The US and Mexico have moved closer to solidifying a new trade agreement that would revise and update NAFTA.
While Canada is part of the trilateral deal, they have not been involved in the drafting of the agreement. Both Mexico and the US believe the agreement is comprehensive agreement and the pressure is on Canada to sign without making changes.
What this means for US and Mexican businesses
This deal will have a great effect on the automobile industry and the jobs related to it. The agreement resolves one of the controversial issues under NAFTA regarding the rules of origins for cars. NAFTA had required that a certain percentage of car parts be from countries within the NAFTA region in order to avoid trade/customs tariffs.
Under this new deal, 75% of an automobile's value must be manufactured in North America, up from NAFTA's current level of 62.5%. It would also require 40% to 45% of the car to be made by workers earning a higher wage, at least $16 an hour. Both of these changes, and others, should result in more jobs and higher wages for US auto workers. However, the result could be higher costs for automobile producers and suppliers, and ultimately more expense for consumers purchasing of a car.
The new deal also speaks to modernizing the laws about digital commerce, which is an area where the US believes that its innovative products and services have a significant competitive advantage. The proposed agreement also:
- prohibits customs duties from being applied to digital products distributed electronically,
- ensures that data can be transferred cross-border,
- minimizes limits on where data can be stored and processed so as to enhance and protect the digital ecosystem,
- guarantees that enforceable consumer protections apply to the digital marketplace
- focuses on numerous elements that will help this industry thrive rather than becoming more constrained.
The new agreement will maintain zero tariffs on agricultural products and will include advanced biotechnology to support agriculture innovations.
The deal looks to be helpful to some key demographic constituents in the US, and overall does not appear to be overly detrimental to businesses that already have invested in Mexico. It may greatly benefit Mexico, as it is long-term and will promote economic stability for the country.
There is a possibility of the elimination of NAFTA's Chapter 19 which is the treaty's dispute resolution mechanism. This section has allowed for Canada to create an independent panel to resolve disputes about antidumping and countervailing duties are put on products imported into the US (rather than using the US judicial review process.) The US wants to remove Chapter 19 because it could potentially infringe on America's sovereignty. This section has been important for Canada's pork and lumber industries and Canada will fight to keep it.
The new agreement will be valid for 16 years with a review every six years that can extend the pact for another 16 years.
As specialists in cross-border goods and people, TMF Group can help your company understand the implication of changes in trade deals. With offices in the US, Canada and Mexico, our local experts possess the knowledge and experience to help your business thrive.
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