Supply Chain Matters provides a breaking news commentary to our ongoing updates and insights related to global trade and tariff tensions. Both the U.S. and Mexico announced today a bi-lateral trade agreement paving the way for Canada to participate in a NAFTA replacement trade agreement. President Trump however, is calling for renaming of this agreement, to obliterate the former connotation. NAFTA Trade Agreement

President Trump gathered reporters in the Oval Office to announce the new trade agreement with Mexico. Mr. Trump indicated to reporters that the agreement should be renamed to the U.S. Mexico Free Trade Agreement, dropping the former NAFTA agreement name because it had “bad connotations” for the United States.

Canada’s Foreign Minister is expected to rejoin negotiations in Washington tomorrow.

As noted in our Supply Chain Matters Friday trade and tariff update published on August 24, the announcement of agreement was planned for last week, but negative headlines of multiple indictments of former major aides to President Trump had consumed media headlines.

According to reporting by the Washington Post, top White House officials seem split on whether the U.S, would proceed without securing Canada’s agreement, either leaving the door open for cutting just a bi-lateral deal, or moving forward with a new re-negotiated tri-lateral agreement. U.S. Trade Representative Robert Lighthizer told reporters later that every effort would be made to include Canada as part of the deal. Mexican officials also indicated that Canada should be part of the trade deal.

The appearance is that President Trump continues to play the tough negotiator stance with Canada indicating willingness to terminate NAFTA in favor of a bi-lateral deal if Canada does not agree to terms. It raises speculation whether the President is placing additional pressures on Canada in a take-it or leave it stance to join in the tenets of the bi-lateral agreement announced today. At the same time, time is running out on the ability for all nations to conduct the 90-day review and ratification process this year, before new political leaders take office in 2019.

According to various reports, the announced bi-lateral agreement will span 16 years, with an option to revisit the agreement in six years, for an extension for a further 16 years. U.S. officials indicated the deal would augment content requirements for chemicals, steel-intensive products, and further industrial materials. Further noted were moves to strengthen rules governing textile and apparel supply chains.

Regarding auto manufacturing content, reports point indicate agreement to up North American content from the prior 62.5 percent to 75 percent content made in North America to qualify for duty-free status. Further reported is a provision that a significant portion of each vehicle to be manufactured in high-wage factories, a move to discourage factory jobs from leaving the U.S. for Mexico. As in all such agreements, the details are what really matters as to impact and enforcement.

The parties could not come to agreement over current steel and aluminum tariffs, which implies that the import tariffs will continue, while discussions are ongoing.

U.S. Trade Representative Lighthizer indicated this afternoon that the White House plans to send the U.S. Congress a letter by Friday that will formally start the 90-day process. What is very unclear is what precisely that letter will include as an outline of agreement in terms of Mexico or Canada. Further unclear, at this point, is the response of Congressional leaders in the wake of the upcoming U.S. Congressional elections in November. This could well be yet another highly politized process that lacks the realities of multi-industry supply chain impacts, positive, or not as positive.

 

Bob Ferrari

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