Status of NAFTA Negotiations
After several weeks of intense negotiations the deadline was met for Canada and Mexico to present an advance report on NAFTA to the US congress. Due to delays, on May 31 the United States Secretary of Commerce Wilbur Ross announced that the exception of tariffs on steel and aluminum were no longer valid for Mexico, Canada and the European Union. These countries are now subject to 25% and 10% tariffs for these materials, effective June 1, 2018.
What else is going on?
The three countries representing NAFTA just completed eighth round of discussions since US President Donald Trump and Trade Representative Robert Lighthizer began renegotiation on August 16, 2017. The rules of origin and automotive content dictating what percentage an automobile must be produced within the three-country block to be free of tariffs was included in the months of negotiations, with opposing viewpoints from either side.
What impacts can we expect?
The decision on applying tariffs to Mexico and Canada, two of United States’ closest allies, has created a stressful environment between these countries, opening a possible commercial war as Mexico and Canada respond with equivalent protectionist measures to US imports. This situation also delays a future date to end the renegotiation of NAFTA.
After 11 months of negotiations to update NAFTA, the agreements around rules of origin and about the percentage of automotive content per vehicle within the three-country block which qualifies to be free of tariffs, remains static. There continues to be a difference of opinion between USA and Mexico. US officials are aligned in the need for a more viable agreement.
Most commentators agree that the future of NAFTA remains uncertain. The process, initially slated to last four months, has been prolonged and the waiting period on responding to proposals has raised questions. Mr. Trump’s threats to leave NAFTA loom over the negotiation process as stakeholders on all sides await a final decision. Newly elected President of Mexico Andres Manuel Lopez Obrador stated that he dislikes NAFTA, which opens the door for new negotiations for the three countries involved, potentially creating bilateral agreements.