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Agreements leading to a revised NAFTA regime could be in place by the end of this week.
Senior Canadian and US officials have signalled a determination to hammer out a new trade agreement to replace the NAFTA framework before the deadline at the end of this week.
Embarking on an all-night session of negotiations, Canada’s foreign affairs minister told media yesterday that she and the head of the US delegation had instructed their teams to try and work out compromises on points that have held up progress so far.
The US government imposed a Friday (tomorrow) deadline for an agreement with Canada after President Trump had announced a bilateral deal with outgoing Mexican president, Enrique PeñaNieto, on Monday.
The agreement resolves the major differences between the Mexican and US administrations, especially on the agriculture and automotive sectors. It maintains zero tariffs on agriculture and allows car makers to import vehicles duty free if 75% of their content has been produced in the US or Mexico. The current NAFTA rules mandate 62.5% content made within the trade bloc.
According to sources in the automotive industry, most vehicles produced in Mexico would meet the new content requirements, assuming that Canadian content is not excluded.
Auto makers that feed a higher amount of foreign made components to assembly plants in Mexico face a 2.5% tariff on passenger vehicles and 25% on trucks if they sell these in the US.
Markets reacted positively to the announcement. Shares in General Motors and Ford jumped the following day.
A more nuanced response has come from a number of trade associations which welcomed the breakthrough in NAFTA talks, but emphasised the need to have Canada in the picture, pointing to complex and interconnected global supply chains.
“Coming to terms with Mexico is an encouraging sign, but threatening to pull out of the existing NAFTA agreement is not,” said Matthew Shay, president and CEO of the US National Retail Federation.
“NAFTA supports millions of US jobs and provides hardworking American families access to more products at lower prices.
“To preserve these benefits and protect complex, sophisticated and efficient supply chains, the administration must bring Canada, an essential trading partner, back to the bargaining table and deliver a trilateral deal,”
Carlos Duron, president of airfreight trucking operator Mexpress, which runs trucks between US gateways and airports in Mexico, said the US-Mexico agreement removed uncertainty, but he saw little, if any, change for supply chains.
“There may be some adjustments to supply chains down the road, but as far as our business and the niche we are in are concerned, we continue to have double-digit growth this year,” he said.
The US president is in a hurry to move ahead with the deal, declaring he wants to sign the new agreement in 90 days. This may be ambitious if negotiations with Canada fail to reach a positive outcome.
President Trump wants to ditch the NAFTA agreement and replace it with the new bilateral, which is technically a preliminary agreement in principle rather than a full trade deal. However, he has no authority to tear up the NAFTA framework, and any new proposed deal has to be ratified by Congress.
He also said he would go ahead regardless of whether or not an agreement with Canada ccould be reached, but Congress is likely to adopt a more contrarian position without Canada in the new framework.
Canadian officials reacted positively to the new minimum content rules for auto production envisaged in the US-Mexico deal. It remains to be seen if the two sides can find compromises on the issues of anti-dumping panels (which Washington wants to abolish) and Canadian import restrictions protecting its diary farmers, which have been the main obstacles in previous talks.
While there is optimism that the two sides can hammer out a deal, a resolution of the trade dispute between the US and China seems far away at this point. Negotiations have stalled since May and a recent round of talks predictably yielded no results, as both sides had not dispatched senior officials to the negotiations.
In an aside on his announcement of the US-Mexico agreement, the American president declared that the Chinese had signalled a willingness to negotiate, but that this is “not the right time to talk”.