Winners and losers from the new NAFTA deal
TALKS between Canada and the US intensified as the two countries pushed for a deal on a revamped North American Free Trade Agreement (NAFTA), with both sides upbeat about the progress made.
Talks entered a crucial phase this week after the US and Mexico reached a bilateral deal on Monday, paving the way for Canada to rejoin talks to salvage the 24-year-old accord that underpins US$1.2 trillion in annual North American trade.
Mexico has been an increasingly important export market for the US for most of the past decade. Securing continued access to the US marketplace was viewed as an objective in itself by major Mexican industrial groups.
Here are some key differences between the Mexico-US deal and the original NAFTA, and who the winners and losers may be.
The automotive sector was at the core of US President Donald Trump’s desire to rework NAFTA, and the deal struck seeks to impose curbs on the lower-cost Mexican car industry.
The new deal requires 75 per cent of the value of a vehicle to be produced in the North American region, up from the original NAFTA threshold of 62.5 per cent.
Aside from making it harder for carmakers to assemble autos outside of North America and still get duty-free access to the most lucrative market - the US - the higher threshold also aims to keep more parts from Asia out of the region.
It also stipulates 40 per cent to 45 per cent of a vehicle’s value be made in areas paying at least US$16 an hour, such as the US or Canada, which could potentially stem the southward drift of industrial capacity to Mexico.
A side agreement not formally part of the accord would allow the US to pursue national security tariffs on annual Mexican car and SUV imports of over 2.4 million vehicles.
The number significantly exceeds last year’s total imports, and allows Mexico’s industry room to grow, but serves as a potential quota. The side deal also allows US national security levies on Mexican auto parts imports above US$90 billion per year.
Despite this, if the Trump administration opts to slap so-called 232 national security tariffs on global automotive imports, Mexico may end up better protected than other nations.