THE ARCTIC REPORT Arctic Update August 28, 2017 North Star Group - - PDF document

THE ARCTIC REPORT Arctic Update • August 28, 2017 North Star Group - Washington, DC / Anchorage, AK - (202) 544-6355 WWW.NORTHSTARGRP.COM / THEARCTICREPORT.COM THE ARCTIC REPORT EXCLUSIVE: A LOOK AT NAFTA RENEGOTIATION WASHINGTON, D.C. For years, Arctic industry leaders, providers were generally free to operate policymakers, and international throughout the North American market. The organizations have eagerly promoted the resulting economic integration between the future of international trade in the Arctic. The United States, Mexico and Canada is now annual breaking of global heat records extensive. Canada is the leading market for suggests an ice-free Arctic may come sooner U.S. exports, and Mexico is the United States’ second large st export market. The than expected. Open shipping routes through the Northwest Passage and the Northern Sea largest categories of traded goods include Route would make Arctic shipping, which automobiles and parts, petroleum products, was once a dream, a reality. and industrial machinery and equipment. In 2016, trade between Alaska and Canada Stacy Ettinger, Partner at K&L Gates, has surpassed $1 billion; trade between Alaska extensive experience in international trade and Mexico was over $64 million. policy and trade negotiations. She provides the following summary of the NAFTA NAFTA Negotiations Are Underway renegotiation process. Officials from United States, Canada and Benefits of NAFTA Mexico met in Washington DC August 16-20 to begin negotiations to modernize NAFTA. Negotiated 25 years ago, NAFTA was the The second negotiating session is scheduled most comprehensive free trade agreement at for September 1-5 in Mexico City. The three the time. With a few exceptions, tariffs on countries have set an ambitious negotiating goods produced and traded within North schedule, with a plan to hold a total of seven America were reduced to zero. Barriers to rounds of talks before the end of the year. The investment were eliminated. And service following is a brief discussion of the schedule August 28, 2017 The Arctic Report 1 of 3 A North Star Group Publication

for NAFTA renegotiation, key issues likely between the NAFTA partners that to be on the negotiating agenda, and the previously qualified for duty-free economic relationship between the United treatment could become subject to States and its NAFTA partners. tariffs. While U.S. import duties generally are relatively minimal, the Renegotiation Schedule same cannot be said for Mexican and Canadian import duties. Given the With elections scheduled in the United States extensive reliance on integrated and Mexico in 2018, the NAFTA cross-border supply chains, the renegotiation process will be a political additional duties could drive liability if it drags on too long. The plan, manufacturers to rethink their therefore, is to finalize an agreement before sourcing strategies and consider the end of the year. With input from suppliers outside the NAFTA region. businesses and other stakeholders, Global and domestic automakers are negotiators are planning to table text on all against “strengthening” NAFTA issues by the end of September. After rules of origin because that would negotiations wrap up and the Agreement make the U.S. auto and signed, the House and Senate will need to manufacturing sectors less vote on, and the President will need to sign competitive worldwide. Unions legislation implementing the Agreement. support increasing the North Mexico and Canada also will need to vote to American content requirement. implement per their domestic legal requirements, before a new, “modernized” • Energy Production and NAFTA takes effect. Transmission . Canada and the Issues on the Agenda United States greatly expanded their bilateral energy trade under NAFTA. All three countries go into NAFTA Mexico is in the process of opening modernization negotiations with their own its oil, gas and power sectors and is objectives. Key issues include the following: looking to incorporate provisions in • Tightening Rules of Origin . The NAFTA to ensure its energy United States is looking to “update industries are included in regional energy trade. and strengthen” the rules of origin “to ensure that the benefits of NAFTA go • Eliminating Red Tape . The United to products genuinely made in the States, Canada and Mexico will likely United States and North America.” find common ground on proposals This suggests raising the North regarding regulatory and customs American content requirement for processes that would reduce goods to qualify for duty-free bureaucratic delays and “red tape.” treatment. Parts and inputs sold August 28, 2017 The Arctic Report 2 of 3 A North Star Group Publication

Given the magnitude and frequency lumber. Expect both countries to of cross-border transactions between stand their ground to protect sensitive NAFTA partners, any agreement on agricultural industries. modernization, simplification and Engage with Government Officials harmonization of customs procedures and processes would result in The issues discussed above are just some of significant cost savings, particularly the items on the NAFTA renegotiation for small and medium-sized agenda. NAFTA modernization efforts are on businesses. Encouraging regulatory the fast track, and now is the time to engage cooperation as a way to improve with government officials to ensure transparency and regulatory negotiating text reflects business and industry compatibility would likely have interests. similar benefits. For more information • New Rules for Digital Trade . The Ms. Ettinger is available to further discuss United States, Canada and Mexico Arctic trade or other commercial matters and also have mutual interest in may be reached at establishment of strong rules stacy.ettinger@klgates.com. This promoting and protecting e- information is exclusive to the subscribers of commerce and digital trade. The The Arctic Report, a service of the North Star NAFTA countries agreed to such Group. For more information on how you can rules, including prohibiting customs connect with expertise to assist with your duties on digital goods and services, Arctic endeavors, contact Veronica Slajer as part of the TPP (Trans-Pacific and the North Star Group team at Partnership) negotiations. Digital vaslajer@northstargrp.com. trade was in its infancy when NAFTA was negotiated, and there is support among the three countries to address this issue in the ongoing NAFTA modernization efforts. • Market Access for Agricultural Goods . NAFTA has been very beneficial for cross-border trade in agricultural goods. However, certain products continue to be a source of serious friction between Canada and the United States, including dairy and August 28, 2017 The Arctic Report 3 of 3 A North Star Group Publication