Everything You Need To Feel About The New NAFTA
The wait is nearly over for American companies anxious to learn about how the new trade treaty will change the way they do business.
NAFTA 2.0 is coming out this week and there’s still a lot of unanswered questions.
The U.S. is expected to publish the full text of the new trade pact–set to replace the North American Free Trade Agreement–on Friday. Instead of a trilateral accord, however, the revised trade deal consists of a bilateral agreement between the U.S. and Mexico–but it will leave open the possibility for Canada to join at a later date, according to sources who spoke to Bloomberg.
The Trump administration put a clock on NAFTA’s modernization process so that the new trade deal between the three countries could be signed by outgoing Mexican president Enrique Peña Nieto before he leaves office on December 1. Despite a stalemate in negotiations with Canada, the Trump administration is pushing forward with a U.S.-Mexico-only deal–because “if we push it beyond that date then we have a new negotiation with [incoming Mexican President Andrés Manuel] Lopez Obrador, and we don’t know where that would go at all,” U.S. Trade Representative Robert Lighthizer said Tuesday at the Concordia annual summit in New York.’
Ahead of the full document release, the details are sparse. Even so, here’s a recap of what’s known to be in, what’s been left out, and the open questions you might have when comparing the new NAFTA agreement with the 24-year-old existing treaty.
A 16-year sunset clause: As opposed to current NAFTA, the new agreement does not expect to remain unchanged in perpetuity–it is valid for 16 years at a time. To give certainty to businesses with deals in either country, the U.S. and Mexico agreed to convene every six years and vote to either to extend the treaty for another 16-year period or begin a renegotiation process with plenty of time before the deal expires.
Increased auto industry protections: The new treaty states that 75 percent of automobiles have to be manufactured in the U.S. or Mexico–up from the previous 62.5 percent requirement–to be exempt from tariffs. It also says that 40 to 45 percent of vehicles need to be produced by workers earning at least $16 per hour, which would give an advantage to the U.S., where wages are higher.
Reduced barriers: For the first time, a trade agreement between Mexico and the U.S. will include provisions to eliminate digital trade barriers. For example, it limits a government’s ability to force tech startups to disclose “proprietary computer source code and algorithms.” It also lets companies transfer customer data across borders and reduces limits on where that information should be stored. On the other hand, Mexico doubled its “de minimis shipment value” to $100 total, meaning shipments of goods up to this amount can enter the country without paying taxes, which could help small American e-commerce businesses expand services there.
Intellectual property protections: The agreement grants 10 years of data protection for biologic drugs, a win for pharmaceutical companies. It also expands copyright protection to 75 years.
Process for appealing infractions: Currently, Canada, the U.S., and Mexico can appeal anti-dumping and countervailing duties. That provision, known as Chapter 19, has been eliminated in the new NAFTA agreement. Its loss is one of the largest sticking points in negotiations with Canada, which has argued to keep it.
Clear-cut conflict resolution: The mechanism known as Investor-State Dispute Settlement, which helps resolve investment conflicts between companies and governments, is expected to be largely watered down–and it’s unclear just how. It is known that there will be exceptions, however. During a call with reporters in August, Lighthizer stated that industries working closely with the government–mainly energy, infrastructure, and telecom businesses–will get the “old-fashioned ISDS.”
NAFTA’s name: President Trump has stated he does not like the name NAFTA and is hoping to rename the new trade agreement as the United States-Mexico-Canada (USMC) agreement, if the latter should join. For now, the new NAFTA is likely going to be renamed the U.S.-Mexico trade agreement, as it was announced last month.
What’s Still Unknown
Will there be tariffs? This past summer, the U.S. imposed a 25 percent tariff on steel and 10 percent duty on aluminum imports for several countries, which included Mexico and Canada. It is unclear if the new trade agreement will exempt Mexican imports.
Who can work in the U.S.? The Trade National visas are designed to let foreign nationals from Mexico and Canada in certain jobs or industries work in the U.S. They are part of NAFTA but have not been mentioned by U.S. officials as part of the new agreement. The visas are not widely used, says Gary Hufbauer, a nonresident senior fellow at Peterson Institute for International Economics. However, unlike H-1B visas, there’s no limit to the number the U.S. government can grant. “Given the administration’s general hostility to visas, I wouldn’t be surprised to see some kind of caps on those numbers,” he adds.
Will there be procurement limits? In short, early in the process the Trump administration wanted to limit the number of Mexican and Canadian companies that could get U.S. government contracts by restricting their ability to bid, based on the size of their own procurement markets. The proposal received a lot of backlash from the U.S. business community, which suggested the provision would limit American companies’ ability to win government contracts in Canada and Mexico. It’s unknown how or if it will be addressed in the new treaty.
Will Canada join? The biggest question of all is whether Canada will sign the new accord. Canadian Prime Minister Justin Trudeau told reporters outside the United Nations on Wednesday that his government will keep working with the U.S. for “as long as it takes to get to the right deal for Canada.”