The latest monthly round-up of updates to key free trade agreements and trade preference programmes involving the US, EU and Japan covers developments in August 2018. Trade agreements, rules of origin, tariffs and schedules are all covered in depth in re:source, the new online strategic planning tool from the team behind just-style.

UNITED STATES

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North American Free Trade Agreement (NAFTA)
The Office of US Trade Representative (USTR) announced 27 August 2018 that the United States and Mexico have “reached a preliminary agreement in principle” to update the 24-year old North American Free Trade Agreement (NAFTA). According to USTR, compared with the existing NAFTA, the new trade deal will:

  • Strengthen the labour and environmental protection provisions;
  • Provide stronger and more effective protection and enforcement of intellectual property right protection;
  • Reduce various non-tariff barriers facing US agriculture exports;
  • Include new rules of origin and origin procedures for autos (including requiring 75% of auto content be made in the US and Mexico AND 40-45% of auto content be made by workers earning at least US$16 per hour);
  • Include new chapters dealing with digital trade and textiles;
  • Include a 16-year “sunset period” with a review every six years, at which time the parties can renew the deal for another 16 years.

Specifically for the textile and apparel sector, USTR said that: “The new provisions on textiles incentivise greater US and Mexican production in textiles and apparel trade, strengthen customs enforcement, and facilitate broader consultation and cooperation among the Parties on issues related to textiles and apparel trade.” More specifically, the new textile chapter in the new trade deal will:

  • Promote greater use of Made-in-the-USA fibres, yarns, and fabrics by limiting rules that allow for some use of non-NAFTA inputs in textile and apparel trade; and requiring that sewing thread, pocketing fabric, narrow elastic bands, and coated fabric, when incorporated in apparel and other finished products, be made in the region for those finished products to qualify for trade benefits.
  • Include textile-specific verification and customs cooperation provisions that provide new tools for strengthening customs enforcement and preventing fraud and circumvention.

USTR’s statement didn’t go into specifics, but it is likely that the new trade deal will allow more limited tariff preference level (TPL) than the existing NAFTA.

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Further, on 31 August 2018, President Trump formally notified the Congress of his intent to sign a trade agreement with Mexico – and Canada, and said the new agreement would replace the existing NAFTA. To meet the Trade Promotion Authority (TPA) timeline requirement:

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  • The Office of US Trade Representative (USTR) must publish the full text of the agreement by 30 September (i.e., 30 days after notifying Congress), which will be the window that USTR and Canada still can negotiate;
  • The earliest that President Trump can sign the agreement will be 29 November (i.e., 90 days after notifying the Congress);
  • The US International Trade Commission has until 14 March 2019 (i.e., 150 days after President signing the agreement) to release an assessment of the new trade agreement;
  • Afterward, the Trump Administration will need to work with the Congress to develop legislation to approve and implement the agreement.

From a legal perspective, the relationship between the new bilateral trade agreement and the existing NAFTA remains unclear. The US and Canada will continue the trade negotiation in the first week of September 2018, and the outcome will decide whether NAFTA will continue to be a trilateral agreement or will be replaced by bilateral ones.

African Growth and Opportunity Act (AGOA)
On 27 August, the US and Kenya agreed to establish a trade and investment working group, which will support comprehensive trade policies and lay the groundwork for stronger future trade relations between the two countries. Kenya is a member of the African Growth and Opportunity Act (AGOA) and eligible for the “third-country” fabric provision in the agreement.

Thanks to AGOA, between 2001 and 2017, Kenya’s apparel exports to the US increased by as much as 424%. Nevertheless, the utilisation of AGOA overall has been suboptimal, and through the working group, Kenya seeks greater US support to optimise available opportunities in the remaining seven years of AGOA.

EUROPEAN UNION

European Union-West Africa Economic Partnership Agreement
On 9 August, Gambia became the 14th West African country to have signed the region-to-region Economic Partnership Agreement (EPA) with the EU. The EU-West Africa EPA covers goods and development cooperation. The EPA also includes the possibility to hold further negotiations on sustainable development, services, investment and other trade-related issues in the future.

The other 13 West African countries that have already signed the EPA with the EU between 2014 and 2017 include Benin, Faso, Cape Verde, Côte d’Ivoire, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Senegal, Sierra Leone, and Togolese Republic.

However, Nigeria and Mauritania have not signed the EPA yet. After signature by all the parties, the EPA will be submitted for ratification.

JAPAN

Regional Comprehensive and Economic Partnership (RCEP)
The Sixth Regional Comprehensive Economic Partnership (RCEP) Ministerial Meeting was held in Singapore from 30-31 August. The 16 members of the proposed trade pact are hoping to reach a “substantial conclusion” by mid-November 2018. According to news sources, the negotiations have reached a “critical stage” and a conclusion is “finally in sight.”