Nafta to be altered for US and Mexico - but Canada is yet to agree

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Nafta is set to change following a deal struck between the US and Mexico, but Canada is yet to join.

In a move that could significantly affect international trade, the US and Mexico have agreed a deal that will see the North American Free Trade Agreement (Nafta) revamped - but the pact does not yet include Canada, the third signatory to the original terms.

The revelation came this week after a lengthy period of criticism of Nafta by US president Donald Trump, who had blamed the 1994 agreement for a decline in US manufacturing jobs. He had even threatened to pull out of the deal, but has now agreed to a renegotiation of the framework with Mexico to create what he called a "really good deal" and "much more fair" for both nations.

What was Nafta?

Nafta was an agreement signed by Canada, Mexico and the US in 1994 to create a trilateral trade bloc in North America. Its goal was to eliminate barriers to trade and investment between the three nations.

Immediately after its implementation, tariffs were eliminated on more than half of Mexico's exports to the US and around a third of US exports to Mexico. Most trade between Canada and the US was already duty-free. Nafta also aimed to eliminate non-tariff trade barriers and protect intellectual property rights.

It currently covers more than $1 trillion in annual trade, particularly in the food and agriculture industries.

However, by July 2017, the Trump administration had published a list of proposed changes to Nafta, which led to upheaval and the current round of negotiations.

Changes to Nafta going forward

The US was keen to agree a new deal with Mexico before the new president Andres Manuel Lopez Obrador officially takes office in December, and it seems that goal has been fulfilled.

These new updates include provisions for intellectual property, digital trade and financial services in the hope of supporting mutually beneficial trade and creating freer markets and robust economic growth.

For intellectual property, a new chapter has been approved that provides protection and enforcement of IP rights that should drive innovation while supporting American jobs.

To cover digital trade, there are even stronger new disciplines for the expansion of trade and investment, while a new financial services chapter includes commitments to liberalize markets and preserve the discretion of financial regulators to ensure financial stability. 

It has also been agreed between the US and Mexico that 75 per cent of a product must be made in the two countries to receive tax-tree treatment and, for cars, that 40 to 45 per cent of each vehicle must be made by workers earning at least $16 an hour.

The core of the trade pact remains intact and will last for 16 years, with a review every six years.

Reactions - and where is Canada?

Organization for Economic Cooperation and Development secretary-general Angel Gurría has welcomed the positive outcome of the trade negotiations, commenting that the modernization "will give certainty to the economic agents linked to [the three countries] and is also a very positive signal internationally".

US senator John Cornyn has also called the development a "positive step", but added: "Now we need to ensure the final agreement brings Canada into the fold and has bipartisan support."

Indeed, many stakeholders and other interested parties have reacted with surprise that Canada has not yet been included in the new Nafta fold, with the US Chamber of Commerce remarking it is "critical" that the agreement continues to include the nation.

"It is imperative that a trilateral agreement be inked," said president and chief executive of the National Association of Manufacturers Jay Timmons, while even Mr Obrador said a two-way agreement is only the first step.

"We're very interested in it remaining a three-country deal," he added. "The free-trade agreement should remain as it was originally conceived."

Nafta going forward

Canadian officials are to meet for negotiations with the US and Mexico concerning Nafta over the coming days, despite some suggestions from Mr Trump that a deal could proceed without the North American country if it does not sign by the end of the week.

Yet since Canada remains the largest export market for the US, it is surely likely that this is only bluster from Mr Trump designed to encourage Canadian president Justin Trudeau to push forward with discussions.

Any deal with Canada is likely to rest on a compromise on agriculture and dairy that would be satisfactory for all three nations.

It will be interesting to see what the final outcome for Nafta is and how this impacts upon global economic trade going forward.