After a brief hiatus during the run up to the recent Mexican elections, negotiations on the North American Free Trade Agreement (NAFTA) are in the news again, with hints of an agreement by the end of August. We have heard talk of an imminent agreement before and the chances of an agreement within the month may not be very high, and even if it does happen it may be more of an “agreement in principle” with many details still to be worked out. Nevertheless, with the renewed interest, we thought it was worth breaking down some of the key remaining issues (there are a lot of them, which helps illustrate the amount of work still left to do!).
Rules of Origin (RoO) for Autos
This is the focus of the current talks taking place between the U.S. and Mexico (Canada does not appear to be actively involved, perhaps because it does not have strong feelings about some of the outcomes here). In essence, the Trump administration wants to tighten the requirements for having trade in autos benefit from zero tariffs. In this regard, the U.S. wants to increase the percentage of content that must be from North American sources (currently the figure is 62.5%; the U.S. proposed raising it to 85%, and press reports suggest that 75% is the figure being discussed now). It also wants a percentage of the autos to be made by workers who make above a certain hourly wage (reports suggest that the current U.S. proposal is that 40% of light-duty vehicles and 45% of pick-up trucks are to be made by workers that make as least $16 an hour).