American Coatings Association

ACA Submits Comments to USTR on NAFTA Renegotiation


One of Presidential candidate Donald Trump’s key campaign promises was to renegotiate NAFTA, which he asserted was disadvantageous to the United States in its current form. On May 18, 2017, now-President Trump fulfilled this promise when the U.S. Trade Representative (USTR) sent a 90-day notification to Congress of its intent to begin talks with Canada and Mexico to renegotiate the NAFTA.

As part of this process, Ambassador Litghthizer, the U.S. Trade Representative, asked the public to provide input into the U.S. negotiating objectives for the upcoming modernizing the North American Free Trade Agreement (NAFTA) with Canada and Mexico. In response, on June 12, ACA submitted its comments to the USTR. In its comments ACA explained that the enhanced trade facilitated by NAFTA has been beneficial to U.S. consumer, the U.S. manufacturing sector and workforce, and the U.S. coatings industry.

The U.S. coatings industry enjoys a strong trade position, both within NAFTA and globally. In 2016, the United States exported coatings products valued at $1,531,842,275 to Canada and Mexico, with $1,040,857,987 of that total going to Canada and $490,984,288 to Mexico. These figures are comprised of a mix of waterborne, solventborne, and miscellaneous coatings products that are sold to both Canadian and Mexican consumers as well as industrial and commercial users and manufacturers. While the U.S. market did import coatings products from NAFTA as well, trade in coatings products resulted in a positive trade balance of $1,146,662,347 in our transactions within the NAFTA framework (these include a positive trade balance of $734,324,057 with Canada and $412,338,290 with Mexico).

The coatings products traded in the NAFTA region include both consumer paints, as well as coatings that are used as intermediate goods within in the manufacturing setting. Of importance to the U.S. coatings industry is the North American market for the manufacturing of motor vehicles. U.S. manufacturers, along with their global competitors, assemble cars, light trucks, and heavy vehicles at several locations in the United States, Canada, and Mexico. The extremely complex supply chains that support this manufacturing activity involve Tier 1 and Tier 2 suppliers within NAFTA and elsewhere. This trade in intermediate goods works in both direction, with U.S. suppliers selling to Canadian and Mexican manufacturers, and vice versa. ACA noted a recent Brookings Institute comment that stated “advanced manufacturing in many states greatly depends on intermediate imports from Canada and Mexico. Michigan’s automotive industry has long relied on suppliers in Canada and Mexico who provide 61 percent of Michigan’s total intermediate imports.”

Considering the strong American trade position, ACA urged that future NAFTA negotiations be accomplished in a “do no harm” approach that preserves the very real benefits that the coatings industry has seen from this trade agreement over the past two decades. At the same time, ACA offered a few areas for improvement of the trade deal with respect to re-importation of coatings products, as well as other inefficiencies, that could be improved as part of this process.

ACA underscored its belief that the upcoming negotiations should not produce outcomes that lead to either Canada or Mexico erecting new trade barriers that hinder these currently beneficial trade flows, particularly those involving coatings as an input into the manufacturing process.

ACA also offered comment on three distinct areas of NAFTA renegotiation as sought by the USTR notice for comment.

Re-importation of Goods

The re-importation of goods often arises in the context of exported merchandise that is deemed defective or obsolete, which would ordinarily result in the return of the merchandise to the producer. In the case of U.S.-origin products, the process of re-importation into to the United States is straightforward, with U.S. import procedures permitting duty-free re-importation. In contrast, the procedure for returning Canadian goods back to their Canadian manufacturer duty free is very cumbersome in practice. The complexities here result in some companies deciding not to return defective or obsolete Canadian merchandise to Canada and results in U.S. customers holding those goods having to find a market, such as a salvage outlet, or having to liquidate or dispose of those goods in the United States. ACA urged the USTR to seek simplification of Canadian goods return procedures by Canadian customs, asserting that this will result in U.S. customers being able to successfully ship Canadian-origin products back to Canadian producers on the same basis as they would with U.S. suppliers.

Customs and Trade Facilitation Issues

In general, the import and export administrative procedures between Canada and the United States are currently well streamlined. In practice, the routine exchange of substantial trade information between Canada and the United States results in the waiver of certain procedures (for example, U.S. export declarations), which simplifies and facilitates the border crossing process considerably. In contrast, the import and export administrative procedures between Mexico and the United States are more cumbersome and require more paperwork. Thus, these extra steps result in longer clearance and border crossing times. ACA asked that eliminating this divergence in customs procedures be a negotiating item in any upcoming NAFTA negotiations.

Modifications to Rules of Origin or Origin procedures for NAFTA Qualifying Goods

While they are themselves not specifically coatings, key raw material inputs classified, for example, under HS 39078 are used in coatings and in some cases, are also manufactured by coatings producers as inputs into coatings formulations. In practice, importing these products requires producers to apply (1) tariff shift rules and (2) regional value content calculations. This requirement places a considerable administrative burden on manufacturers, who must solicit supporting NAFTA certificates from suppliers of raw materials. ACA maintains that simplifying this procedure and allowing importers to apply either tariff shift rules or regional value content calculations rather than both could considerably simplify the overall process of importation.

ACA hopes to work with USTR, the Administration, and Congress to achieve a successful negotiation of NAFTA.

Contact ACA’s Allen Irish for more information.