Washington – Crowell & Moring International (CMI) LLC is pleased to announce that Himamauli “Him” Das, former Senior Director for International Trade and Investment at the National Security Council and National Economic Council, as well as the former Acting Deputy Assistant Secretary for Trade and Investment at the Treasury Department, has affiliated with the firm as Senior Advisor. With nearly two decades of experience across the White House, the State Department, and the Treasury Department, he will serve as a consultant on trade, investment, and market access issues.

“Him brings substantial government and international experience across the Bush, Obama, and Trump administrations working with the international institutions where CMI operates,” said Robert Holleyman, CMI’s president and CEO.

Das was responsible for coordinating White House policy on trade negotiations – including the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership – and trade enforcement.  He was also responsible for trade and investment matters in international fora, including the G7, the G20, OECD, the UN, APEC, and ASEAN. At the Treasury Department, Das led negotiations related to financial services and exchange rate matters, developed rules governing the Committee on Foreign Investment in the United States (CFIUS), and played a leadership role on international financial regulatory standards and on bilateral investment treaties.

“Him has been involved with CFIUS matters at all levels of government since 2006, reviewing hundreds of transactions in that time. He understands the rapidly evolving investment and national security landscape,” Holleyman said. “With passage of the Foreign Investment Risk Review Modernization Act (FIRRMA) and new investment standards being considered globally, Him’s counsel will be particularly timely.”

Das said, “I am excited to work together with CMI to support and expand its longstanding capabilities in the areas of trade, investment and multilateral institutions. I am also enthusiastic about advancing the digital transformation initiative at CMI having long been engaged in international efforts focused on cross-border data transfers, fintech, regtech and emerging payment models.

In addition to consulting for CMI, Das serves as Chief Legal Officer and Senior Vice President of the Financial Integrity Network (FIN), a Washington-based advisory firm that provides services to governments, financial services firms, and other organizations to strengthen global financial integrity.

Das earned his J.D., Order of the Coif, M.P.P., and B.A., high distinction, from the University of California, Berkeley, and his M.Sc. from the University of Colorado

“Our nation’s ballooning trade deficit has gutted American manufacturing, killed jobs and sapped our wealth,” wrote Wilber Ross, the U.S. Secretary of Commerce, in a recent op-ed published in The Washington Post titled “These NAFTA rules are killing our jobs.” Ross’ article focused largely on the automotive and automotive parts industry due to its large percentage of imports from Canada and Mexico as compared to other industries.

In short, he suggested that the current North American Free Trade Agreement rules of origin are outdated because the rules apply to parts no longer used. He also suggested that the rules are lenient from a content perspective due to the concept referred to as “substantial transformation,” which, in some circumstances, qualifies non-NAFTA articles as originating within the territory due to further processing in the U.S., Mexico, or Canada. As a result of the current rules, he argued, the declining share in NAFTA content, as well as U.S. content specifically, in automobiles are causing the trade deficit with our NAFTA partners as well as putting jobs in the automotive manufacturing industry at risk.

Ross’ outlook on the effects of the NAFTA rules of origin is met with some opposition from certain U.S. automotive industry groups and leaders, such as the Motor and Equipment Manufacturers Association, which claim that the rules of origin were never intended to create jobs. Instead, they claim the intent was to connect supply chains and allow U.S. businesses to remain competitive in the global market, particularly with Asia and Europe.

Despite such disagreements, the Trump administration is pushing ahead and has made it clear in its published objectives for the NAFTA renegotiation that the goals are, in part, to create more stringent rules of origin in an effort to increase the total NAFTA content requirement in a given product, as well as increase the U.S. portion of that requirement.

The development of unrealistic rules, U.S. automotive industry groups argue, would increase manufacturing costs, resulting in increased consumer prices and elimination of U.S. jobs. Certain interests argue that if content requirements become too onerous, automakers will not bother to claim NAFTA preference and will simply pay the applicable duties.

One way or the other, change is coming, and it will likely have a strong impact on the future of the industry.

For more information and assistance monitoring this issue, contact: Amanda Simpson

Escalating tensions between the U.S. and Mexico threatened to put the North American Free Trade Agreement (NAFTA) at risk for the first time since its birth in 1994. On January 26, Mexican President Enrique Peña Nieto announced his decision to cancel Mexico’s participation in the ‘three amigos’ meeting in Washington, D.C. The purpose of the planned meeting between the U.S., Mexico, and Canada was to discuss their current trade relationship, including the possibility of renegotiating NAFTA.

Following cancellation of the presidential summit, however, President Trump and President Peña Nieto spoke by phone on January 27 in an effort to put the bruised bilateral relationship back on track. The two leaders agreed not to talk publicly about “the wall” between Mexico and the U.S., or how it would be ultimately financed. Mexico’s Secretariat of Economy soon published a notice that it was proceeding with a 90-day consultation period with Mexican companies, to determine priorities from Mexico’s point of view for renegotiating NAFTA. Mexico is also pursuing a parallel renegotiation of its free trade agreement with the European Union.

Although the Trump administration has not as yet issued any notice calling for consultations or public comments from interested parties about NAFTA, President Trump remarked to members of the House Ways and Means and Senate Finance Committees in a meeting at the White House on February 2 that he hoped to accelerate discussions with Mexico and Canada on reworking NAFTA. All indications are that President Trump seems focused on renegotiating NAFTA – and perhaps even rebranding it – but not withdrawing from the agreement.

The prospect of renegotiating NAFTA raises a number of possible issues, including efforts by the Trump administration to develop certain “model approaches” to trade issues in NAFTA that could then be applied in subsequent negotiations with other partners. Examples of issues likely to be prominent in the Trump administration’s thinking are rules of origin for the auto sector and possibly textiles and apparel, disciplines over the production of steel and aluminum to prevent over capacity in the market, and rules governing trade in the North American energy sector. Details await the confirmations of Secretary of Commerce-designate Wilbur Ross and USTR-designate Robert Lighthizer. House Ways and Means Ranking Member Richard Neal (D-MA) has already mentioned including provisions on currency manipulation, and incorporating articles on labor and the environment in the NAFTA text.

American business will need to provide views to shape such proposals and minimize disruptions to North American supply chains.

For more information, contact: Melissa Morris, Patricia Wu, John Brew, Daniel Cannistra, Eduardo Mathison

Escalating tensions between the U.S. and Mexico have put the North American Free Trade Agreement (NAFTA) at risk for the first time since its birth in 1994. On January 26, Mexican President Enrique Peña Nieto announced his decision to cancel Mexico’s participation in the ‘three amigos’ meeting in Washington, D.C. The purpose of the planned meeting between the U.S., Mexico, and Canada was to discuss their current trade relationship, including the possibility of renegotiating NAFTA.

With the future of NAFTA uncertain, there are a number of issues and scenarios companies should be aware of.

PRESIDENTIAL AUTHORITY

Whether the president has the power to withdraw the U.S. from NAFTA—and other Free Trade Agreements (FTA)—without congressional approval has been subject to debate. The majority view is that President Trump can unilaterally terminate NAFTA on his own authority to negotiate trade agreements delegated by Congress, and on the basis that NAFTA should be considered an executive agreement. However, a legal challenge may be expected in U.S. courts, whether successful or not. President Trump may also require action by Congress to repeal any amendments to U.S. domestic law pursuant to the NAFTA Implementation Act.

If the U.S. withdraws from NAFTA, duties or other import restrictions may remain untouched for one year after the date the withdrawal becomes effective (the Withdrawal Day)¸ which is 18 months after the date of the notice of termination (the Notice Day). That said, the Trade Act of 1974 allows an increase in tariffs within this timeframe in exceptional circumstances if the president “by proclamation provides that such rates shall be restored to the level at which they would be but for the agreement.” The president will also have 60 days after the Withdrawal Day to submit to Congress recommendations as to the appropriate rates of duty for those articles which were affected by the termination.

For more information regarding the president’s authority and the challenges he might face in withdrawing from NAFTA and/or other FTAs, please see Crowell’s podcast: Trade and Jobs: What Trump Can and Can’t Do in the First 100 Days, part of Crowell & Moring’s “First 100 Days” Series about the regulatory changes emerging from the White House under the new administration.

ARTICLE 2205: WITHDRAWAL

Article 2205 of NAFTA provides that “[a] Party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties.” Importantly, this provision also states that if “a Party withdraws the Agreement remains in force for the remaining Parties.” This means that a withdrawal notice either by the U.S. or Mexico does not automatically terminate the Agreement with respect to Canada unless such notice is explicitly intended to include the other two Parties. In any event, the U.S.’ participation in NAFTA would be officially terminated six months after the Notice Day, unless the Parties are able to reach an agreement to reestablish NAFTA before the deadline.

‘LAST CALL’ FOR INVESTORS

The U.S.’ exit from NAFTA would also mean certain investors would lose the Investor-State Dispute Settlement (ISDS) protections contained in Chapter 11 of the Agreement. Although Article 2205 suggests that investors would be able to bring new cases during the six months after the Notice Day, investors will actually have a shorter 90-day window to initiate arbitration pursuant to Article 1119. Once the withdrawal takes effect, U.S. investors would no longer be able to bring claims against Mexican and/or Canadian authorities resulting from government illegal expropriations, or arbitrary or discriminatory actions affecting investments. For more details on ISDS protections, please see Crowell’s client alert on the potential implications of NAFTA’s termination on Chapter 11.

RESURRECTION OF PAST AGREEMENTS POST-NAFTA

Upon implementation of NAFTA, the U.S. and Canada agreed to suspend operation of the U.S.-Canada Free Trade Agreement (FTA) to coincide with NAFTA’s entry into force in January 1994. If NAFTA is revised or repealed, the U.S.-Canada FTA could be re-established. This would require changes to the statutes and regulations of both countries, which in the case of the U.S. would require congressional action.

There has also been discussion about reinstatement of the Automotive Products Trade Act (APTA) after NAFTA. APTA provided for duty free treatment of motor vehicles and original motor-vehicle equipment which are of Canadian or U.S. origin. However, Canada’s APTA statutes were challenged at the WTO by Japan and Europe on the basis that they were inconsistent with Canada’s obligations under Article III of the General Agreement on Tariffs and Trade (GATT) and Article 3 of the Agreement on Subsidies and Countervailing Measures. Europe and Japan won the dispute in 2001, and as a result, Canada repealed its APTA related statutes and regulations shortly thereafter. Thus, APTA will not be available to fill any gaps left by NAFTA.

CONTINGENCY PLANNING

Although tariff rates would increase with the termination of NAFTA, the cap on the rate increase is the current Most Favored Nation (MFN) tariff rate (i.e., the import duty assigned to non-Free Trade Agreement countries). This rate is below five percent in most instances, although it varies by product.

Termination of NAFTA would reinstate the applicability of traditional import duty programs such as duty drawback with respect to imports from Canada and Mexico. Duty drawback is the refund of import duties paid when those imports are incorporated into a manufactured product that is then exported. NAFTA termination potentially implicates agriculture laws, user fee laws, intellectual property laws, temporary entry laws, sanitary standards, government procurement laws, and state-to-state dispute settlements.