Government Affairs

Negotiators Reach Deal on Revised NAFTA

Trade representatives of the United States, Canada and Mexico reached a tri-lateral agreement (USMCA) on revisions to the North American Free Trade Agreement (NAFTA) hours before the imposed deadline.

On 27 August, the Trump Administration announced that the U.S. and Mexico had reached consensus on a 16-year agreement. Canada had until 1 October to conclude its negotiations in order to be part of the deal.  

U.S. Trade Representative Robert Lighthizer, Canadian Foreign Affairs Minister, Chrystia Freeland and Mexican Economy Secretary, Ildefonso Guajardo concluded the last rounds of discussions on 31 September in Washington, DC. President Trump had imposed a deadline of 1 October in order for him to provide the required 60-day notice to Congress in time for Mexican President Enrique Pena Nieto to sign the agreement prior to leaving office. The agreement will still need to be ratified by the legislative bodies of the three countries. 

Trade agreements have a significant impact on the business relationships between countries and thus the relocation of individuals between not only the countries involved in the agreement but others as well. Depending on the details of a new agreement, companies could make shifts in the locations of their operations and personnel in the U.S., Canada and Mexico and around the globe. 

Central to the new deal is an increased requirement for more of a vehicle’s parts to be assembled in North America to avoid tariffs. The new agreement raises this level to 75% up from 62.5% in the original NAFTA. The deal also mandates an increasing percentage of parts on tariff free vehicles to come from “high wage” factories with a minimum wage of at least $16/hr. This could cause some suppliers to shift work away from Mexico to the U.S. or Canada, or to a lower wage country outside of North America. 

The new deal will also open Canadian dairy markets to increased U.S. exports. Canada has also agreed to end a system that it used to keep the prices of some milk products low. U.S. drug companies will also now be able to sell pharmaceuticals for 10 years in Canada before facing generic competition. The Chapter 19 provision, which helps resolve trade disputes between the three countries, was kept in place, a win for the Canadians. The new agreement contains increased intellectual property protections that have been updated to include new technologies that were not around when NAFTA was originally negotiated. The deal also calls for higher safety and environmental standards and states that Mexican workers must have more of an ability to organize and form unions. 

President Trump had made the renegotiation of NAFTA a key platform of his presidential campaign. On 2 February 2017, shortly after taking office, President Trump announced his intention to enter into negotiations with Canada and Mexico to revise NAFTA. 

Under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, the President needs to provide Congress with a 90-day notification before initiating trade negotiations with a country. On 18 May 2017, U.S. Trade Representative Robert Lighthizer sent letters to congressional leaders notifying them of the intent of the President to renegotiate the terms of NAFTA.

Advertisement