Page 20 - OBW Winter Ed 2018

FROM THE CHAIRMAN

NEW NATFA AND WHAT IT

MEANS FOR MEXICO

n a 60 Minutes interview back in September 2015, then presidential
candidate Donald Trump called NAFTA, “the single worst trade deal
ever approved.” He vowed that if elected we would either “negotiate
I it, or we will break it.” The new deal feels like the latter. After more
than a year of intense negotiations, the United States, Mexico and Canada finally
struck a deal to update the 1994 Free Trade Agreement that governs more than
a trillion dollars worth of trade among the three players. As foreshadowed in his
opening remarks, Trump won’t refer to it as NAFTA, but rather a brand-new
deal with many of the stipulations not going into effect until 2020.

Trump has repeatedly threatened, over the past year, to impose tariffs on
imported automobiles. The threat of auto tariffs has clouded trade talks with
several countries, including Japan and South Korea, which export cars and car
parts to the U.S.

Canada and Mexico need not worry, however. The new agreement grants
exemptions from any future U.S. tariffs to 2.6 million imported passenger
vehicles from each of those countries. That’s slightly more vehicles than Mexico
has exported to the United States over the last year, and nearly 1 million more
than Canada.

USMCA guarantees that Canadian and Mexican manufacturers have access to
some large U.S. markets, such as cars and light trucks, but leaves unanswered
questions about their ability to avoid tariffs on steel and aluminium exports to
the United States.

USMCA’s zero trade tariffs between the three countries are provided their
products meet certain requirements to qualify as being made in North America.
What that means is, you can’t make a car in America, ship it to Mexico to
assemble the after-market parts and expect to get duty-free status. Moving
forward, 75 percent of what makes up the car or truck must be made in Canada,
Mexico or the United States to quality. Currently, it’s at 62.5 percent.

Starting in 2020, 40-45 percent of the work done on a car must be completed
by workers earning a minimum of $16 dollars an hour. This is likely to affect
Mexico more than the U.S. or Canada. Currently, the typical autoworker in
Mexico makes 88 pesos an hour—not even $5 dollars in American money. The
hope is that this new requirement will level the playing field between American
and Mexican autoworkers.

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