After almost a year of negotiations between Canada, the U.S. and Mexico to update the 24-year-old North American Free Trade Agreement, the latter two countries announced the framework of a deal on Monday, with Canada on the outside looking in — for now.
Here’s a rough guide to what’s in the agreement:
1. New rules for auto sector
In order for a vehicle to sell in the U.S. without tariffs in the new deal, at least 75 per cent of it must have been built in one of the two countries. NAFTA was more lenient, only requiring a 62.5 per cent quota for a car to be considered “domestic” and thus exempt from tariffs.
Another key detail is a requirement that between 40 and 45 per cent of automotive content be made by workers earning at least $16 US per hour. Functionally, that likely means more car parts will be built and assembled in the U.S. But it could also raise wages or add more higher-paying positions in Mexico, too.
2. Piracy and intellectual property
The agreement will see both countries crack down on piracy and counterfeit goods, the theft of satellite or cable signals, and illegal recording of movies. In terms of intellectual property, the agreement extends the same copyright protection that U.S. creators have at home into the Mexican market. It strengthens patent protection in the pharmaceutical and agricultural sectors, including 10 years of protection for biologic drugs.
The agreement establishes ground rules for digital trade. That’s something that didn’t exist in the old deal, dating from 1994, because it covers things like e-books, videos, music, software and computer games, none of which existed in their current form 24 years ago.
3. Labour laws and environmental regulations
The deal also requires companies to respect collective bargaining, which is the process by which trade unions can make labour agreements on behalf of workers, and requires that companies adhere to all applicable labour laws. Specifically, the deal includes rules “to prohibit the importation of goods produced by forced labour, to address violence against workers exercising their labour rights, and to ensure that migrant workers are protected under labour laws.”
The agreement also includes obligations by both sides to combat trafficking in wildlife, timber and fish, including protections for marine species like whales and sea turtles and a prohibition on shark-finning.
The deal address issues of air quality and marine litter, although few details of those components have been released.
4. Duty free limits raised
The deal will also see Mexico raise its so-called “de minimis” threshold to $100 US from $50 previously. That’s the amount that Mexicans can import from the U.S. duty free. That issue was a key request of the U.S., which has long wanted Canada and Mexico to raise their de minimis levels. Currently, Canada imposes duties on imported goods worth more than $20 US. The U.S., meanwhile, allows its citizens to import $800 US from abroad, penalty free.
5. No automatic ‘sunset clause’
From the moment NAFTA renegotiations started last year, U.S. officials pushed for something called a “sunset clause” which is effectively a way for them to push the escape button and force a new deal, if the terms of trade didn’t improve to their liking. Canada and Mexico pushed back at that, saying it would cause uncertainty, as investors would be unlikely to spend money to expand plants if they worried the deal could be torn up at any moment, robbing them of access to the U.S. market.
Monday’s deal appears to have a very watered down version of that concept, as the pact would run for 16 years. After six years, both sides would meet and decide whether or not they wanted to renew for another 16 years. If there were any issues, they could agree to meet on an annual basis to make sure outstanding issues didn’t “fester” as one senior White House official put it. And crucially, the deal would never automatically expire upon the clause being implemented. The idea being, the official said, “that you’re always far enough away from the end that it will not affect investment.”
Next steps …
The proposed deal announced Monday is only the framework of one that requires approval by the U.S House of Representatives and Senate before becoming law. The White House hopes to get that ball rolling as early as Friday, when it will submit the formal paperwork for a 90-day review period.
If the White House sticks to that time-frame, it gives Canadian officials less than a week to sign on, or risk the deal moving ahead without them. But it’s clear the appetite in Washington would prefer a three-way deal.
“We are better off with all three countries involved, and I hope we will get to that result,” the official said.