Did you have a computer in your house 25 years ago?

Odds are, the answer to that question is no. In the years since, however, computers have become omnipresent, and our phones are rarely further than a couple of feet away from us. With so many devices connected to the internet, buying and selling goods and services online has transformed from a revolutionary new idea to an unremarkable daily occurrence.

The problem is that NAFTA, the largest regional multilateral free trade agreement, originally negotiated 25 years ago, hasn’t been updated to reflect these modern realities. So what should be done about that, and how will it affect the lives of international trade professionals and consumers?

Why is it so important to take NAFTA into the 21^st century?

On November 29, Canada 2020 hosted the NAFTA Goes Digital seminar to discuss these important questions and provide some answers.

The seminar was moderated by Heather Scoffield, Ottawa Bureau Chief for the Canadian Press.

The panelists were:

• Peter Clark, President of Grey, Clark, Shih and Associates and experienced Canadian trade advisor and commentator
• Laura Dawson, Director of the Wilson Center’s Canada Institute in Washington, DC
• Ari Giovenco, Director of Trade and International Policy for the Internet Association in Washington, DC

One of the earliest questions addressed why this digital chapter will be important for so many businesses.

“There’s been a prevailing idea that we can put a bubble around a national economy for goods, to control what goes in or out, and provide incentives or affect prices in other ways,” Dawson argued. “But now, we have a totally different digital economy without that bubble. Until this chapter is completed, we’re trying to apply old rules to a new situation that doesn’t fit them.”

Giovenco then explained that this chapter will affect any business using e-commerce that allows sales beyond domestic borders, whether they’re intentionally going after international customers or not.

“The internet is a borderless medium, so companies can go international without ever intending to do so. Since this is the case, how do you know things are going where they need and that people have the access they want? What are the rules about advertising on social media, monitoring and controlling the flow of data, copyright legislation, or customs and tariffs that can be added to products purchased through e-commerce?”

Dawson explained that most digital issues discussed in the NAFTA talks fall under one of four categories: freedom to move data across borders and prohibiting data localization, technology service provider freedoms, protecting IP (copyright, source codes), and customs facilitation and digital supply chains.

When could we start to see changes come into effect?

The prevailing consensus among the group of experts was that most of the pressing digital issues had already been addressed during the TPP negotiations. While that agreement was never put into effect, the decisions were easily transferable from the original TPP text, with small modifications to reflect the specific NATFA context as well as changes in the digital realm since those negotiations took place in 2012.

“Many of the negotiators on the digital chapter of NAFTA are the same people who had negotiated these issues in the TPP, and can essentially continue the same debate,” explained Giovenco. “There’s a lot of goodwill because everyone realizes how many companies are affected.”

Clark added that liability issues for service providers is the only major issue still without resolution, and that there should be an agreement in the near future.

Dawson countered that there are so many potential liability issues to tackle, from legal to financial and others, which may still prove a challenge for negotiators.

Despite the fact that negotiators of the digital chapter are aligned on most issues, its place within the larger NAFTA framework may delay its implementation. There are also certain topics such as service exports and finances, that need to be updated before aspects of the digital chapter can be finalized.

Who benefits most, and what may change?

One important change that may be coming, according to the panelists, is an increase to Canada’s de minimis threshold, or the value of goods Canadians can bring back into the country without paying duties. While the U.S. de minimis is set at $800, Canada’s is just $20, one of the lowest in the industrialized world.

The U.S. has advocated for Canada to increase their de minimis to at least $200, and studies have shown that Canada currently spends more to enforce this regulation than it reaps in duties.

“Canada will not want to be forced by the U.S. into giving too much,” Dawson explained. “Along with dairy access, de minimis is one area where Canada has not moved so far, but has room to do so.”

Clark agreed, and predicted it would move to somewhere between $200-300 by the end of negotiations. This would facilitate an increase in duty-free online shopping for Canadians from American websites, a popular demand from consumers across the country.

Giovenco offered that finalizing the digital chapter is crucial for many companies and would serve to foster further innovation and technological development.

“About 425,000 jobs and billions of dollars’ worth of business are affected by laws governing safe harbours for IP and copyright. Canada and the U.S. have different laws governing these issues, while Mexico has very few in place, so it’s essential to unify these laws in order to drive innovation and open the three markets to companies.”

While the U.S. or other parties may prove to be short-term winners, there was unanimous agreement that this chapter would be a win for everyone in the long-term, especially service providers and exporters in Canada, the U.S. and Mexico.

One final lingering concern is the way that major global corporations like Google or Netflix may or may not be regulated. Giovenco was most concerned with opening access, while Dawson focused on how to protect user data or prevent such companies from erasing Canadian culture.

It’s safe to say that NAFTA’s digital chapter will have a major impact on North American trade. By enacting a framework that aligns with the 21^st century realities of digital trade, and deals with major issues like liability, digital privacy and IP protection, companies will have a clear path to digital expansion and expanding their businesses across the NAFTA region.

The post NAFTA will soon have new digital trade rules – how will they affect you? appeared first on Trade Ready.

To get a sense of the types of changes to expect we can look at the contrasting the viewpoints held by incoming U.S. Trade Representative Robert Lighthizer with those of his predecessor, Michael Froman.

The two men take nearly opposite approaches to trade: According to Lighthizer, American jobs and businesses must be protected from what he views as unfair global competition, while Froman has expressed that negotiating free trade deals helps America to set the standards for international trade policies that benefit American economic growth.

Their differences are illustrated by their past statements on trade, along with their stances on two major trade issues: Renegotiating NAFTA and reducing the trade deficit with China.

Protectionism vs. globalism

Lighthizer is a well-known trade attorney who served as the United States’ deputy trade representative under Pres. Ronald Reagan. He has long cautioned Republican lawmakers against free trade and encouraged protectionist policies as a way to spur economic growth. He has also been an outspoken supporter of Trump’s protectionist trade policies since his unsuccessful 2012 run for president.

“The recent blind faith some Republicans have shown toward free trade actually represents more of an aberration than a hallmark of true American conservatism,” Lighthizer wrote in a Washington Post piece voicing his support for Trump in 2011.

Since accepting the nomination to serve as Trump’s Trade Representative, Lighthizer has reinforced his support for Trump’s anti-trade “America First” policies.

Froman, a former treasury department chief of staff, assistant to the president and deputy national security adviser for economic affairs for both Clinton and Obama, had served as trade secretary since June of 2013 and actively worked toward free trade agreements. Froman has said that establishing free trade agreements allows U.S. industries to profit from their surpluses, and it allows businesses to offer their services globally. At the same time, Froman has said, free trade agreements help level the global playing field for U.S. businesses.

Renegotiating NAFTA

Lighthizer: Just days he was approved as U.S. Trade Representative, Lighthizer sent a letter to the U.S. Congress announcing his intention to reopen NAFTA negotiations. While the letter did not include details of the goals of the renegotiation, or mention Trump’s previously stated objectives in renegotiating the treaty, Lighthizer has said NAFTA has benefitted U.S. agriculture and investment services, but has harmed manufacturing.

Additionally, he said:

The 23-year-old trade agreement needs to be modernized to address digital trade, intellectual property rights, the rules for state-owned ventures, regulatory practices and environmental and labor regulations.

Froman acknowledged that NAFTA needed to be updated, but he said provisions in the Trans-Pacific Partnership addressed NAFTA’s blind spots. With Mexico and Canada on board for the TPP, issues left out of NAFTA, such as energy, investor protections and intellectual property rights, would have been hashed out. The now-abandoned TPP made renegotiating NAFTA irrelevant, according to Froman.

Addressing trade with China

Lighthizer: When it comes to challenging China on trade, Lighthizer has been known to use strong language. He has said that U.S. policy allows China to “rig trade in its favor” to support a $270-billion trade surplus with the United States. Lighthizer has accused China of currency manipulation, intellectual property theft and employing unfair trade subsidies. To address this, Lighthizer has said he will appeal to the WTO to use its laws to address Chinese trade violations. Trump, meanwhile, has threatened a 45% tariff on Chinese imports as a way to lessen the trade deficit.

Froman largely viewed the TPP as a strong stance against Chinese trade dominance in Asia. By negotiating the TPP, Froman said, the United States would be able to set trade standards for the region. Withdrawing from TPP would have “broad and deep consequences, both economic and strategic,” Froman has said, as it leaves China to create its own trade bloc within the region.

Withdrawing from the TPP “would be the biggest gift any U.S. president could give China,” Froman stated.

Of course, Trump announced U.S. withdrawal from the agreement as his first executive action after being sworn into office in January, 2017.

Can we expect a tempered approach?

While Lighthizer is unabashedly protectionist on his approach to trade, many trade industry experts, including those who know him personally, have said Lighthizer could be the force needed to temper Trump’s aggressive “America First” policies. After all, Lighthizer has spent his career as a trade attorney, putting trade theory into practice, and he does have experience under Reagan negotiating bilateral trade agreements. That means that while the United States’ current trade rhetoric is a marked change from the past, U.S. trade in practice may continue to be one of globalization, albeit more measured.

The post FACEOFF: How does a new U.S. Trade Representative shift the country’s approach to trade? appeared first on Trade Ready.