Section 232 Tariffs, Chapter 19 Among Unresolved Issues With Canada, Trade Lawyers Say

Several trade lawyers see Chapter 19, dairy and steel and aluminum tariffs as the thorniest issues to resolve as Canada is invited to negotiate NAFTA this week. Dan Ujczo, chairman of the U.S.-Canada practice at Dickinson Wright, said that Mexico is considering agreeing to voluntary quotas in steel and aluminum, but that an agreement is "highly unlikely" this week, before the bilateral deal is forwarded to Congress on Aug. 31. "Canada may be able to raise the issue in its discussions; however, progress will be unlikely, given the long list of issues," he wrote in a note to clients. He predicted that the end of aluminum and steel tariffs on NAFTA partners -- and the dropping of their retaliatory tariffs -- will happen during the 90-day review in Congress.

Ujczo does not expect Canada to sign onto an agreement by Aug. 31, but is hopeful it can do so during September. The U.S. trade representative does not have to forward complete text to Congress until 30 days after notification. "It is unlikely Congress will disrupt the negotiations unless it becomes clear that no deal with Canada is possible," he said. If there is a collapse in negotiations, Congress will have to decide whether it should take half a loaf of a Mexico-U.S. deal, or push USTR to make concessions in areas important to Canada, he predicted.

Simon Lester, associate director of Cato's Herbert A. Stiefel Center for Trade Policy Studies, tweeted that he thinks Canada could give up Chapter 19, which is an enforcement tool to make sure that countries are following their trade remedy laws. This chapter has been used in the past in the perennial softwood lumber dumping arguments between Canada and the U.S. But he's not sure if Canada will accept the stricter intellectual property provisions the U.S. and Mexico agreed to, or a $100 de minimis. He doesn't know if Canada will make concessions on diary. Ujczo thinks the U.S. may not press hard on the quotas on diafiltered milk (the only recent addition to Canada's protections of its dairy producers), but rather, insist that skim milk powder produced in Canada not be dumped into world markets.

Lester said he hopes Canada will not agree to quotas on steel and aluminum. He asked, "Will Canada push its trade and gender chapter? Does it need to have a way to sell this as a 'balanced' deal, where it got something?"

Canada did get something, of course -- a shift from a U.S. quota in auto rules of origin to a wage-based quota, which benefits Canadian and U.S. factories. The new 75 percent NAFTA region requirement -- which has a four-year phase-in -- should not be a problem for many producers, economists at Scotia Bank say. They estimated that about 70 percent of Canadian-assembled autos has North American content, and that about 74 percent of Mexican-assembled autos comes from the three NAFTA countries. For the Big Three, those numbers are higher, at 80 percent in Canada, and 86 percent in Mexico.