Countries reach agreement in principle to update NAFTA, as talks continue with Canada.

Cargo owners and their supply chain, logistics and freight forwarding partners are attempting to make sense of yesterday’s announcement by the US and Mexico that the two countries have reached a preliminary agreement in principle to update the North American Free Trade Agreement (NAFTA), as talks continue this week with Canada.

Although US president Donald Trump said the new trade agreement with Mexico would “terminate” NAFTA, statements yesterday from the Office of the US Trade Representative (USTR) talked of “modernizing NAFTA to be a 21st Century Trade Agreement”.

Highlights of the preliminary agreement include a requirement for 75% of automotive content to be made in the NAFTA region, up from the current level of 62.5%. And the USTR highlighted a “key achievement” among the agreement’s labour rules, in which “to support North American jobs, the deal requires new trade rules of origin to drive higher wages by requiring that 40-45% of auto content be made by workers earning at least US$16 per hour” – a requirement that the US hopes could remove incentives for automakers to move jobs to Mexico.

A USTR statement said: “The United States and Mexico have reached a preliminary agreement in principle, subject to finalization and implementation, to update the 24-year-old NAFTA with modern provisions representing a 21st century, high-standard agreement.  The updated agreement will support mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America.”

It highlighted an agreement on “a modernized, high-standard Intellectual Property (IP) chapter that provides strong and effective protection and enforcement of IP rights critical to driving innovation, creating economic growth, and supporting American jobs”.

And it said the new Digital Trade chapter “contains the strongest disciplines on digital trade of any international agreement, providing a firm foundation for the expansion of trade and investment in the innovative products and services where the United States has a competitive advantage”.

Among the highlights of this, the new Digital Trade chapter will “prohibit customs duties and other discriminatory measures from being applied to digital products distributed electronically, such as e-books, videos, music, software, and computer games.

The US also highlighted an agreement for Mexico to raise its duty-free ‘de minimis’ shipment value level to US$100, up from $50 currently, “to facilitate greater cross-border trade”.

The USTR said: “Shipment values up to this level would enter Mexico without customs duties or taxes, and with minimal formal entry procedures, making it easier for more businesses, especially small- and medium-sized ones, to be a part of cross-border trade. Increasing the de minimis level with a key trading partner like Mexico is a critical outcome for United States small- and medium-sized enterprises (SMEs).

“These SMEs often lack resources to pay customs duties and taxes, and bear the increased compliance costs that low, trade-restrictive de minimis levels place on lower-value shipments, which SMEs often have due to their smaller trade volumes. New traders, just entering Mexico’s market, will also benefit from lower costs to reach consumers.”

US express delivery carriers, who carry many low-value shipments for these traders, also stand to benefit through lower costs and improved efficiency, the US said.

Observers said the agreement put pressure on Canada to agree to new terms in order to remain part of the three-nation pact. Although Mexico has said it is keen for Canada to remain part of NAFTA, Mexican sources have also said they are prepared to go ahead with a bilateral agreement if Canada does is not able to reach agreement with the US and Mexico.

If talks with Canada are not wrapped up by the end of this week, Trump plans to notify Congress – which still has to approve any new agreement – that he has reached a deal with Mexico, but would be open to negotiations with Canada, US Trade Representative Robert Lighthizer told reporters. “There are still issues with Canada but I think they could be resolved very quickly,” a senior trade official told Reuters.

Auto stocks soared and financial markets strengthened on the expectation that Canada would sign on to the deal by the end of the week and ease the economic uncertainty caused by Trump’s repeated threats that he would ditch NAFTA, Reuters reported.


Source: Lloyd’s