LEGISLATIVE UPDATE:

The North American Free Trade Agreement (NAFTA), which entered into force in January 1994, was the first international trade agreement by the United States to address intellectual property rights (IPR). Now, nearly 24 years later, the agreement is under renegotiation deemed necessary due to rapid transformation of the three nation’s economies and supply chains. The process, which began in August of this year, has been rocky. Progress has been stalled by three issues: percentage of U.S. content in automobiles, a “sunset” provision to readdress NAFTA in 5 years, and a mechanism by which to address disputes between foreign corporations and the government where they are trading. These “poison pills” have jeopardized the fate of both the renegotiation and existing NAFTA treaties, and delayed negotiation rounds.

Based on the current climate, we assess what a renegotiated NAFTA might look like for brand owners, the timing necessary for such an agreement, and the possible alternatives should an accord not be reached.

NAFTA Intellectual Property Protections – Past and Future

In the original agreement, NAFTA’s Chapter 17 on intellectual property addressed IPR at a broad level, establishing tenets to protect intellectual property rights holders, enforce these protections, and offer dispute resolution mechanisms for IPR infringements. New provisions will likely include stronger enforcement mechanisms, additional provisions to reflect the changing eCommerce environment, and elements of text from the previously negotiated, but not implemented Trans-Pacific Partnership agreement.

New Priorities for NAFTA 2.0

The Trump administration’s key objectives in renegotiating NAFTA are to reduce the trade deficit and better protect U.S. industries. Protection and enforcement for U.S. owned brands and intellectual property falls into this category. On November 17, the Trump administration shared its updated NAFTA Renegotiation Objectives, which include the modernization of the IP chapter. Objectives include: commitment to adoption of international treaties such as the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), better enforcement mechanisms for victims of IP law violations, provisions to tackle IPR issues related to eCommerce and cybertheft, and provisions to mirror the level of protection found in current U.S. law.

Repurposing Text from TPP

The United States, Mexico, and Canada were all members of the Trans-Pacific Partnership trade agreement until the United States withdrew earlier this year. The fact that all three countries reached consensus in the agreement, including on intellectual property rights issues, provides negotiators strong building blocks of drafted text which can be repurposed for NAFTA renegotiations.

Working Against the Clock

NAFTA negotiators have faced a race against time from the onset of renegotiations. An ambitious deadline of late 2017 was initially set, in order to avoid negotiations during Mexico’s Presidential campaign and election. The timeline slipped after the fourth round, as negotiators agreed they needed more time between sessions. The fifth round took place November 17-21 but focused specifically on technical details and did not address major controversial themes; the top trade negotiators from each country also did not attend. The sixth round is scheduled for January 23-28 with additional technical discussions in mid-December.

In addition to the Mexican election on July 1, 2018 and the campaign season leading up to it, another deadline looms.  As outlined in the Trade Promotion Authority Act (TPA), the U.S. Congress must approve the new NAFTA with a simple yes/no vote. However, the ability to carry out this simple vote depends on the extension of the TPA, which expires July 1, 2018. Without TPA to prohibit amendments to the agreement, each of the 535 Members of Congress could introduce and seek votes on multiple amendments to the text, thus nullifying the carefully agreed upon text with Canada and Mexico. This led Secretary of Commerce Wilbur Ross to comment “If we lose TPA, I don’t think you’ll ever see a deal done here . . . In general terms, once you get into next year, nobody is going to be able to get as big and complicated of a deal as this done.” It is unlikely that the current Congress has the votes to pass an extension of TPA; therefore, a NAFTA text must be presented to Congress before the July 1, 2018, deadline.

Before an agreement reaches Congress, the U.S. Trade Representative must give the U.S. International Trade Commission time to review the text, a process which can take months. The U.S. Trade Representative must also initiate a Congressional approval process which can take as much as 90 days after the NAFTA bill has been introduced.

It’s a true race against the clock for negotiators and their governments to reach consensus on a new agreement this winter before negotiations are indefinitely paused.

Alternate Reality: Withdrawing from NAFTA

Should negotiations fail to conclude due to a stalemate or to lack of time, the United States could either choose to remain in the existing NAFTA, or withdraw from the agreement. President Trump indicated a preference for withdrawal rather than status quo, noting in an interview, “…in my opinion, in order to make a fair deal with NAFTA you have to terminate the deal and then you have to see where you’re going to come, and we will come out.” 

Should this occur, Chapter 17 of NAFTA would no longer govern the IP trading relationship among the three countries. However, since all three countries are members of the WTO, the TRIPS Agreement would still apply, providing some coverage and method of dispute settlement for brand owners.

Conclusion

As with all trade negotiations, the most controversial topics in NAFTA renegotiation appear to be left until the final rounds, after all other objectives have been met and technical details agreed upon. In this case, the ticking clock makes it difficult for negotiators to address technical details in the nearly 2,000-page agreement, while also preparing for final negotiations on controversial issues including rules of origin, the “sunset” clause, and investor-state dispute settlement. Thus far, the United States has shown little flexibility in its position on these topics, which Canada and Mexico say are deal breakers for them. It remains to be seen whether Canada or Mexico will concede or if the United States will relax its hard-line position to reach a deal before the Mexican elections and expiration of TPA cause the negotiations to cease.