The United States announced yesterday that it has reached an “understanding” with its southern neighbour Mexico that is likely to result in a complete renegotiation of the North American Free Trade Agreement (NAFTA).
Under the provisions of the proposed agreement, car companies are mandated to manufacture at least 75 per cent of an individual car’s value in North America in order to qualify for zero tariffs — representing a 12.5 per cent increase from the current NAFTA rules. The draft agreement also requires that a certain predetermined proportion of the car is assembled by workers earning an average base wage of $16 an hour. This concession by Mexico lends an advantage to Canadian and American workers.
As per the agreement, key inputs in automobiles, such as steel and aluminum, must be necessarily sourced within North America. Trump administration has announced its goal of boosting operations of US steelmakers to 80 per cent of their capacity and is working towards achieving it through tariffs on imported steel and aluminium. US and Mexico also agreed to not impose tariffs on each other’s agricultural goods.
Pointing out that the term NAFTA is associated with “bad connotations”, Trump said he would like the new deal to be referred to as the “United States-Mexico Trade Agreement”.
Trump also issued an ultimatum to Canada to join the deal at the earliest. Canada, the third party to NAFTA, had not participated in recent negotiations. However, Mexican and American trade representatives are optimistic that their new deal will now force Ottawa’s greater participation.
During the call, Peña Nieto hinted that a deal including all three parties could be announced as early as this week.
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