U.S. and Mexico Reached a Deal to Replace NAFTA

us-mexico-trade-agreement

The Office of U.S. Trade Representative (USTR) announced that the United States and Mexico have “reached a preliminary agreement in principle” to update the 24-year old North American Free Trade Agreement (NAFTA). According to USTR, compared with the existing NAFTA, the new deal will

  • strengthen the labor and environmental protection provisions
  • provide stronger and more effective protection and enforcement of intellectual property right protection
  • reduce various non-tariff barriers facing U.S. agriculture exports
  • include new rules of origin and origin procedures for autos (including requiring 75 percent of auto content be made in the United States and Mexico AND 40-45 percent of auto content be made by workers earning at least $16 per hour.)
  • include new chapters dealing with digital trade and textiles
  • include a 16-year “sunset period” with a review every six years, at which time the parties can renew the deal for another 16 years.

Specifically for the textile and apparel sector, USTR said that “The new provisions on textiles incentivize greater United States and Mexican production in textiles and apparel trade, strengthen customs enforcement, and facilitate broader consultation and cooperation among the Parties on issues related to textiles and apparel trade.” More specifically, the new textile chapter in renegotiated NAFTA will:

1) Promote greater use of Made-in-the-USA fibers, yarns, and fabrics by limiting rules that allow for some use of non-NAFTA inputs in textile and apparel trade; and requiring that sewing thread, pocketing fabric, narrow elastic bands, and coated fabric, when incorporated in apparel and other finished products, be made in the region for those finished products to qualify for trade benefits. “

2) Include textile-specific verification and customs cooperation provisions that provide new tools for strengthening customs enforcement and preventing fraud and circumvention.

Based on USTR’s statement, it is likely, although not confirmed, that the US-Mexico deal will allow more limited tariff preference level (TPL) than the existing NAFTA.

USTR’s statement also said that the new deal would be subject to “finalization and implementation,” and its relationship with NAFTA remain unclear. The statement did not mention anything about Canada, another NAFTA member, either. Interesting enough, when announcing the US-Mexico deal in front of the press, President Trump said I will terminate the existing deal (NAFTA).  When that happens, I can’t quite tell you; it depends on what the timetable is with Congress.  But I’ll be terminating the existing deal and going into this deal.  We’ll start negotiating with Canada relatively soon.”

In a statement released on the same day, the American Apparel and Footwear Association (AAFA) said it welcomed the conclusion of bilateral talks with Mexico on NAFTA and emphasized the need for Canada to be a part of any final agreement: “The conclusion of talks between the U.S. and Mexico is a positive step in the NAFTA negotiations, however, it is essential that the updated agreement remain trilateral. At the same time, we encourage the administration to share the details of the agreement so the business community can inspect the impact on North American supply chains and share feedback with the administration and Congress…Any update to the agreement must continue to support these American jobs, promote trade linkages, and be seamlessly implemented to be considered a success. It is with this in mind that we are deeply concerned to hear any mention of withdrawal or termination of the existing agreement at this late stage.”

According to Inside U.S. Trade, the National Council of Textile Organizations (NCTO) which represents the U.S. textile industry says it is “encouraged by the information released by USTR with respect to strengthening the rules of origin for textiles and apparel in the announced agreement with Mexico. U.S. talks with Canada are still ongoing, however, and NCTO will wait to review the text of any final agreement before issuing a more detailed statement on the negotiation outcome.”

Author: Sheng Lu

Professor @ University of Delaware

4 thoughts on “U.S. and Mexico Reached a Deal to Replace NAFTA”

  1. I think it is great that the US and Mexico have agreed to update NAFTA, because it is giving more protection . It will promote made in the USA fibers, yarns and fabrics by limiting rules of using non-NAFTA inputs. The new deal will allow more TPL than the existing NAFTA. President Trump said he will terminate the existing NAFTA, and negotiations with Canada will start soon.

    1. Interesting points. Why do you think the agreement reached between US and Mexico will “give more protection”? Can you explain more of your points? Also, the text of the agreement is yet to be released. However, from USTR’s statement, it doens’ seem likely that the new agreement will allow more TPL than the existing NAFTA–rather, it will limit the usage of TPL. Additionally, why do you think President trump would like to terminate the existing NAFTA? What does he want to achieve and what might be his motivations?

  2. I think it is a good idea that the NAFTA is being looked at and revised. I think its always a good idea to make needed changes because the world does not stay the same for long. All of the points of improvement for NAFTA seemed to be positive and truly beneficial. I think one of the greatest points for this new agreement comes into play with this quote, “Based on USTR’s statement, it is likely, although not confirmed, that the US-Mexico deal will allow more limited tariff preference level (TPL) than the existing NAFTA.” I think this is a really thing since the President is doing his best to raise taxes on production outside of the USA. I think the president wants to get rid of the old NAFTA all together because he wants less trade agreements and more domestic production and manufacturing. The president wants to try to make our nation more self-sufficient and reliable. Trade agreements with other nations is going against what his clear goals are.

    1. Pleased to see you start to think about the impact of the free trade agreement, such as NAFTA, on the textile and apparel sector. My quick comment is “the devil is in the details.” Later in our course, we will specifically discuss provisions such as the yarn-forward rules of origin and the tariff preference level (TPL) in trade agreements and how they might affect companies’ sourcing strategy. You may also check this blog post to see the interesting implications of the “rules of the game”: https://shenglufashion.com/2017/10/03/us-tables-proposal-aimed-at-limiting-the-yarn-forward-exceptions-in-nafta-renegotiation/

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