Welcome to Weise Wednesday! Twice a month we will share a brief Q&A with the former U.S. Commissioner of Customs, Mr. George Weise. If you have questions, we encourage you to send them to This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Q. With all that has been happening relating to steel and aluminum tariffs and the U.S.-China trade dispute, I haven’t heard much recently about the status of NAFTA renegotiations. Can you bring us up-to-date on what is happening?

A. Although this issue appeared to be dormant for several months, it looks like tangible progress has been made in recent weeks. Back in May, negotiations between the three parties were halted, reportedly over the U.S. insistence that a five-year sunset provision be included in the agreement.

Over the past four weeks, however, bilateral negotiations have taken place between U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo in an effort to resolve outstanding issues between the two governments. Canada has not participated in these talks.

Besides the sunset provision, one of the most challenging issues being addressed relates to the rule of origin for automobiles. Currently, NAFTA requires that 62.5% of an automobile must be built from parts originating in the three signatory countries. The U.S. had proposed that NAFTA be modified to change the 62.5% requirement to 85%, but agreed to lower the threshold to 75% if a certain percentage of parts was made by workers who were paid at least $16 per hour. The effect of such a provision would guarantee that the work on those parts was done in the U.S. or Canada.

Recent signs indicate that substantial progress has been made in the bilateral talks between the U.S. and Mexico on these issues. But a final NAFTA deal would require the agreement of Canada as well. A recent tweet from President Trump, however, raises the question of whether the President would move to replace NAFTA with bilateral agreements with Mexico and Canada. He tweeted—

“Deal with Mexico is coming along nicely. Autoworkers and farmers must be taken care of or there will be no deal. New President of Mexico has been an absolute gentleman. Canada must wait. Their Tariffs and Trade barriers are far too high. Will tax cars if we can’t make a deal.”

At this point, it is not clear if this is just posturing on the part of the U.S. to move Canada to accept the provisions that emerge from the U.S.-Mexico talks or whether the threat to move to bilateral agreements is real. All of this should come into clearer focus in the coming weeks because Mexican and U.S. negotiators are hoping to reach an agreement on outstanding issues by the end of August. All eyes will then be on Canada to see if they re-engage in the talks. Stay tuned and stay engaged.