International Law

Negotiating Factors

An Overview of the Trade Promotion Authority and a Survey of the Free Trade Agreement Landscape.

By Luis Arandia Jr.


The past two years have seen a volatile business environment. Advising Texas businesses on how free trade agreements, or FTAs, may affect the bottom line requires an understanding of legislative procedure and following new developments. This article examines the art of negotiating trade deals in the U.S. Congress under Trade Promotion Authority, or TPA, and surveys the current FTA landscape.

 

What Is Trade Promotion Authority?
Under the U.S. Constitution, the president has the authority1 to negotiate international agreements like FTAs but Congress has the sole authority2 to regulate foreign commerce. In 1934, Congress, for the first time, expressly delegated to the president the authority to reduce tariffs without additional legislation through the Reciprocal Trade Agreements Act, or RTAA. However, as trade liberalized in the 20th century, Congress altered RTAA authority to require implementing legislation to consider nontariff agreements3 that required changes in the U.S. to meet the new obligations.

 

TPA-2015
Under the Trade Act of 1974, Congress adopted “fast-track authority”4 to suspend ordinary legislative procedures (e.g., unlimited debate and amendments) and give FTA implementing legislation an up-or-down vote. In return for congressional oversight, TPA enhances the president’s credibility in negotiating FTAs by expediting the congressional approval process. Renewed four times since 1974, Congress authorized the current iteration with the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 or TPA-2015, through July 1, 2021.



Key Elements
TPA-2015 includes three main components for negotiating new and old FTAs: (1) updated negotiating objectives, (2) required consultations with Congress, and (3) expedited congressional procedures to consider implementing legislation.

First, Congress expects any new or renegotiated FTA to include TPA-2015’s new and updated negotiating objectives.5 A sample of the updated negotiating objectives for the 21st century include:

  • “Ensuring that digital trade in goods and services receive no less favorable treatment under trade rules and commitments than like products delivered in physical form”;

  • Encouraging U.S. participation in global value chains; and

  • Promoting respect for internationally recognized human rights aimed to strengthen good governance, transparency, and the effective operation of legal regimes.

Second, TPA-2015 strengthens consultations with Congress. For instance, every member of Congress has access to negotiating text and the Office of the U.S. Trade Representative, or USTR, must meet and consult with any interested member of Congress upon request.6

Finally, TPA-2015 incorporates existing expedited congressional procedures:7

  • Mandatory introduction of the FTA implementing bill in both houses of Congress and immediate referral to the appropriate committees (House Committee on Ways and Means, Senate Committee on Finance, and others);

  • Limited floor debate; and

  • Prohibition on amendments, meaning that each house must vote either up or down on the bill, which passes with a simple majority.


TPA-2015 makes the expedited procedures available for any FTAs entered into before July 1, 2021. However, there is no deadline for submitting implementing FTA legislation that is entered into before TPA-2015 expires.

 

U.S.-Mexico-Canada Agreement
Since 1994, the North American Free Trade Agreement, or NAFTA, has served as a critical driver in Texas’ economic growth. In 2018, Texas exported about $316 billion in merchandise or 19% of the country’s exports.8 The 2018 top export destinations were Mexico (about $110 billion) and Canada (about $28 billion). Likewise, in 2018, Texas imported about $107 billion in merchandise from Mexico and about $18 billion from Canada.9

On May 18, 2017, the Trump administration notified Congress that it intended to begin trade talks with Canada and Mexico to renegotiate and modernize NAFTA. On November 30, 2018, the three countries signed the proposed United States-Mexico-Canada Agreement. The USMCA, comprising 34 chapters and 14 side letters, retains most of NAFTA’s chapters with notable key differences.10



Key Provisions and Differences From NAFTA
The proposed USMCA contains notable changes to several sectors including motor vehicles, intellectual property rights, or IPR, protection; digital trade; and investor-dispute settlement. A sample of key differences is listed below:



Additionally, the proposed USMCA adds a 16-year sunset clause and a joint review every six years by the U.S., Mexico, and Canada.


Congressional Opposition to USMCA Provisions
As the 116th Congress begins considering the USMCA, House Democrats have expressed concerns to several USMCA provisions. Without the approval of House Democrats in the 116th Congress, any up or down vote on the proposed USMCA will fail.

 

Current FTA Negotiations
In addition to the proposed USMCA, the Trump administration is engaging in FTA negotiations with three major trading partners. On October 16, 2018, the Trump administration notified Congress of its intent to negotiate three separate trade agreements with Japan, the European Union, and the United Kingdom.11


Japan
As the world’s third-largest economy, Japan is the fourth-largest U.S. trade partner with $217.6 billion in total (two-way) goods trade during 2018.12 On December 21, 2018, the USTR released detailed negotiating objectives in accordance with TPA-2015 procedures.13 In the motor vehicle sector, the USTR is seeking provisions to address nontariff barriers such as discriminatory regulatory treatment. In the agricultural sector, the USTR is seeking comprehensive market access for U.S. exports by reducing or eliminating tariffs. Additionally, the USTR is seeking rules to facilitate digital trade in goods and services as well as cross-border data flows. As of November 2019, negotiations are ongoing.


European Union
In 2018, U.S. goods and services trade with the European Union, or EU, totaled nearly $1.3 trillion, the largest trading relationship in the world.14 On January 11, 2019, the USTR released detailed negotiating objectives with the EU.15 The USTR is seeking comprehensive market access for U.S. agricultural goods by tariff reduction and eliminating discriminatory nontariff barriers. The EU’s negotiation scope, however, excludes any agricultural discussion.16 Trade tensions with the EU include the Trump administration’s Section 232 tariffs on steel and aluminum articles and proposed retaliatory tariffs in a World Trade Organization dispute on aircraft subsidies. As of November 2019, negotiations are ongoing.


United Kingdom
The United Kingdom, or U.K., is currently the seventh-largest goods trading partner with $127.1 billion in total (two-way) goods trade during 2018.17 Unlike Japan and the EU, however, the U.K. cannot formally negotiate or conclude an agreement with the U.S. until it exits the EU. Uncertainty regarding future U.K.-EU trade relations further complicate any potential deal with the U.S. Will the U.K. remain in the European Union Customs Union or an alternative customs arrangement, post-Brexit? In February 2019, the USTR released its negotiating objectives with the U.K.18 As of November 2019, negotiations are ongoing.

 

Conclusion
By continuing to follow new developments of the shifting FTA landscape, Texas attorneys can apprise businesses on the latest international trade news.TBJ

 

 

ColeyLUIS ARANDIA JR.
is an international trade and customs attorney at Polsinelli in Dallas. He may be reached at larandia@polsinelli.com.

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