The unexpected commercial agreement between the US and Mexico

Monday, 3 september 2018 | Brenda Rodríguez López

After a year of negotiations, the USA and Mexico have reached a preliminary agreement within the framework of the negotiations of the North American Free Trade Agreement. The first thing that stands outs in this pact is the fact that it has left Canada behind, which is the third country that originally participated in the treaty. This unexpected commercial understanding between Mexico and the United States has resulted in an intense week of negotiations with the neighbor of the north. Donald Trump established last Friday as the deadline for Ottawa to join the agreement, offering the northernmost country only some days of margin to make a decision. What has been the final result of that intense countdown? What has Canada decided? Will NAFTA transition from being a trilateral agreement into a bilateral one? What are the keys to reading this agreement?

 

Last monday, the United States and Mexico announced an important progress in the negotiations on the North American Free Trade Agreement (NAFTA), which has been in force since 1994. Both North American countries have reached mutual understanding on key aspects of their commercial relationship. This pact is striking since in order to proceed with its preliminary closure, it has not had the participation of Canada, which is the third country that makes up the current NAFTA.

There are many who suggest that this unexpected agreement reflects the will to exert pressure on Ottawa. The most septentrional country of the subcontinent has only had four days to make a decision on its joining to NAFTA 2.0. The deadline established by the USA was not trivial. It was the only date that allowed to comply with the 90 day-notice period which is necessary to conclude  a new treaty before the change of government takes place in Mexico –on December 1–.

Nonetheless, the day before the decisive date, the president of the USA, Donald Trump, expressed in a public statement in Indiana the possibility of opting for a new alternative: reaching two bilateral agreements to replace the old trilateral NAFTA agreement. Those words paved the way for what ended up happening the next day, Ottawa and Washington were not able to reach an agreement before the end of the countdown. Therefore, Trump decided to formally inform Congress of his intention to sign the trade agreement with Mexico. He did not forget to mention that Canada might join in a future if they so desire.

Although this accelerated and intense first phase of negotiations finished, this does not mean the end of the dialogue between the US and Canada. According to what the US trade representative  reported on a statement, Ottawa and Washington will again try to bring positions closer next Wednesday. To achieve an understanding, it will be necessary to resolve one of the issues that is generating more friction between the two countries: the protection of the Canadian dairy market. For Ottawa, the so-called "Chapter 19", a mechanism that prevents the United States from prosecuting anti-dumping and anti-subsidy cases, is also a clear red line and, so far, Washington is not willing to renounce it. Will they finally reach an agreement? Will Canada end up being part of a NAFTA 2.0? Will the countries enter into new bilateral agreements that replace the trilateral one? For the moment, the only thing that we can confirm is that the treaty between Mexico and the US is on the right path.

 

The unexpected commercial agreement between the US and Mexico

What are the keys to the unexpected preliminary agreement between Mexico and the US?

  • “Sunset clause”

Initially, the United States proposed restarting the NAFTA agreement every five years, something that both Canada and Mexico were against. Finally, in this pre-agreement between Mexico and the US, the parties agreed to extend its validity to a period of sixteen years, and the agreement may be revised every six years.

  • Automotive industry

One of the key sectors in this negotiation has been the automotive sector. USA and Mexico have agreed to raise the manufacturing percentage of the components in the region. In particular, 75% of the auto parts that are sold in North America must be produced in these countries. This figure increases by 12.5% with respect to the previous trilateral agreement. On the other hand, between 40% and 45% of professionals who are working in the production of these vehicle components must earn more than $ 16 per hour of work.

  • Labor rights

This agreement also includes other proposals in relation to the improvement of labor relations. We can find among them the import prohibition of goods that have been produced under conditions of forced labor, the deterrence of violence against workers or the guarantee of the protection of migrant workers.

  • Agri-food products

The agreement keeps zero tariffs on agricultural products. It also includes new regulations on advanced biotechnologies and discards export subsidies for goods sold in each one's markets. With regard to alcoholic beverages, the countries agreed on new rules concerning certification and labeling for the marketing of wines and liquors.

  • Piracy and intellectual property

Both countries may be able to stop products which are suspicious of having been falsified in ports of entry and exit. The legislation about the protection of intellectual property (author rights, patents or licenses) will be hardened. Among other measures, special sanctions will be established for the illicit recording of films and the theft of the TV signal, either by satellite or cable.


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