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U.S. and Mexico Reach Preliminary Trade Deal

The White House announced on 27 August that the United States has secured a preliminary trade agreement in principle with Mexico that modernises and rebalances the bi-lateral trade relationship. President Trump indicated in a phone call with out-going Mexican President Enrique Peña Nieto that the agreement will be known as “the United States-Mexico Trade Agreement,” adding that the name NAFTA (which stands for “North American Free Trade Agreement”) is being abandoned because “the United States was hurt very badly by NAFTA for many years.”

Peña Nieto said through an interpreter that Mexico hopes Canada “will also be able to be incorporated in all this” through additional negotiations of the pending sensitive bi-lateral issues between the United States and Canada. While Trump said he would call Canadian Prime Minister Trudeau to start negotiations, he made no assurances that the tri-lateral nature of NAFTA would be preserved. “But I think we’ll give them a chance to probably have a separate deal. We can have a separate deal or we can just put it into this deal”, President Trump asserted. Trump also complained about Canada’s high duties on U.S. dairy products and threatened to impose tariffs on Canadian cars.

According to information released by the Office of the U.S. Trade Representative, the preliminary agreement has new rules of origin for cars, light trucks and auto parts that raise the required regional value to qualify as originating from 62.5 percent to 75 percent. In addition, 40 to 45 percent of automotive value would have to be made by auto workers making at least US$16 per hour. There is also a new textiles chapter that would (i) limit certain rules that currently allow for some use of non-NAFTA-originating inputs in textile and apparel trade, and (ii) require that sewing thread, pocketing fabric, narrow elastic bands and coated fabric used in apparel production originate in the region in order for the apparel to qualify for preferential duty treatment. Under the agreement, Mexico would also ostensibly increase its de minimis threshold for low-value imports from US$50 to US$100, which means that imports with a value of up to US$100 would not be subject to import duties or value-added tax.

U.S. Trade Representative Robert Lighthizer said the administration plans to formally notify Congress of the new trade agreement with Mexico by 31 August and that Canada has until that time to join. Should Canada decide not to join by that date, Lighthizer stated that “then we’ll notify that we have an agreement with Mexico and that we’re open to Canada joining it.”

Content provided by Picture: HKTDC Research
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