A New NAFTA?

When it comes to foreign trade, many US lawmakers are focused on one thing: re-negotiating the North American Free Trade Agreement, or NAFTA.  This comes amid the President’s promises to back out from, or at least re-negotiate, the trade deal as it is seen as unfair to American workers. So how did this all start?

        In 1994, the agreement was signed between Canada, America, and Mexico to ensure free trade of goods and services throughout the countries.  This ensured that tariffs would not be imposed on any products being traded within the nations. This resulted in the reduction of prices for many products as they were imported from other countries.  The lowered consumer prices were projected to help bolster the economy. However, many still had reservations about this agreement; namely, that it would export US jobs to countries like Mexico. This was then seen with manufacturing jobs, which have been sent to Mexico, as it was significantly cheaper to build cars and export them from Mexico rather than build them in America.  With a minimum wage around half that of the US federal minimum wage, it is evident that costs would be significantly cheaper in Mexico. This has rekindled the debate of free trade vs. fair trade, or in other words, whether all boundaries for competition should be lowered or local goods should be favoured over imported goods.

        Recently, the US and Mexico have already come to a bilateral agreement in principle.  They have even threatened to leave Canada out of the agreement if they do not meet the deadline by October 1st, however Mexico still believes that a trilateral agreement would be the most beneficial.  In fact, President Trump has stated his intention to rename the agreement to USM – United States and Mexico – and has said that he is willing to include an initial for Canada if they agree with the changes.  In the former agreement, the main target has been the automotive industry. Namely, they have agreed that 75% of automobile contents must be made in North America and that roughly 40-45% of components must be made by workers earning at least $16.  This was added to help reinvigorate the automotive industry in the US and discourage the production of most car parts from being manufactured through cheaper labour in Mexico.

        There are several reasons why Canada has not come to an agreement with the US.  For one, the US wants to get rid of Chapter 19 of the agreement, which is a provision that sends trade disputes to an independent panel rather than domestic courts.  Over the past few years, this panel has ruled against the US in a number of disputes. A bigger concern has been raised over Canada’s dairy products and the government’s quotas and prices that are set for the domestic products as well as the steep tariffs levied against any dairy product imported from the US.

        While both countries have not yet come to an agreement, they both have echoed similar sentiments as to the potential benefits of the trade deal.  With Mexico and the US Congress heavily leaning towards a trilateral partnership, it is left to see how the countries negotiate the remaining points of contention.