US and Mexico Reach New Trade Agreement


This week Mexico and the US came to an agreement regarding their NAFTA renegotiations. Talks between the two countries held in Washington concluded with various changes made, most notably to the automotive and agricultural industries. Canada will now enter the talks to try to come to an agreement with what the US and Mexico have put in place to ensure that the agreement can remain a trilateral one.

For Mexico the agreement can be seen as promising given the hard stance that President Trump had originally taken. The automotive sector was one of the key points of debate throughout the talks, with the US concerned about the amount of manufacturing located south of the border. To address these concerns a deal was finally struck ensuring that 40-45% of a vehicles value be produced in high-wage areas paying at least $16 an hour, with the intention of increasing the involvement of the US in the production line. Mexican economy minister Ildefonso Guajardo commented that he believes most Mexican auto exports are already in accordance with these new limits.

The second major change to the previous agreement is a requirement for 75% of a vehicles value to be produced in either the US or Mexico, meaning less reliance on imported parts from Asia and ideally creating jobs both in Mexico and the US.

Agriculture was another hot topic during the discussions. It was agreed that, as before, there would remain no tariffs levied on imported agricultural goods. Furthermore agricultural goods affected by seasonality in the US will not receive any protection from Mexican competition. The two countries will also work together to improve the use of biotechnologies, including genetic modification.

Among other amendments it includes enforceable requirements for Mexico to adhere to International Labour Organisation working rights. The countries will also begin to work together to improve market access, protection of intellectual property and environmental protection.

Chapter 19, covering the dispute settlement system previously in place was controversially removed from the agreement. This had been an issue of contention in the past between the US and Canada and may prove to be once more. It remains to be seen whether they will be able to come to an agreement, despite President Enrique Peña Nieto´s assurance that he would like it to remain a trilateral agreement.

The agreement reached between the US and Mexico will have a lifespan of at least 16 years, with reviews every 6 years and the potential to extend it for a further 16 years each time. This will hopefully bring some certainty to markets that had been concerned over the future of Nafta.