Talks between Canada and the United States intensified on Thursday as the two countries pushed for a deal on a revamped North American Free Trade Agreement by a Friday deadline, with both sides upbeat about the progress made.
Talks entered a crucial phase this week after the United States and Mexico reached a bilateral deal on Monday, paving the way for Canada to rejoin talks to salvage the 24-year-old accord that underpins $1.2 trillion in annual North American trade.
Mexico has been an increasingly important export market for the United States for most of the past decade. Securing continued access to the U.S. marketplace was viewed as an objective in itself by major Mexican industrial groups.
Here are some key differences between the Mexico-U.S. deal and the original NAFTA, and who the winners and losers may be:
The automotive sector was at the core of U.S. President Donald Trump’s desire to rework NAFTA, and the deal struck seeks to impose curbs on the lower-cost Mexican car industry.
The new deal requires 75 percent of the value of a vehicle to be produced in the North American region, up from the original NAFTA threshold of 62.5 percent.
Aside from making it harder for carmakers to assemble autos outside of North America and still get duty-free access to the most lucrative market – the United States – the higher threshold also aims to keep more parts from Asia out of the region.
It also stipulates 40 percent to 45 percent of a vehicle’s value be made in areas paying at least $16 an hour, such as the United States or Canada, which could potentially stem the southward drift of industrial capacity to Mexico.
A side agreement not formally part of the accord would allow the United States to pursue national security tariffs on annual Mexican car and SUV imports of over 2.4 million vehicles.
The number significantly exceeds last year’s total imports, and allows Mexico’s industry room to grow, but serves as a potential quota. The side deal also allows U.S. national security levies on Mexican auto parts imports above $90 billion per year.
Despite this, if the Trump administration opts to slap so-called 232 national security tariffs on global automotive imports, Mexico may end up better protected than other nations.
The pact also requires greater use of North American steel, aluminum, glass and plastics than the original.
Through the side agreements, the new arrangement pushes North America closer to “managed trade”, a more interventionist model that could benefit large companies able to tailor output toward quotas but could hurt consumers with higher prices.
Mexico and the United States agreed to eliminate a settlement system for anti-dumping disputes, NAFTA’s Chapter 19.
The move, sought by Trump, puts Canada in a difficult position because Prime Minister Justin Trudeau had insisted on maintaining Chapter 19 to fight U.S. duties on softwood lumber, paper and other products that it views as unfair.
That could put pressure on Ottawa to make concessions on Canada’s protected C$21 billion ($16.3 billion) dairy market.
The original NAFTA settlement system for disputes between investors and states was scaled back, now only for expropriation, favoritism for local firms and state-dominated sectors such as oil, power and infrastructure.
The deal contains enforceable labor provisions that require Mexico to adhere to International Labor Organization standards to drive Mexican wages higher, lessening Mexico’s attractiveness as a place for labor-intensive investment.
Stronger labor rules and upwards wage pressure may translate into more robust Mexican consumer demand in due course.
The deal keeps the United States open tariff-free to Mexican farmers, the biggest exporters of agricultural produce to the United States.
The two agreed for Mexico to double its minimum duty-free shipment threshold, the so-called de minimis value, to $100.
That is likely to benefit both express delivery firms and online retailers such as Amazon.com Inc.
Unlike the original trade accord, the new agreement has a lifespan of 16 years, and foresees a review every six years that can extend the pact for 16 years more.
Trade curbs will increase pressure on Mexico and Canada to return to the negotiating table every six years. That could encourage growth in powerful lobbying interests.
Compiled by Anthony Esposito and David Lawder; Editing by Dave Graham and Lisa Shumaker
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