Aug 27 (Reuters) – The United States and Mexico agreed on Monday to a sweeping trade deal that pressures Canada to accept new terms on autos trade, dispute settlement and agriculture to keep the trilateral North American Free Trade Agreement (NAFTA).
US Trade Representative Robert Lighthizer said the White House was ready to notify the US Congress by Friday of President Donald Trump’ intent to sign the bilateral document, but that it was open to Canada joining the pact.
The 24-year-old NAFTA is a trilateral deal between the United States, Canada and Mexico that underpins $1.2 trillion in North American Trade.
Here are some of the main issues at the heart of the negotiations:
The new deal requires 75 percent of the value of a vehicle to be produced in the United States or Mexico, up from the NAFTA threshold of 62.5 percent.
The higher threshold is aimed at keeping more parts from Asia out, boosting North American automotive manufacturing and jobs. Even if more plants are built in Mexico, jobs will grow in the US due to high levels of integration, with studies showing that US parts make up 40 percent of the value of every Mexican-built car exported to the United States.
The pact also requires greater use of US and Mexican steel, aluminum, glass and plastics.
The provision started out as a US demand for 85 percent regional content, with 50 percent coming from US factories. That plan was vehemently opposed by Mexico, Canada and the auto industry. It later morphed into the US-Mexico deal’s requirement of 40 to 45 percent of a vehicle’s value to be made in high wage areas paying at least $16 an hour, requiring significant automotive production in the United States.
Most Mexican auto exports are in a position to comply with the new limits, the country’s economy minister said.
Mr Trump backed off from an initial US demand for a “sunset” clause that would kill the pact unless it was renegotiated every five years and which businesses said would stymie long term investment in the region.
Mexico agreed to eliminate a settlement system for anti-dumping disputes, NAFTA’s Chapter 19.
The move, sought by the United States, puts Canada in a difficult position because Prime Minister Justin Trudeau had insisted on maintaining Chapter 19 as a way to fight US duties on softwood lumber, paper and other products that it views as unfair. Ottawa now has less than a week to decide to accept a deal without that provision.
The new deal will keep tariffs on agricultural products traded between the United States and Mexico at zero and seeks to support biotech and other innovations in agriculture. It lacks a previous US demand to erect trade barriers to protect seasonal US fruit and vegetable growers from Mexican competition.
It contains enforceable labor provisions that require Mexico to adhere to International Labor Organization labor rights standards in an effort to drive Mexican wages higher.
The US-Mexico NAFTA deal opens the door for Canada to immediately rejoin the talks and is a major step forward in updating the accord.