The United States and Mexico announced an agreement on August 27, 2018 regarding key issues that have been the focus of trilateral discussions among the US, Mexico and Canada for over a year. Although no text is yet available, USTR has released fact sheets addressing certain aspects of the preliminary agreement in principle.
The three fact sheets consist of:
- Rebalancing NAFTA to support manufacturing;
- Modernizing NAFTA; and
- Strengthening NAFTA for agriculture.
USTR has not provided a timeframe for release of agreement text, however below is a summary of the key points from the three fact sheets.
Automobile Production: Under the proposed agreement, 75 percent of the content in automobiles must be sourced in North America to quality for tariff-free treatment, up from 62.5 percent under NAFTA .
- The agreement stipulates that between 40 percent percent and 45 percent of auto content must be produced by workers earning at least $16 an hour.
- Autos that could not meet these requirements would be subject to 2.5 percent normal duties – and potentially Section 232 auto duties.
Rules of Origin in Other Sectors: New rules will also be in place for industries other than automotive, including textiles, chemicals, steel-intensive products, and other industrial goods to qualify for tariff-free treatment.
Intellectual Property: Copyright holders will have full copyright protections in markets of all members countries.
Digital Trade: Tariffs will be prohibited for digital products that are distributed electronically, such as e-books, videos, music, software, and games.
Labor: In addition to requiring higher-wage factories in the automobile supply chain, the deal would require Mexico to take specific steps to recognize collective bargaining rights.
Sunset Clause: The deal calls for a 16-year agreement with a provision for review after 6 years.
Dispute Settlement: As part of the deal, the dispute settlement panels will remain for certain industries, but not others.
Agriculture: The US and Mexico agreed not to impose tariffs on each other’s agricultural goods, and not to use export subsidies.
It is important to keep in mind that any agreement must be approved by the legislative bodies of the signatory countries. In the US, the Trade Promotion Authority allows for a straight “up or down” vote on the agreement and presents the best options for obtaining Congressional approval of the agreement. In order to meet the requirements of the TPA, the agreement must be presented to Congress 90 days prior to signing. However when TPA authority was extended this year, it was based on the administration’s efforts to re-negotiate NAFTA as a trilateral agreement, and thus it is expected that submission of just a US – Mexico agreement would meet resistance in Congress.
Although Canada is currently in negotiations regarding the provisions of the US-Mexico agreement, it is unknown whether, or how quickly, an agreement could be reached by all 3 parties. One particular concern is that Mexico President Enrique Penna Nieto leaves office on December 1, 2018. In order for the US to sign the agreement by that date, the agreement must be presented to the US Congress by Friday, August 31, 2018. Thus, while it appears the US – Mexico handshake is a big step forward in the NAFTA re-negotiations, there are still a number of roadblocks and time considerations to the completion, approval and implementation of a new NAFTA agreement, whether it is bi-lateral or tri-lateral.