On August 27, 2018, the United States and Mexico reached a preliminary agreement “in principle, subject to finalization and implementation,” to update the North American Free Trade Agreement (NAFTA). The Office of the U.S. Trade Representative (USTR) stated that the updated agreement will “support mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America.” In reaching the agreement with Mexico, President Trump stated that, “America has … finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs, and our Nation’s wealth.”
While full details of the agreement have not yet been released, a White House fact sheet states that the agreement modernizes and rebalances the trade relationship “to reflect the realities of the 21st century,” including:
- New “rules of origin” requirements to incentivize vehicle and automobile parts production in the United States, supporting high-wage jobs.
- Stronger and enforceable labor standards.
- New commitments to reduce trade-distorting policies for agricultural goods.
- Improvements enabling food and agriculture to trade more fairly.
- Strong and effective intellectual property protections.
- Stronger disciplines on digital trade.
- More robust transparency obligations.
The USTR has released a series of fact sheets providing more details on key provisions of the agreement with Mexico. See “Strengthening NAFTA for Agriculture,” “Rebalancing NAFTA to Support Manufacturing” and “Modernizing NAFTA to be a 21st Century Trade Agreement.”
While President Trump and USTR Robert Lighthizer have repeatedly indicated that the United States would insist upon a five-year “sunset clause” for any revised trade agreement, the preliminary agreement with Mexico includes a sunset clause for a 16-year period, with a review of the terms after six years to address any problems. At the six-year review juncture, the countries could negotiate on any issues or problems and/or agree to extend the trade agreement for another 16 years.
The announcement almost immediately became embroiled in controversy. President Trump stated that he would formally terminate the NAFTA since the United States had reached an agreement in principle with Mexico; however, Mexican President Enrique Peña Nieto responded that a new agreement ultimately must include Canada. In other remarks, President Trump indicated that Canada could either join the agreement between the United States and Mexico, or the United States could reach a separate agreement with Canada. Notably, Canada was not involved in these negotiations with the United States and Mexico, but Canadian Foreign Minister Chrystia Freeland indicated in the past that the country would rejoin discussions after the U.S.-Mexico bilateral issues were resolved; she rushed to Washington, D.C. this week for accelerated talks. Congress has been consistent in its position that it wishes to see a trilateral trade agreement (i.e., a revised and modernized NAFTA).