NAFTA Negotiations Continue Despite Looming Deadline

Created: 31 August, 2018
Last update: 27 July, 2022

By Alberto Garcia

U.S., Mexican, and Canadian officials continue to negotiate changes to trade terms that could be included in a replacement to the existing North American Free Trade Agreement as a deadline outlined by President Trump nears.

Donald Trump set a deadline of Friday, August 31, for negotiations to end because federal law requires the President to notify Congress 90 days before he enters into international trade deals, and Trump is anxious to sign a deal before Mexico’s new president is takes office on Dec. 1.

Mexico’s incoming president, Andres Manuel Lopez Obrador, is far more liberal than current President Enrique Peña Nieto.

One of Trump’s campaign promises was to scrap existing trade deals he views as unfavorable to US companies, including NAFTA, which was passed by Congress in 1992 under the George Bush Administration but signed into law by President Bill Clinton in 1993.

But the current negotiations are not so much a new agreement as much as they are small changes to the existing framework of NAFTA.

Under NAFTA, goods and component parts move relatively freely between the three neighboring countries, especially automobiles and their respective parts. Over the nearly 25 years since NAFTA was passed, a complex production infrastructure has flourished that manufactures auto parts for all major American and many foreign auto makers.

This week, Trump announced a deal in principle with Mexican officials that would increase the percentage of parts in a car that would need to be made in the US or Mexico from 62.5% to 75%, as well as requiring at least 45% of the parts to come from factories that pay employees more than $16 per hour.

The proposal strengthens intellectual property laws for digital technology that didn’t exist when NAFTA was written, and also requires stronger Mexican protections for labor unions, the environment, and sea life.

But, although the provisions were agreed to by US and Mexican officials, Canada has not yet signed on to the deal. Congress gave the Trump Administration authority to negotiate a trilateral agreement that must include Canada, and Congress will have 90 days to approve any deal Trump negotiates.

Without Congressional approval, the existing trade deal will remain in effect. NAFTA does not expire or have a sunset clause.

Economist have warned that the proposed changes to NAFTA will likely result in higher auto prices for US consumers as costs increase, and also cause job losses for American companies. Others argue that a trade deal cannot be finalized without including Canada, or that separate US deals with Canada and Mexico individually could lead to disruptions in the existing auto supply chain, further causing higher prices and job losses.

The current proposal also does not address trade tariffs the Trump Administration instituted earlier this year on steel and aluminum imports from both Canada and Mexico. Canada has also objected to existing NAFTA rules concerning dispute resolution which has allowed US companies to challenge stringent Canadian environmental laws.

Trump has threatened to forward a deal to Congress on Friday without Canada’s approval and then add Canada before the end of September. That may or may not comply with the 90 day notice rule, according to some trade experts.

In the end, Congress may choose to approve separate trade deals with Mexico and Canada if and when each deal is reached in hopes of combining the deals into a coherent trade policy in the future.
In the meantime, negotiations continue and companies around the world and in the US wait to review the changes to see how they may affect their respective industries.

As for what to call the new trade deal, although Donald Trump has threatened to “scrap” NAFTA, fact sheets distributed by the White House this week refer to process as “modernizing NAFTA” and “an update to the 24-year old NAFTA”, signaling that any new deal may be not much more than fixes and tweaks to one of the US’s longest standing trade agreements.