New US-Mexico Trade Agreement

September 5, 2018

Recently, President Donald Trump announced the U.S. has reached a preliminary agreement in principle with Mexico in the renegotiation of the North American Free Trade Agreement (NAFTA). Subject to finalization and implementation, the U.S.-Mexico agreement aims to support North American manufacturing and mutually beneficial trade for North American farmers, ranchers, businesses, and workers. When concluded and enacted, the administration has said the agreement will create more balanced, reciprocal trade that supports high-paying jobs for Americans and grows the North American economy.

Throughout the negotiations, the U.S. pursued two major objectives:

  • First, to update the 24-year-old agreement with modern provisions representing a 21st century, high-standard agreement.
  • Second, to rebalance the agreement to better serve the interests of American workers, farmers, ranchers, and businesses.

Some agreement highlights include:

AMERICAN AUTO MANUFACTURING AND JOBS

  • Increasing United States and Regional Content in Automobiles and Auto Parts: Through updated automotive rules of origin, the new agreement encourages U.S. manufacturing and regional economic growth by requiring that 75 percent of auto content be produced in the NAFTA region and that key core parts always be originating.
  • Incentivizing the Use of High-Wage Manufacturing Labor in the Automotive Sector: The new agreement uses trade rules to encourage higher manufacturing wages by requiring that 40 to 45 percent of automotive content be made by workers earning an average base wage of at least $16 per hour. 

LABOR

  • Benefiting American Workers: The new agreement includes a new Labor Chapter that brings labor obligations into the core of the agreement and makes them fully enforceable
  • Creating a More Level Playing Field: The new agreement requires Parties to adopt and maintain in law and practice labor rights as recognized by the International Labor Organization, an Annex on Worker Representation in Collective Bargaining in Mexico, and new provisions to take measures to prohibit the importation of goods produced by forced labor and to address violence against workers exercising their labor rights.

AGRICULTURE

  • Benefiting American Farmers, Ranchers, and Agribusiness: While agriculture has generally performed well under NAFTA, important improvements in the agreement will enable food and agriculture to trade more fairly. Tariffs on agricultural products traded between the U.S. and Mexico will remain at zero.
  • Strengthening Agricultural Trade with Modernized Provisions: The new agreement sets unprecedented standards for agricultural biotechnology, establishes strong commitments to reduce trade-distorting policies, and enhances rules for science-based sanitary and phytosanitary measures.

21ST CENTURY ECONOMY

  • Protecting Intellectual Property: The U.S. and Mexico have developed a modernized, high-standard Intellectual Property (IP) chapter that provides strong and effective protection and enforcement of IP rights critical to driving innovation, creating economic growth, and supporting American jobs. The chapter includes 10 years of data protection for biologic drugs and expanded scope of products eligible for protection.
  • Creating a New Chapter on Digital Trade: The new Digital Trade chapter contains the strongest disciplines on digital trade of any international trade agreement, providing a firm foundation for the expansion of trade and investment in innovative products and services.
  • Increasing De Minimis Shipment Value Level: The United States has reached an agreement for Mexico to raise its de minimis shipment value level to $100 USD, up from $50 USD. Shipments valued at or below this level would enter Mexico with no customs duties or taxes, and minimal paperwork, making it easier for more American businesses, particularly small- and medium-sized businesses, to be a part of cross-border trade.

ENVIRONMENT

  • Creating Enforceable Environmental Obligations: The new agreement includes the most comprehensive set of enforceable environmental obligations of any U.S. trade agreement. The provisions will combat trafficking in wildlife, timber, and fish; enhance the effectiveness of customs inspections; strengthen law enforcement networks to stem trafficking; protect fish and marine species by prohibiting harmful fisheries subsidies and combatting illegal, unreported, and unregulated fishing; and address pressing environmental issues such as air quality and marine litter.

The fate of the three-country NAFTA remains uncertain because the U.S. and Canada have failed to come to an agreement on rewriting the three-nation trade pact before a U.S.-imposed deadline that would have allowed them to sign a new deal before Mexico’s president-elect, Andres Manuel Lopez Obrador, takes office on December 1. However, negotiations will continue between the U.S. and Canada.

President Trump has repeatedly threatened to tear up NAFTA, saying the 24-year-old trade pact has cost American jobs. He has also frequently complained that Canada is treating the U.S. unfairly. Recently, Trump threatened new tariffs on Canadian cars if the country doesn’t comply with U.S.-terms of a new trade deal.

The White House was required to give Congress an official 90-day notice before entering into a new trade deal. Since the administration notified Congress on Friday, Trump will be allowed to sign the deal by Nov. 30. Even then, Congress could still block the deal. It is unlikely any rewrite of NAFTA would come up for a vote until 2019. Procedure rules allow the president to sign the trade deal first, before Congress votes on it.

The text of the agreement does not have to be submitted to Congress until Sept. 30. The governments of Canada and Mexico must also ratify the agreement. If they don’t, there’s no deal.

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