By Stephen C. Hanemann

“A big day for trade!” was President Donald Trump’s enthusiastic announcement concerning the bilateral negotiations recently reached between the United States and Mexico on August 27, 2018, merely three months away from the North American Free Trade Agreement’s 25th birthday.

While ratified by the Legislatures of Canada, Mexico, and the United States in 1993, and signed into law by President Bill Clinton on December 8, 1993, NAFTA, which became effective on January 1, 1994, traces its direct origins to 1980 when the three North American nations first sought an accord to establish mutual trading, cost reduction, increased business investment, and heightened competition in the global market place. Shortly thereafter, President Ronald Reagan – whose campaign platform included provisions advancing a North American common market – supported the 1984 Congressional passage of the Trade and Tariff Act, which gave the U.S. President unilateral authority to negotiate free trade agreements. The Act facilitated the U.S. Chief Executive’s ability to expedite trade negotiations. Since its passage, Congress retains only the ability to approve or reject the complete agreement as negotiated, but not to alter it or suggest revisions. President Reagan and Canadian Prime Minister Brian Mulroney negotiated a Canada-U.S. Free Trade Agreement in 1998, which was signed in that year, and went into effect in 1999. Reagan’s successor, President George H. W. Bush, negotiated with Mexican President Carlos Salinas de Gortari to reduce Mexican tariffs on U.S. imports, which before NAFTA were 250% higher than U.S. tariffs on Mexican imports. In conjunction with the Bush-Salinas negotiations, in 1991, Canadian Prime Minister Mulroney requested a trilateral agreement, from which NAFTA was born.

Citing a compelling need to revitalize and modernize the aging NAFTA content, the United States and Mexico recently commenced and completed preliminary negotiations in support of a mutually-beneficial trade agreement to promote vibrant economic growth, balanced trade, and less-restricted markets to help North America keep pace with the 21st century-global economy. The recent discussions, which excluded Canada, have seemingly created more of a path to replace NAFTA than to revise it. In fact, President Trump has been quite vocal about the name of the new agreement, which he says will not be NAFTA.

The negotiations seek to modernize NAFTA to conform with recent technological, digital, and environmental innovations, as well as address the arenas of intellectual property, copyright, digital trade, and financial services. Other developments focus on eliminating customs duties on low-valued goods, levying prohibitions on local data storage requirements for information accessible to financial regulators, and establishing new trade rules of origin, vastly improving the North American labor force benefits and upping local content requirements in the automotive industry. Bolstering their commitment to technological and ever-changing labor market advancements, the United States-Mexico negotiations also brought to bear a heavy import on environmental concerns and obligations pertaining to wildlife, timber, fish, and air quality.

Despite the newly-developed and comprehensive enforcement provisions pertaining to intellectual property and trade secret protections, the key points of negotiations also involved added benefits for innovators and stronger disciplines on digital trade; all of which tend to provide a firm foundation for the expansion of trade and investment in products and services where the United States has a competitive advantage.

An additional noteworthy development involves the increased de minimis shipment value of cross-border goods, which will facilitate greater trade between the United States and Mexico by reducing or eliminating customs duties and taxes on shipments valued up to $100. Increasing the de minimis value will significantly lower costs to small and medium-size enterprises, which do not have the resources to pay shipping costs on small shipments. The cost savings will also trickle down to the new traders entering Mexico’s market, and of course, the consumers.

On the labor front, the new trade rules of origin in the automotive manufacturing industry will require at least 75% of a car’s value to be manufactured in North America (compared to 62.5% previously). And at least 40% of each vehicle manufactured in North America must be made by workers earning at least $16 per hour. These and other labor revisions seek to create more U.S. jobs carrying competitive wages, as well as stimulate the domestic automotive industry’s overall production and global competitiveness.

The proposed content of the environmental chapter marks the first ever articles of a Free Trade Agreement to directly improve air quality, prevent and reduce marine litter, support sustainable forest management, and to create and implement procedures for environmental impact studies and assessments, and modernize mechanisms for public participation and environmental cooperation.  Other enforceable-environmental obligations seek to combat unlawful trafficking in wildlife, timber, and fish, and address pertinent environmental issues related to air quality and marine dumping.

Indeed, Canada’s absence during the NAFTA re-negotiations likely bodes well in favor of a NAFTA replacement rather than revision. While Mexico’s administration has contacted Canada requesting a return to the negotiating table, in hopes of a trilateral NAFTA deal, the Trump administration has unequivocally expressed its concerns about multi-lateral agreements and voiced a strong preference for bilateral ones.