Over the weekend, the U.S. and Mexico came up with a trade deal compromise, a new agreement to replace the North American Free Trade Agreement (Nafta.)
“Following a final round of talks at the weekend, one person familiar with the negotiations said an agreement on “key portions” of the Nafta overhaul had been tentatively reached between officials in Washington and Mexico City, with an announcement being prepared for Monday afternoon. The officials are ready for Canada to join the talks in the coming days in order for a full package to be agreed, the person said,” writes the Financial Times.
President Donald Trump alluded to the deal last week on Twitter.
“Our relationship with Mexico is getting closer by the hour. Some really good people within both the new and old government, and all working closely together….A big Trade Agreement with Mexico could be happening soon!” tweeted Trump.
Then on Monday, he mentioned the deal with Mexico again. “A big deal looking good with Mexico!” tweeted Trump on Monday morning.
Later in the day, Trump said that Mexico and the U.S. have agreed to “one of the largest trade deals ever made.”
“I’ll be terminating the existing deal and going into this deal,” said Trump. “They used to call it NAFTA, we are going to call it the United States-Mexico Trade Agreement, and we will get rid of the name NAFTA. It has a bad connotation because the United States was hurt very badly by NAFTA.”
Nafta was signed by Canada, Mexico, and the U.S. back in 1994, but Trump has criticized it as the “worst trade deal in the history of the world” and vowed to replace it.
So what’s included in the new agreement?
According to the United States Trade Representative, it outlines new rules aiming to incentivize manufacturers to buy goods and materials in North America.
Specifically, the rules focus on the car industry and on steel. The new agreement requires that 75 percent of parts in any car sold to North America be produced in either the U.S. or Mexico.
40-45 percent of auto parts in cars need to be made by workers earning at least $16 USD per hour. Automakers who don’t comply with the new rules will pay a 2.5 percent tariff, similar to the previous Nafta.
“The accord also has new provisions aimed at raising wages and offering new rights to Mexican labor unions. Those measures target longstanding complaints by Nafta in the U.S. critics that American workers have been hurt by having to compete with cheaper labor across the border,” writes the Wall Street Journal. “U.S. officials said the deal would also beef up regional content requirements for chemicals, steel intensive products and other industrial materials. They also touted moves to strengthen rules governing supply chains in the textile and apparel industries.”
The deal will last for 16 years and will be reviewed every six years.
Trump called Mexican President Enrique Peña Nieto Monday and congratulated him on the deal. Nieto responded that he hopes Canada will soon join the agreement.
“We are starting negotiations with Canada pretty much immediately,” said Trump, who said he would be speaking to Canadian Prime Minister Justin Trudeau “in a little while.”
The Trump Administration is hoping that the progress with Mexico will force Canada to come to the negotiating table.
However, there are still some points of contention that need to be addressed.
“When Canada rejoins the negotiations, some of the thornier issues between all three countries will have to be discussed, including the US insistence on a “sunset” clause that would impose a review of the deal every five years, and the continued application of US tariffs on Canadian and Mexican steel and aluminium, which Ottawa and Mexico City would like to see dropped immediately,” writes the Financial Times. “Moreover, the approval by all three countries’ legislatures presents a complicated final hurdle. The US Congress likely to vote at the earliest in a “lame duck” session of Congress after the midterm elections in November, or next year, when it is possible that a Democratic majority will hold the reins of power.”
However, it appears as though that Canada is optimistic about the deal.
“Canada is encouraged by the continued optimism shown by our negotiating partners,” said Chrystia Freeland, a spokesman for Canada’s minister of foreign affairs on Monday. “Progress between Mexico and the United States is a necessary requirement for any renewed NAFTA agreement.”
Author’s note: Trump promised on his campaign trail to replace Nafta and he is. Although it took a little longer than expected, it’s great timing considering the upcoming mid-term elections. The rules will free up some trade as some of the tariffs come off. Farmers will be relieved to a certain extent. It will also boost the sales by the automobile industry of North American goods and materials.