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The sixth round of the NAFTA 2.0 negotiations concluded on January 29 in Montreal. Some of the key areas covered in this round are summarized below.

Auto rules of origin continued to be a major topic of discussion. The standing US proposal – to increase regional content from 62.5% to 85% and establish a new 50% US content requirement – has seemingly gotten no traction with Mexico and Canada. The Canadian team proposed new, purportedly US-favorable rules for the calculation of regional content (e.g., including in the content calculation costs such as research and development and software development). At the close of the round US Trade Representative Lighthizer rejected this new idea.

Also remaining in the spotlight was the US push for the elimination of Investor-State Dispute Settlement (“ISDS,” which US businesses have used with great success in challenging Mexican and Canadian regulations), or at least for an amendment that would allow a country to “opt-out” of ISDS. The report from the sixth round is that rather than accept an ISDS opt-out right (that would, in effect, require Mexican and Canadian investors to pursue their claims in the US judicial system rather than in arbitration), Mexico and Canada would prefer to simply remove ISDS altogether. In that case, Mexico and Canada suggested, they might establish ISDS on a bilateral basis.

Related to the ISDS issue, shortly before the sixth round began, Mexico provided dispute resolution comfort to foreign investors by signing the International Centre for Settlement of Investment Disputes (ICSID) Convention. Once the signature is ratified by the Mexican senate, investors will be able to have their claims resolved under the standard ICSID rules. Foreign investors prefer to invest in countries that allow them to challenge the host government via the ICSID dispute resolution system and avoid local courts. The ICSID Convention is particularly strong in prohibiting local court proceedings that often are initiated to delay or resist recognition of international arbitral awards. The importance of Mexico’s ratification of the Convention will increase in the event ISDS under NAFTA is effectively eliminated.

Some major sticking points that do not seem to have progressed significantly during the sixth round include: (i) the US “sunset” proposal, under which every five years the agreement would automatically expire if the three parties do not express agree to extend it; (ii) the US proposal to limit Canadian and Mexican access to US government contracts (the “dollar-for-dollar” scheme that would cap the market access for US contracts at the sum of Mexico and Canada’s market access over a certain time frame); and (iii) the US proposal to remove the Chapter 19 arbitration panel review of domestic anti-dumping and countervailing duty decisions, which Canada has classified as a deal-breaker. Although there was no indication that Chapter 19 was discussed during this round, it seemed to loom over US Trade Representative Lighthizer’s round-closing comments criticizing Canada for its recent request for WTO consultations concerning US anti-dumping and countervailing duty proceedings, a move that many posit was prompted by Canada’s fear that the NAFTA talks result in the elimination of Chapter 19.

A significant development arising out of the sixth round was the consistent signal that the parties are prepared to continue negotiating beyond the current official March 31 deadline. Consistent with that theme, in his State of the Union Address President Trump refrained from hinting at a possible US withdrawal from the agreement. He did not specifically mention NAFTA in the address, but the “fact sheet” issued in connection with the address referred to his administration’s being in the process of “renegotiating and modernizing” the agreement.

The idea of a lengthened timeline certainly seems logical in light of the impending political seasons, particularly in Mexico and the United States. It is unclear, however, whether incumbents would prefer to enter the electoral calendar pushing for a new and improved NAFTA or defending their approval of a signed deal.

Finally, the parties announced their completion of a new NAFTA chapter, titled “Transparency and Anti-Corruption.” The text of the chapter has not been made public, but reportedly, it establishes measures that might be stronger than those tabled in the context of the TPP, and would be enforceable under a dispute resolution mechanism. The importance of this development should not be overlooked. Foreign investors with strict compliance policies and code of conduct protocols should find this development reassuring and conducive to setting a level playing field for investors throughout the region. Because treaties have the same status as laws under the Mexican Constitution, some see the negotiation of this chapter as a way of building on Mexico’s recently enacted National Anti-Corruption System.

The seventh round of negotiations is scheduled for February 26 through March 6, in Mexico City. The parties reportedly agreed to hold an eighth round, in Washington, the dates for which have not been announced.

We hope this is helpful. Since the initial NAFTA negotiations began over twenty-five years ago, Baker McKenzie has had a unique, multi-disciplinary and multi-jurisdictional team in place to assist clients with NAFTA-related issues. If you have any questions, please contact one of the individuals listed below, or your primary Baker McKenzie contact.

Author

Paul Burns has over 30 years of experience advising clients on all aspects of international trade and commodity tax, including significant experience advising on Canadian customs and export control matters. For many years, he served as the Practice Group Coordinator of the International Commercial Practice Group in Baker & McKenzie’s Toronto office.

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Amy de La Lama is a partner in Baker McKenzie's Chicago office. She has assisted a wide array of companies (financial institutions, retail companies, sourcing providers, online businesses) in addressing legal issues related to global privacy and data collection, data security, information technology and related restrictions on data collection and movement.

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Raymundo Enriquez is currently a partner in Baker McKenzie's Antitrust Practice Group in Mexico City. Mr. Enriquez focuses his practice on foreign trade and competition law. He advises and represents clients in proceedings before the Mexican antitrust authority. He also has extensive experience assisting clients in a wide range of issues involving merger control, compliance programs, cartel investigations and antidumping proceedings involving WTO.

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Adriana has over twenty years of experience in customs and foreign trade matters. She joined Baker McKenzie in 2001, became National Partner in 2005 and a Principal in 2018. She has prior experience working as legal director of Rules of Origin, Customs Procedures and Safeguards in the Mexican Ministry of Economy where she participated in the negotiation of several free trade agreements (FTAs) and in the first dispute settlement resolution cases initiated by Mexico against the US under the NAFTA. Adriana has been ranked a leading practitioner by Chambers and Partners at Chambers Global and Chambers Latin America as well as Legal 500 for ten consecutive years. She was an associate in our Guadalajara and Washington, D.C. offices and currently Heads the Firm’s North America International Commercial Practice Group in Mexico City.

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Rod Hunter is a partner based in the Washington, DC office of Baker McKenzie. He previously served as senior director for international economics at the National Security Council (NSC), the White House office that coordinates international trade policy and supervises national security reviews conducted by the Committee on Foreign Investment in the United States (CFIUS). In that role, he managed CFIUS cases, including negotiating resolution of the most sensitive cases, coordinating the administration’s legislative, communications, and diplomatic outreach in particular cases, and developing the government’s procedures for incorporating intelligence agencies’ assessments. He also served as senior counsel at the US Trade Representative’s office, where he litigated cases before the World Trade Organization. Prior to joining the Firm, Rod served as Senior Vice President, International Affairs, at the Pharmaceutical Research and Manufacturers of America (PhRMA), where he led the industry’s international policy agenda, and as Vice President, European Government Programs, at the IBM. Earlier, he practiced regulatory law in Brussels, Belgium for a decade, served as a judicial clerk to Judge Boyce F. Martin, US Sixth Circuit Court of Appeals, and served as an associate to Chief Justice Sir Anthony Mason, High Court of Australia.

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Janet Kim is a partner in Baker McKenzie's Washington, DC office. Ms. Kim advises clients — including US and foreign companies —on outbound compliance issues arising from the US Foreign Corrupt Practices Act, as well as in criminal and regulatory proceedings, internal investigations and compliance reviews relating to these areas of law. She also advises on the application of these laws in cross-border transactions, including mergers and acquisitions, divestitures and joint venture arrangements. Additionally, Ms. Kim helps develop and implement workable, risk-based compliance programs for companies in a wide range of industries.

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Miguel Noyola advises leading multinational companies on doing business and investing in Mexico and Latin America. Miguel concentrates his practice on cross-border acquisitions and joint ventures, and has extensive experience advising on cross-border supply chain strategies and complex commercial and licensing arrangements. Miguel has assisted many clients in developing and implementing solutions to investment, operational and compliance challenges faced in cross-cultural and international settings. Miguel chairs the International Commercial Practice Group in North America.

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Manuel Padrón-Castillo has been practicing with Baker McKenzie since 1992. He is the National Coordinator of the Foreign Trade and Customs Practice Group in Mexico, the Firm's Latin American Regional Coordinator of the International Commercial & Trade Practice Group, and member of the Steering Committee for the Global Automotive Industry Group. During his professional practice, Mr. Padron-Castillo has extensive experience in the manufacturing “maquiladora” industry in all matters associated to their business planning and compliance. He concentrated his practice in the representation of foreign investors doing business in Mexico.