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Not so fast, eh: The real deal on that U.S.-Mexico trade agreement

Far from complete, President Trump's preliminary deal with Mexico might have just upped the stakes.

US President Donald Trump speaks to reporters after a phone conversation with Mexico's President Enrique Pena Nieto on trade in the Oval Office of the White House in Washington, DC on August 27, 2018. (PHOTO CREDIT: Mandel Ngan/AFP/Getty Images)
US President Donald Trump speaks to reporters after a phone conversation with Mexico's President Enrique Pena Nieto on trade in the Oval Office of the White House in Washington, DC on August 27, 2018. (PHOTO CREDIT: Mandel Ngan/AFP/Getty Images)

After a protracted struggle over renegotiating the North American Free Trade Agreement (NAFTA) at President Donald Trump’s behest, the United States and Mexico came to a new agreement on a new deal.

Sort of.

On Monday, President Trump invited the press into the Oval Office to hear his call with Mexico’s outgoing President Peña Nieto:

Trump insists that this isn’t another NAFTA agreement, which he says the U.S. is leaving behind. But the deal is neither done nor is it necessarily how Trump presented it: As a bilateral deal between Mexico and the United States.

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Speaking on background, a source familiar with the preliminary trade deal — including portions that are not yet public — told ThinkProgress that despite what the president says, the new agreement is written as a trilateral deal.

The president, said the source, “overstated what was done…this ain’t a done deal. You can’t just give it a new name. There still has to be negotiations with Canada, to start with.”

This is problematic because, “practically, the damn agreement is largely written,” and “we don’t know what poison pill might be in there,” added the source.

Trump and Nieto hope that talks with Canada will being this week. If Canada does not agree to the new terms as soon as Friday, its automotive exports will be subject to tariffs pending congressional approval.

“I think with Canada, frankly, the easiest we can do is to tariff their cars coming in. It’s a tremendous amount of money and it’s a very simple negotiation. It could end in one day and we take in a lot of money the following day,” Trump said Monday.

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Canada is in no hurry to comply though, said Eric Miller, president of Rideau Potomac Strategy Group, a cross-border consultancy that advises clients on government affairs (including trade issues),

“The mantra in these sorts of things needs to be ‘Keep calm and carry on,'” said Miller, who is also a global fellow at the Woodrow Wilson Center’s Canada Institute.

“If you buy into the notion that you only have until the end of the week — and Canada is certainly not doing this — you don’t have a lot of leverage. The U.S. would like this very much to be a trilateral deal and there will be a price for the president to pay if he can’t get a deal with Canada,” he said.

A deteriorating relationship with Canada won’t just affect trade and make the cost of some goods, including cars, go up for U.S. consumers, explained Miller. It’ll also affect security and border cooperation.

Even if notice is served to Congress on Monday to start the 90-day rundown to tariffs, Canada will still have until late September to respond.

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So what Trump is doing right now is less political theater and more of a “high-stakes confrontation….where bad things can happen and bad results can materialize,” said Miller.

And Canada is “absolutely willing to walk away,” said Miller even if that’s not what it really wants. Prime Minister Justin Trudeau is keen to reduce Canada’s trade dependence on the United States and strengthen trade with other countries.

“There is a real focus on trying to make that happen in Ottawa, so a disappearance of NAFTA or a prolonged period of uncertainty will only push that forward,” he added.

Some pieces of this agreement might be be favorable to a Canadian outcome, but Prime Minister Trudeau has signaled that there are two hills upon which Canada is willing to die in these talks: the Chapter 19 trade remedy system (think of it as an anti-dumping clause), which is eliminated in this new agreement, and the sunset clause the president has included in the new deal.

A NAFTA deal with a sunset clause, said Miller might mean that “Canada will always be relegated to a second-class position in the NAFTA process and that they will get a lower amount and lower quality of investment than they otherwise would in a NAFTA without an expiration date.”

Things like dairy market regulation and soft-wood lumber will also likely be among the key issues that are likely to be major sticking points in the next phase of negotiations.

“Part of the problem that the Trump people have is that they don’t seem to recognize that you need to provide space for people to also be able survive within their own political realities,” said Miller. So asking Canada to blow up its dairy regulations overnight is going to be tricky, at best.

So will Canada sign on?

“It’s very difficult for Canada to come and just sign onto a text that it has not been a party to negotiating for the past five weeks,” said Miller.

It’s possible that Canada can agree to some parts of the agreement and continue to work on others, provided the Trump administration makes room for this.

What we know

Among the new items of Monday’s agreement are:

  • A “rule of origin” requirement that 75 percent of each automobile (core parts — engines, transmissions, etc.) be sourced in the NAFTA zone, an increase from the current 62.5 percent.
  • Between 40 percent to 45 percent of each car be made by workers earring at least $16 per hour.
  • A 16-year lifespan on the new NAFTA, with regular reviews every six years — aka, a “sunset clause.”

The deal also addresses items that progressives have been fighting for years:

  • The corporate trade tribunals, which allowed foreign investors to bypass domestic courts to sue taxpayers (a provision widely used by Canadian and U.S. investors attacking each other) that ostensibly operated as a parallel corporate justice system.
  • A means of leveraging free-trade benefits to get parties to meet labor and environmental standards, which, oddly, the Trump administration, given its stance on rolling back environmental protections and labor rights, has added to the agreement. This means Mexico will have to change its labor laws to allow secret-ballot elections of workers on union contracts.
  • The removal of the “proportional sharing clause” — which guarantees access of natural resources for companies to one of the NAFTA countries to absolutely have a right to, regardless of policies in another NAFTA country, based on previous years’ patterns of trade. So, for instance, if Canada were to ban tar sands oil exports, U.S. oil and gas companies would still have a right to a certain percentage of production based on the three prior years of production. In other words, Canada wouldn’t have the right to ban bad practices within its own borders.

“We know progress was made…but we also know that the enforceability of the new labor and environmental standards to which the U.S. and Mexico agreed is still lacking — that’s a very big problem that needs to be resolved,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

And enforcement, she added, largely depends on will.

“The problem is, the U.S. government would have to take action. And so the environmental groups the labor groups, etc. would want to have some mechanism where we could trigger [action], keeping a product that doesn’t meet standards,” Wallach told ThinkProgress.

How the automotive industry fares

Whether this new deal is beneficial to the automotive industry (protecting jobs without drastically increasing prices, for instance) is not quite clear, with an industry insider who did not want to be named telling ThinkProgress, “It’s hard to see how this NAFTA 2.0 will make the industry, will make the region more competitive. And ultimately, that impacts the consumer.”

A U.S.-Mexico bilateral agreement is not workable for the automotive industry, as without Canada singing on, the rule of origin provision will be hard to meet.

And even with Canada signing on, some manufacturers, say German ones, who get those core parts from Europe, might not be able to comply.They would have to probably go ahead and pay the tariffs, and may chose to absorb it or pass the extra cost along to the consumer.

How automotive manufacturers fare in and respond to any new agreement is pretty important.

According to data from the Alliance of Automotive Manufacturers, the industry supports 7 million jobs in the United States — $500 billion in paychecks and $200 billion in federal and state taxes.

The other big number: $1 trillion. That’s how much trade Canada, the United States, and Mexico do each year, and Trump’s tariffs and his threats of tearing up NAFTA have caused a great deal of unease in the U.S. automotive industry with lawmakers noting that without Canada, U.S. jobs will take a hit.

“Millions of jobs in Texas depend on an updated NAFTA, and it’s important that we get this right,” said Sen. John Cornyn (R- Tex).

President Trump slapped tariffs on steel and aluminum imports on a number of countries including Mexico and Canada, with which the United States entered into the three-nation pact in 1994.

Trump has been on what can only be described as a tariff rampage, getting into trade wars with China, the European Union, Mexico, and Canada.