President Donald Trump and U.S. trade officials on Monday (Aug. 27) reached a preliminary “mutually beneficial” deal with Mexico to update a 24-year-old NAFTA trade agreement that administration officials said will lead to freer markets and stronger economic growth in North America.
Notably absent, the “agreement in principle” does not include Canada, which stepped away from the negotiating table earlier this year. The trilateral trade pact that came into force on Jan. 1, 1994, also needs to be finalized by U.S. and Mexican trade negotiators before it is sent to Congress, where it must be approved and then ratified.
Still, that did not stop President Trump, Vice President Mike Pence and a cadre of top administration and U.S. trade officials from celebrating the end of the 24-year old trade pact and replacing it with one that must be reviewed every six years with no official expiration date.
“It’s a big day for trade, a big day for our country. A lot of people thought we’d never get here because we all negotiate tough. We do, and so does Mexico. And this is a tremendous thing,” Trump said in a conference call from the Oval Office with Mexico President Enrique Pena.
“This has to do – they used to call it NAFTA. We’re going to call it the United States-Mexico Trade Agreement, and we’ll get rid of the name NAFTA. It has a bad connotation because the United States was hurt very badly by NAFTA for many years. And now it’s a really good deal for both countries, and we look very much forward to it,” Trump said.
In an outline of the agreement released by the Office of U.S. Trade Representative Robert Lighthizer, administration officials said the two countries had concluded substantive discussions on new rules for virtually every area of trade between the North American neighbors.
Among the key measures in the updated agreement are tariffs on agriculture products between the U.S. and Mexico will remain at 0%. The trade pact also specifically addresses efforts to enhance information exchange and cooperation on agri-related biotechnology trade matters, with promises that both countries will work together to reduce trade-distorting policies, increase transparency, and ensure non-discriminatory treatment in grading of agricultural products, officials said.
“The agreement specifically addresses agricultural biotechnology to keep up with 21st Century innovations,” said U.S. Secretary of Agriculture Sonny Purdue. “This is nothing short of a great victory for farmers and ranchers, because locking in our access to Mexican markets is critical to supporting farm income and strengthening rural communities. Mexico has historically been a great customer and partner and we are happy to have this resolved for our agricultural producers.”
Gov. Asa Hutchinson said he is optimistic that U.S. trade officials will soon reach a new trade deal with Canada.
“Over the past year, I have had many substantive discussions with President Trump, Vice President Pence, Trade Ambassador Lighthizer, and other cabinet officials about modernizing North American trade agreements and increasing Arkansas’ accessibility to free and fair trade in North American markets,” the governor noted in a statement sent to Talk Business & Politics. “I appreciate the efforts by the President and the Trade Ambassador to create a more fair trade agreement with Mexico, Arkansas’s second largest partner in trade. Arkansas exports everything from agriculture to manufacturing to machinery to Mexico, with more than $850 million in goods just last year. Arkansas is midway between Mexico City and Montreal, and it is important that we reach a similar agreement with Canada. I am optimistic about the United States continued trade negotiations with our neighbor to the north, and I look forward to reviewing further details of the agreement when it is completed later this week.”
Another key plank of the trade deal is a new agreement to support higher-paying North American manufacturing jobs for U.S. workers and grow the economies of both countries. A past criticism of the old NAFTA agreement was that it led to the decline of the U.S. manufacturing sector by shifting higher-paying jobs from the U.S. to lower-paid workers in Mexico, especially in the automotive sector.
The new NAFTA deal would require that 75% of auto “content” be made in the U.S. and Mexico, which trade officials said would incentivize billions of dollars in additional U.S. car and auto parts production. Another part of the agreement would require that 40% to 45% of auto content be made by workers earning at least $16 an hour.
Outside the auto industry, the deal would address non-tariff barriers related to manufactured goods and import and export licenses. The manufacturing provisions would also offer incentives to ramp up U.S.-Mexico production in the textiles and apparel trade and strengthen customs enforcement related to nondurable clothing factories.
Other parts of the agreement would address intellectual property, digital trade, so-called ‘de minimis’ shipping and custom duties, financial services, labor rights and worker representation, and environmental standards.
Following the U.S. Trade Office’s announcement that a new NAFTA deal was near completion, there was still some uncertainty and debate about getting Canada back to the negotiating table before the deal is ratified. In a statement concerning the NAFTA deal, Canadian Prime Minister Justin Trudeau said he had spoken with Mexico’s president and both shared their commitment that a final NAFTA deal will include all three countries.
“Canada is encouraged by the continued optimism shown by our negotiating partners. Progress between Mexico and the U.S. is a necessary requirement for any renewed NAFTA agreement,” said Michel Boyer, spokesman for the Canada’s Minster of Foreign Affairs Chrystia Freeland. “We will only sign a new NAFTA that is good for Canada and good for the middle class. Canada’s signature is required.”
Meanwhile, most U.S. trade groups that have interest in the NAFTA negotiations offered measured statements concerning the president’s announcement that he was ripping up the old NAFTA deal. The American Petroleum Institute, a normally reliable supporter of the Trump administration, called the bilateral deal a “preliminary agreement” to update NAFTA.
“We are encouraged that negotiators have reached a preliminary agreement to modernize our trade relationships,” said API President and CEO Mike Sommers. “America’s natural gas and oil industry depends on trade to continue to grow U.S. jobs and our economy, and deliver for consumers.”
U.S. Grains Council President and CEO Tom Sleight held out hope that Canada would be a part of the final deal.
“Mexico is extremely important to every sector we represent. Yet, so too is Canada, our second largest ethanol market and a top ten corn market. We hope the agreement today opens the door for Canada’s reengagement, and we continue to oppose withdrawal from the existing NAFTA under any circumstances except the adoption of a new, beneficial and trilateral pact,” he said.
Former Gov. Matt Blunt of Missouri, who is now president of the American American Automotive Policy Council, urged administration officials to go back to the negotiating table to get Canada’s support for the new agreement.
“We will be reviewing the details to ensure it creates a trade environment that allows FCA US, Ford and GM to continue thriving, creating jobs and growing our economy,” said Blunt, a Republican governor whose trade group represents U.S. auto giants Ford and GM. “We commend the United States and Mexican negotiators for their success and urge them to work with their Canadian counterparts to complete this negotiation.”
Since taking office in January 2017, President Trump has made the argument that NAFTA has contributed to the ballooning U.S. trade deficit, which grew from $115 billion in 1993 to nearly $800 billion in 2017. Trump trade officials also noted that U.S. trade with Mexico has gone from a $1.6 billion goods trade surplus with Mexico to a $70 billion goods trade deficit over that same period.