advisors, not to mention their existing suppliers, vendors, distributors and freight forwarders to determine how best to mitigate business disruption and loss of revenue.

The challenge, however, is that the potential outcomes of the NAFTA negotiations may significantly alter long-standing trade rules and the degree and timing of those changes all remain speculative at this point. While it’s true the final outcome will either be a US withdrawal from NAFTA or a new, modernized trade agreement, how negotiators will arrive at either outcome offers a cornucopia of possibilities.


Unanimous approval: Assuming all parties agree to the terms of a new agreement by the recently revised negotiation deadline of spring 2018, a revised NAFTA could be implemented as early as the third quarter of 2018.

Phased approach: In the event some of the parties offer concessions, they may find it politically (and economically) expedient to have these phased in over time. For example, in the unlikely event Canada were to concede a 50-percent US content requirement for automobiles, it may ask that this is something phased in over a period of five or 10 years (versus the current US proposal of a one-year phase in). This would allow companies to adjust gradually and would be less disruptive to their operations. Canada arranged a similar phasing in of tariff removals in its recently ratified free trade deal with the European Union.

Delayed implementation: Should the parties agree to a set of revisions for NAFTA, these revisions would likely have to be incorporated into the NAFTA Implementation Act, which governs the provisions of NAFTA. This would fall under the purview of Congress, which may not necessarily approve the changes immediately.

Delayed negotiation: All parties are in agreement that they don’t want the negotiations to be politicized, which means avoiding negotiations taking place amidst the Mexican presidential election (spring 2018) and the US mid-term elections (fall 2018). In the event the parties are unable to come to a consensus on the hot-button issues, they could choose to temporarily shelve these and revisit them after the US mid-term elections, leaving NAFTA intact in the interim. Even if the parties were able to reach eventual agreement and implement a NAFTA 2.0, the lag in negotiations could postpone that implementation for as much as a year, prolonging the period of uncertainty around the trade deal.


Unilateral withdrawal: If the US administration chooses to withdraw from NAFTA and Congress is on board, a six-month notification is all that would be required. In theory, this could mean trade barriers, including tariffs, between NAFTA countries could be in place as early as fall 2018. While this would be an unfavorable outcome for most industries, it would at the very least limit the time window of uncertainty around the fate of NAFTA.

Congressional debate: Legal experts are split on whether or not US President Donald Trump has the authority to unilaterally withdraw from a trade agreement. Many experts say that while the president can choose to pull out of NAFTA, Congress has ultimate authority over the NAFTA Implementation Act, which governs NAFTA. If that’s true, Congress may choose to debate and ultimately reject a US withdrawal from NAFTA. Such a debate would likely be heated and mired by legal contention, which could draw out the process for quite some time; even years.

Delayed termination: Given the massive implications of a NAFTA withdrawal to America’s economy and industries, Congress may choose to approve a gradual or delayed withdrawal, rather than a cliff’s edge, so that industries who are heavily invested in NAFTA can adjust over time. This could mean a full NAFTA withdrawal may not take place for several years.

Legal challenge: Should the US administration choose to withdraw from NAFTA, it is conceivable industries that are heavily invested in North American supply chains could choose to put forward a legal challenge that would essentially force Congress to maintain the NAFTA Implementation Act. This would be unprecedented and would likely leave NAFTA in limbo for an even longer period of time. If successful, it would essentially mean many of NAFTA’s rules would continue to be upheld in practice even if the US is no longer formally part of the agreement.

Shift to bilateral FTAs: The US administration has made no secret of its preference for bilateral trade agreements over multilateral ones. As such, a US withdrawal from NAFTA wouldn’t necessarily mean the end of free trade between the US and its neighbors. However, it is not clear whether or not a US withdrawal would mean the US-Canada trade relationship defaults to NAFTA’s predecessor, the Canada-US Free Trade Agreement, or not. But even if that were the case, it’s most likely the US would withdraw from that agreement as well, which would require an additional six-month notice. During that time the US would likely begin negotiations with both Canada and Mexico on bilateral trade deals, but industry would be left with the ominous task of having to navigate the provisions of a trade deal that hasn’t been used in almost a quarter century.

All this means that regardless of the outcome of the negotiations, the real implications of a withdrawal and their associated timelines are still shrouded in uncertainty. This makes risk analysis and scenario planning extremely complex and frustrating for businesses whose current supply chain investments have effectively been in limbo for several months already. The more negotiations are delayed, the longer the period of uncertainty and the lower the likelihood of investment.

Candace Sider is Vice-President, Regulatory Affairs, North America at trade-services firm Livingston International.

North American businesses don't strategically consider free trade agreements for their shipments of export cargo and import cargo in international trade.

Trade Winds—A Four-Part Series on Shifting Attitudes Toward Trade Agreements

As the Canadian and U.S. governments move toward ratification of agreements like the Trans-Pacific Partnership (TPP) and the Comprehensive Economic and Trade Agreement (CETA) — deals that have taken years and significant amount of diplomatic capital to negotiate—new research shows many businesses believe such agreements offer them little value.

The research, conducted by Livingston International, reveals businesses across the continent have a strong indifference toward free trade agreements, with approximately four in 10 businesses believing FTAs will have no net benefit or detriment to them and an additional 11 per cent believing the costs outweigh the benefits.

That sentiment is more pronounced in the U.S. than in Canada, and particularly marked among small businesses on both sides of the border.

Perhaps even more startling are data showing businesses currently engaged in trade are not necessarily choosing their target markets based on ease of trade regulation, but rather on what’s most advantageous to their business. In other words, they’re not using free trade agreements in a strategic manner, but rather a passive one.

In fact, businesses are so passive about the potential benefits of trade agreements that as many as one in five North American importers don’t bother to verify that they have received a reduced or eliminated duty on applicable goods.

This demonstrates that many enterprises aren’t seeing the potential for cost savings, nor the opportunity to maximize the advantages FTAs afford them. At least part of the explanation may lie in the ways FTAs are used by businesses across the continent and the value they derive from them.

Rather than integrating FTAs into a comprehensive supply chain that involves importing goods at lower cost via reduced tariffs and then exporting them to global markets, most businesses are focusing primarily on the former.

Asked how they get benefit out of FTAs, businesses universally listed importing inventory at a lower cost as the top benefit. Accessing new foreign markets came a distant second, although a much more distant second in Canada than in the U.S.

Despite being called out as an economic bogeyman by protectionists, high import levels should not be cause for concern. In fact, healthy import activity tends to lower the price of goods for the country doing the importing and in many cases contributes to economic growth and employment for those industries that strategically combine imports with export opportunities.

Unfortunately, those export opportunities are not being leveraged and aren’t even being sought after to the same extent as the import opportunities, which means many businesses aren’t using trade and trade agreements in a manner that will allow them to maximize their business-development potential. There are many causes behind this but for most businesses it boils down to the complexities related to export, including a lack of understanding of the rules and regulations associated with bringing goods into foreign markets and having partners on the ground to facilitate the transport and sale of those goods.

There is cause to feel overwhelmed. In many cases, the regulations associated with bringing foreign goods into a country can be incredibly difficult to navigate, and that becomes even truer when free trade agreements are involved as they are contingent upon meeting very complex rules of origin and FTA compliance.

But the benefits of overcoming these challenges can change the entire nature and growth trajectory of businesses and even industries. Strategic import and export practices aren’t just about profitability for Canadian and U.S. businesses and the diversification of their market bases to better manage shifts in consumer confidence, exchange rates, economic conditions and protectionist sentiment. It’s also about establishing strategic partnerships that can allow these businesses to make themselves an integral part of the international supply chains of larger multinationals, solidifying more consistent and stable business and allowing them to take advantage of the benefits of global trade while mitigating some of the administrative headaches.

It boils down to seeing FTAs and trade in a broader global context, rather than just the context of individual buy-and-sell transactions. Many enterprises in emerging markets have been doing this for some time and it has contributed to a growing middle class and improved industrial competitiveness in these markets.

If Canadian and U.S. businesses are to remain competitive in the long term, they will need to begin by seeing the benefits FTAs offer them and use them strategically to build their practices internationally. Failing to do so may signal to governments that the agreements offer little value and eliminate the incentives to negotiate new and/or better deals, putting all businesses in a more challenging and less competitive position.

Candace Sider is vice-president of regulatory affairs for Toronto-based trade services firm Livingston International. She sits on the Border Customs Consultative Committee (BCCC) and is past chair and a current board member of the Canadian Society of Customs Brokers and managing director and treasurer on the board of the International Federation of Customs Brokers Association.

[Editor’s note: The three remaining parts to thus series will be published on December 5, 12, and 29.]

New Canadian practices impact shipments of export cargo and import cargo in international trade.

CBSA Credit Offsets: What Importers Need to Know

The Canada Border Services Agency (CBSA) recently changed its business process as part of phase one of the Assessment and Revenue Management Project (CARM), under Accounts Receivable Ledger (ARL). Prior to August 2, 2016 and the introduction of credit offsets, importers received refunds in the form of a check. Refunds will now be processed as a credit that offsets any debt owed to the government.

How are credit offsets applied?

If an importer has a credit balance less than $1,000, CBSA now rolls it to the following month to be applied against amounts owed to the Receiver General. If the importer has no activity within two months, CBSA disburses the residual credit to the importer. Credit balance more than $1,000 will roll to the following month and be applied against any outstanding debt even if not due. This new process could present a potential challenge for importers that have come to rely on CBSA refund checks as part of their monthly cash flow. They will now need to review their present process and alter their projections to accommodate this change.

Below are the two most important things for importers to remember about credit offsets.

Gain better visibility and oversight. Very few importers currently post their own import-secure bond and therefore do not have access to debt posted against their business number. In order to have visibility, importers should seriously consider the benefits of posting their own bond. CFOs will have direct oversight into what debt has been posted against their business number and what is owed to the Receiver General, payable on the last business day of the month.

Make the most of credit offsets. Working with a customs broker can make the accounting process more fluid. Brokers can assist importers in understanding the benefits of moving to an import-secured program and certifying for ARL, as well as the challenges associated with having zero visibility into their account. Credit offsets reduce the liability to the Receiver General for an importer, thereby providing a mechanism where an importer’s balance due is reflective of the net amount.

Companies should review their options and determine the best solution to meet their business needs. Understanding the challenges associated with ARL and moving to an offset environment is critical to ensuring companies are well positioned for CBSA’s new client-based accounting solution.

Candace Sider is vice president, regulatory affairs, Canada at Livingston International.

Canada's CARM project manages information on shipments of export cargo and import cargo in international trade.

The CBSA’s Assessment and Revenue Management Project

As the trade landscape continues to evolve and governments modernize systems in 2016, Canadian importers are already experiencing the effects of the Canada Border Services Agency’s (CBSA) Assessment and Revenue Management Project (CARM) – a large, multi-year effort that transforms how the CBSA assesses, collects, manages and reports on import revenue and trade information with Canadian importers.

CARM’s first phase, Accounts Receivable Ledger system (ARL), began implementation on January 25, replacing existing revenue and cash management systems.

What does ARL mean for your business?

CARM’s ARL phase changes the way importers see their accounting records. Aimed at simplifying and streamlining the assessment and collection of revenue from the commercial trade community, every Canadian importer with their own Account Security Number (ASEC) will experience changes including a fully integrated and centralized commercial client-based accounting system; enhanced electronic Daily Notices (DNs) detailing the receipt and posting of added and existing transactions received in ARL the previous day; and a new monthly Statement of Account (SOA) providing a summarized daily total for all documents posted within the current billing cycle, and indicating the total amount payable and the payment due date.

All importers, with or without their own ASEC, will receive ePayment and internet banking options, allowing them to pay electronically direct to the Receiver General. They will also receive credit offsets.

The first of many changes Canadian importers will experience, CARM’s ARL phase allows CBSA to more efficiently and effectively manage and report on revenues collected on behalf of the Canadian government. It is important that importers stay abreast of these updates to best prepare for the changes and take advantage of them.

Importers who hold their own ASEC should have filled out the ARL application, which prompts them to choose how they want to receive DN/SOA (directly or through their brokerage company) and choose their file format. After working with their broker and reviewing their application for accuracy, importers should have then sent the completed application to the Technical Commercial Commerce Unit (TCCU) of CBSA.

Importers that do not hold their own ASEC number will not receive an electronic DN or SOA from CBSA; however they can pick up their balance statement at any ARL designated office of CBSA by providing their business number.

ARL is only the first phase of CARM; CBSA is expected to announce more implementation milestones in the coming months. This is a significant year for regulatory changes. It is more important than ever for importers to work closely with their trade compliance teams and customs brokers to ensure they stay on top of CARM and the many other new trade developments coming in 2016.

Candace Sider is vice president, regulatory affairs Canada at Livingston International.