The North American Free Trade Agreement (NAFTA) went into force on January 1, 1994, during Bill Clinton’s administration. The comprehensive trade agreement sets the rules of trade and investment between Canada, the United States, and Mexico.
NAFTA created a trilateral trade bloc. It was supplemented by the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).
Over time, NAFTA has systematically eliminated most tariff and non-tariff barriers to free trade and investment on products from certain industries that are exchanged between the three partner countries, notably agriculture, textiles, and automobiles.
NAFTA Now claims that “Since it came into effect 15 years ago, North Americans have enjoyed an overall extended period of strong economic growth and rising prosperity.” Citing economic growth, higher wages, more consumer choices, increased market competition and enhanced purchasing power for North American consumers, families, farmers, and businesses, NAFTA “proven that trade liberalization plays an important role in promoting transparency, economic growth, and legal certainty.”
The general consensus is that NAFTA has been a good deal for almost everyone in each of the three allied nations, with the exception of workers in industries that came under new trade competition:
“Although there are those who say that the agreement led to job losses in all three countries, on the whole economists agree that NAFTA has brought gains to its members.”
The Council on Foreign Relations reported that Canada has benefited the most from NAFTA from improved “agricultural flows” between it and the U.S. (Both countries enjoyed free trade before NAFTA.)
In late August 2018, U.S. President Donald Trump announced that a new trade pact with Mexico would replace NAFTA.
Trump said, “We’re going to call it the United States-Mexico Trade Agreement, and we’ll get rid of the name NAFTA.”
The new deal “tightens rules of origin on automobiles, so that 40 percent to 45 percent of their content must be made by domestic companies whose workers earn at least $16 an hour. This limits the scope for assembly in Mexico with Chinese components, favoring higher-value parts from manufacturers covered by the agreement.”
The new accord aims to ensure that “sufficient and significant United States and Mexican parts and materials receive preferential tariff benefits.”
Effectively, the new trade agreement would deny preferential tariffs to manufacturers who operate in Mexico using Chinese goods in favor of higher-value parts from participant countries.
A section on intellectual property details how nations will treat copyrights, clauses on common names and trademark protection.
The draft agreement’s digital services section sets limits on any government’s ability “to require disclosure of proprietary computer source code and algorithms.” Electronically distributed digital products like Twitter and YouTube would find protection from other nation’s prohibitions (censorship). Providers of data and financial services could not be forced to store data at local facilities in a customer country.
The new U.S. – Mexico trade pact also addresses environmental issues. Mexico and the U.S. plan to prohibit “shark-finning,” the appalling practice of cutting only the fins from sharks before leaving them to die.
Plus, the new deal mandates “worker representation in collective bargaining” – labor unions.
Under the new agreement, Mexico has agreed to raise agricultural imports from the United States and to begin buying as much farm product as they can.
In addition, there will be no change to zero-tariffs on agricultural products currently exchanged between the U.S. and Mexico. Mexico will lift market restrictions for certain labeled U.S. cheeses.
Mexico will acknowledge Kentucky bourbon and Tennessee whiskey as distinctive U.S. products, and the U.S. will designate tequila and mezcal as distinctive Mexican products.
Underlying this move toward a stronger trade position is Trump’s friendly relationship with Mexico’s outgoing President Enrique Peña Nieto and, hopefully, President-elect Andrés Manuel López Obrador.
True to his maverick leadership style, Trump conducted the preliminary trade negotiation with Nieto over a speakerphone in the Oval Office at the White House. Because he experienced some technical difficulties making a connection with Mexico, leftist reporters laughed about incompetency (as if they had never used an unfamiliar piece of office telephony) rather than trumpet his economic win and foreign relations triumph.
The proposed United States-Mexico Trade Agreement still needs congressional approval before becoming law.
As for our neighbor to the north, Trump had this to say:
“We’ll see if Canada can be part of the deal.”
Mexican partner Nieto was quick to agree:
“It is our wish, Mr. President, that now Canada will also be able to be incorporated in all this.”
With little time remaining before the October 1 deadline to publish updates to the text of the United States-Mexico Trade Agreement, Canada has not struck a deal with the U.S.
Kevin Hassett, chair of the White House Council of Economic Advisers, said:
“We’re still talking to Canada, and we’re getting very, very close to the deadline where we’re going to have to move ahead with Mexico all by themselves.”
If citizens of the United States have learned anything about their GOP leader, it is that he and his administration understand the art of the deal. Even if a trilateral trade agreement make-over can’t be achieved by the end of September, the U.S. and Mexico have already redefined the future of trade between their two countries.
We have every confidence that each country – the U.S., Mexico, and Canada – will find a satisfactory solution to their own economic self-interests and ultimately strike a better-serving trade arrangement – because that is the heart of the art of the deal.