The Push For A NAFTA Agreement | April 20 2018

Updated: The Free Trade Agreement between Canada - US - Mexico, also known as CUSMA/USMCA/T-MEC has been implemented. Please visit our NAFTA 2.0 series for more information.

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‍The last formal round of NAFTA talks was scheduled to take place April 8, 2018, but instead was replaced by a series of "high-level" political meetings in Washington D.C. These meetings have been taking place since the last round of formal negotiations took place in March. It is rumored these talks could lead to a "symbolic agreement-in-principle". In fact, Canada's foreign affairs minister Chrystia Freeland was in Washington D.C., April 18, 2018, for meetings, and is likely to attend more meetings next week.

Why The Push For A NAFTA Agreement?

It appears the U.S. wants to get NAFTA negotiations out of the way while a trade battle looms with China. China has already fired back at the U.S. with punitive measures for imports into China.

Another looming threat is the Mexican elections on July 1, 2018, which could elect a potential President who has already criticized the U.S. administration's views on Mexico. Additionally, the U.S. would like to have an agreement in place prior to the November 2018 Congressional midterms. For the U.S. the optimal date to reach an agreement will be May 1, 2018, to meet all the necessary deadlines for the revised NAFTA agreement to be approved by the current Congress.

Automobiles Is Currently NAFTA's Most Contentious Issue

At the moment, the most contentious issue in the NAFTA talks is the provision regarding automobiles. Initially the U.S. was demanding half the value of an automobile be made solely in the U.S. to qualify for NAFTA's zero tariffs. Now the Americans are asking for an unspecified percentage of each vehicle to be made by workers earning at least an average wage rate for the North American auto industry. This wage is to be recalculated each year. According to today?s calculations the wage would be approximately $16 to $17 an hour. This would likely not be an issue for Canada but a big issue for Mexico.

The U.S. has not changed its original proposal in many respects and has added rules, which further complicates reaching an agreement. As an example; there is still the proposal for a tiered system for auto parts where 85% of engines and advanced batteries must be made in the U.S. and 70% of monitors, wiring sets and autonomous vehicle parts, and 50% of brake pads and spark plugs. In addition the U.S. is demanding certain auto parts made of steel or aluminum be made in North America which lines up with the U.S. Administration's protection of the steel and aluminum industry.

The U.S. is further demanding the bulk of the new rules would have to be in place within 3 years of the new agreement. Canada and Mexico are not in agreement with a number of the content proposals and timelines.

Why The Auto Industry Is Unhappy With The Current NAFTA Proposal

The auto industry is not happy with some of the rules proposed by the U.S. side, stating the new proposals seem just as unworkable as the original rules. As well, the tiered system proposed by the U.S. is excessively complicated and could drive up administrative costs as companies try to comply with the rules.

As it stands today many car components, such as electronic systems, are made in Asia. Building a viable manufacturing base in North America in only three years places a lot of pressure on the North American auto industry.

In addition to this, the U.S. have only a 2.5% tariff on imported cars. Tougher NAFTA rules could push the auto industry to automate their production facilities, taking jobs away from North Americans, or making the cars overseas where they would have to import them back to North America.

Where The NAFTA Agreement Stands Today

While it appears there is a push to have an agreement in principle by May 1, this does not rule out the possibility of months and years to finalize an agreement.  So where are we today with the NAFTA negotiations? To quote the trade negotiators "Nothing is agreed until everything is agreed".

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