After nearly a year of high-level negotiations, the United States and Mexico announced a preliminary agreement on a major overhaul of the North American Free Trade Agreement (NAFTA), a trilateral accord negotiated by the governments of the United States, Canada, and Mexico. Meanwhile, Canadian officials are in Washington to try and salvage the 24-year-old accord that accounts for more than $1 billion in annual trade.
NAFTA’s terms, which were implemented gradually through January 2008, sough to remove barriers to trade and investment between the three countries.
Manufacturing
The new deal would require auto manufacturers to produce at least 75% of a car’s value in North America, up from the NAFTA threshold of 62.5%, to qualify for NAFTA’s zero tariffs. Automakers would also be required to buy more steel, aluminum, and auto parts locally, and ensure workers in Canada and the US have higher wages.
These proposals are designed to reverse years of outsourcing and improve wages in both the United States and Mexico.
Agriculture
The new deal will keep tariffs on agricultural products traded between the United States and Mexico at zero and set new standards for agriculture and calls for innovations in biotechnology. It requires Mexico to raise environmental standards to be more in line with standards in the United States.
In an effort to drive Mexican wages higher, the agreement also contains enforceable labor provisions that require Mexico to adhere to more stringent labor rights and standards.
Sunset
The United States had insisted that the new agreement contain a “sunset” clause that would cancel the agreement unless it was renewed every five years, but backed off the demand after businesses complained that it would disincentivize long-term investment in the region.
Instead, the United States and Mexico agreed to a 16-year lifespan for NAFTA, with a review every six years. That longer time horizon would give lawmakers a chance to assess the pact’s progress, while providing businesses with more economic certainty.
The Path Ahead
The White House plans to notify Congress on Friday of its intention to enter into a new trade agreement, to provide the required 90 days’ notice that would allow NAFTA 2.0 to be signed by December 1, when Mexico will install a new president.
According to Bloomberg:
President Donald Trump said talks with Canada to overhaul the North American Free Trade Agreement are going well, expressing optimism the two countries could reach a deal this week.
“We’re doing really well,” Trump told reporters at the White House on Wednesday, referring to negotiations between U.S. and Canadian officials in Washington. “They want to be part of the deal. And we gave till Friday and I think we’re probably on track.”
Earlier, Canadian Prime Minister Justin Trudeau said his government is trying to reach agreement with the U.S. this week. But Trudeau added that Canada won’t sacrifice its goal of getting the “right deal.”
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