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Update On NAFTA Negotiations

Update On NAFTA Negotiations

Q: What is NAFTA? A: The United States, Canada, and Mexico entered into the North American Free Trade Agreement effective January 1, 1994. NAFTA eliminated duties and trade restrictions on goods shipped between the three countries. Before NAFTA, goods shipped between the countries were taxed when they crossed the border. NAFTA covers rules of origin, customs procedures, agriculture and sanitary measures, government procurement, investment, trade in services, protection of intellectual property rights, and dispute settlement procedures.1

Q: NAFTA is in the news lately. What’s going on?

On May 18, 2017, following consultation with relevant Congressional committees, United States Trade Representative Robert Lighthizer informed Congress that President Donald Trump intends to commence negotiations with Canada and Mexico to renegotiate NAFTA.

Currently, the three countries have completed five rounds of negotiations, and the parties appear to be far apart.

Among other things, the United States has called for an increase in the automotive content percentage (amount of a good that needs to be manufactured in North America in order to qualify for zero tariffs under NAFTA) to be increased from 62.5% to 85%.

The United States has also proposed that half of all car content must be manufactured solely in the United States to be immune from tariffs. Automakers worry that these proposed changes will increase costs of production.

At the most recent fifth round of negotiations in Mexico City, Canada and Mexico did not present a counter-proposal to the United States’ requests.

Instead, the two countries presented data outlining the potential harm to the automotive industry if the United States’ requests were implemented.

The next round of negotiations is set for Montreal in late January. With gridlock surrounding the most recent talks, it is good idea to look ahead to what might happen if NAFTA talks breakdown completely.

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