Mexico and US finally reach a bilateral trade agreement

MEXICO - In Brief 28 Aug 2018 by Mauricio Gonzalez

---

After more than one year of hard discussions and uncertainty about trade relations, Mexico and the US announced yesterday a preliminary trade agreement that modernizes NAFTA. The main issues that stalled negotiations in the past few weeks were resolved. Even though details have not yet been revealed it i sour impression that Mexico gave way to some of US demands, particularly in the manufacturing sector. Provisions of the new agreement: New rules of origin for automotive sector. Mexico accepted a 75% US content in contrast with current 62.5% and also that in order for US and Canadian imports of cars to remain tariff free, at leat 40% of the vehicle’s contents should be produced in high wage zones, earning at least US $16 dollars per hour. In words of Mexico’s Trade Minister, 70% of automóviles produced currently in Mexico abide by these criteria and the rest of automobile production would need to adjust to the new rules, otherwise a 2.5% import tariff would apply.Sunset clause. The agreement would last 16 years and would be reviewed in 6 years, but not expire as US demanded previously. This enlarges certainty for current and future investments allowing US and and other international firms to feel more secure about establishing operations in Mexico in order to trade freely in the North American Zonde.Dispute settlement. It was not clearly defined how much binational dispute settlement mechanism would operate under the new agreement. This topic was a main concern for Canada, so we expect more information will come out once Canada joins talks with the US starting today.Agricultural imports. US demand to introduce a seasonal window for agricultural imports at times when ag...