Reworking the North American Free Trade Agreement (NAFTA) has been a focus point of the Trump administration since last summer. Talks between the U.S., Canada and Mexico started in Washington today to discuss the nearly 25-year-old pact.
American officials want to continue with their protectionist views by removing dispute-resolution panels within NAFTA, said the Wall Street Journal. The panels are designed to sustain or overturn tariffs during conflicts. Both Canada and Mexico are in support of keeping the panels. These panels fall under Chapter 19 of NAFTA. If it is done away with, tariff disputes would then enter national courts or go before the World Trade Organization.
Rules of origin, especially in the automotive industry, is another topic set to be discussed, according to the Washington Post. Roughly two-thirds “of the total value of the components in a car have to come from within North America in order for that automotive to move across North American borders tax free,” said the Post.
Meanwhile, positive negotiations will not improve Mexico’s growth, according to Moody’s Investors Service. "NAFTA has not remedied Mexico's low growth, low productivity and low wages," said Madhavi Bokil, a Moody’s VP and senior analyst, in a release. “Successful NAFTA talks alone will not fix structural impediments to Mexico's growth,” he added.
Updating the rules of origin and the overall trade pact could both benefit Mexico and its economic reform efforts, said a press release from Fitch Ratings. “Changes to the treaty do not put Mexico's industrial sector at a disadvantage in the U.S. market,” said Fitch. “Trump’s protectionist turn could help Mexico further diversify its export destinations and reduce its overdependence on the U.S. for its foreign trade,” said a report from credit insurer Atradius.
U.S. and Mexican officials are looking to close the door on negotiations, with a new deal by early next year due to elections. The general election in Mexico is in July, while the U.S. has an election in November. All three sides are expected to meet in Mexico next month.
– Michael Miller, editorial associate