The United States and Mexico agreed on Monday to a sweeping trade deal that pressures Canada to accept the new terms on autos trade, dispute settlement and agriculture to keep a trilateral North American Free Trade Agreement (NAFTA).
U.S. Trade Representative Robert Lighthizer said the White House is ready to notify the U.S. Congress by Friday of President Donald Trump’s intent to sign the bilateral document, but said that it was open to Canada to join the pact.
Here are some of the main issues at the heart of the negotiations:
AUTOS DOMINATE, SOFTER SUNSET
The U.S.-Mexico deal raises the regional automotive content threshold for tariff-free access under NAFTA to 75 percent from 62.5 percent, aimed at boosting regional car manufacturing.
It requires 40 to 45 percent of vehicles value to be made in high wage areas paying $16 an hour, requiring significant automotive production in the United States.
The pact also requires greater use of U.S. domestic steel, aluminium, glass and plastics.
Trump backed off on a U.S. demand for a “sunset” clause that would kill the pact unless it was renegotiated every five years and which businesses said would stymie long term investment in the region.
Canada and Mexico were strictly opposed to the clause. Instead, the United States and Mexico agreed to a 16-year lifespan for NAFTA, with a review every six years that can extend the pact for 16 years more, providing more business certainty.
Mexico agreed to eliminate chapter 19 dispute settlement mechanism, Lighthizer said. Canada is opposed to the elimination of the dispute settlement mechanism.
A settlement system for disputes between investors and states was scaled back, now only for expropriation, favouritism for local firms and state-dominated sectors such as oil, power and infrastructure.
The new deal will keep tariffs on agricultural products traded between the United States and Mexico at zero and addresses agricultural biotechnology to support innovations in agriculture.
It contains enforceable labour provisions that require Mexico to adhere to International Labor Organization labour rights standards in an effort to drive Mexican wages higher.
The U.S.-Mexico NAFTA deal opens the door for Canada to immediately rejoin the talks and is a major step forward in updating the 24-year-old accord.
Canada, which sat out the last leg of discussions while the United States and Mexico ironed out their bilateral differences, is now pressured to agree to the new terms on auto trade and other issues to remain part of the three-nation pact.
Trump threatened to put tariffs on Canadian-made cars if a three-way deal could not be reached.
Trump criticised NAFTA throughout the year-long negotiation, saying it had drained U.S. manufacturing jobs to Mexico and calling it “the worst trade deal ever made.”
He has often threatened to cancel the 1994 pact signed by the United States, Mexico and Canada, if he could not rework it to the benefit of American interests.
NAFTA talks have hit many speed bumps along the way, including when the United States imposed tariffs of 25 percent on imported steel and 10 percent on aluminium in March, citing national security grounds.
NAFTA underpins $1.2 trillion in annual trade between the three countries.
The United States and Mexico do $550 billion in annual trade and about 16 percent of U.S. goods exports go to its southern neighbour. However, the Mexican economy relies more on trade than does the U.S. economy, with about 80 percent of its exports sold to the United States.
The United States accounts for 75 percent of goods exports from Canada, where firms flourish operating next to the world’s largest economy.