Only hours before the deadline on Sunday, Canada has agreed to join the United States and Mexico in a trade deal that would replace the 24-year-old North American Free Trade Agreement (NAFTA), protecting the auto industry in the three countries from a potentially complicated future.
The trade deal is to be penned with a new name: the United States-Mexico-Canada Agreement, or USMCA for short. Although the current inner workings of the trade deal are unknown at this time, U.S. President Donald Trump called the agreement a “historic transaction” and claims that the agreement will help to greatly open markets to manufacturers and reduce trade barriers as a whole.
Canadian lawmakers reportedly agreed to the terms of the deal within the final few hours of the deadline, enabling the country to take part in the agreement that was threatened to otherwise move forward without the country’s involvement. The deadline had a hard-stop of Sept. 1, as it initiated the 60-day countdown until Mexican President Enrique Peña Nieto leaves office on Dec. 1. As required, the USMCA deal will now be sent to Congress for a 60-day review period in which changes can be suggested before the final agreement can be signed by Trump.
Part of the revised agreement changes a key requirement in which automakers must source materials for their vehicles. Called “Rules of Origin”, this clause would specify that manufacturers must retrieve at least 75 percent of a vehicle’s parts from within the borders of Canada, Mexico, or the United States. This number has increased from NAFTA’s requirement of 62.5 percent and will be placed alongside a separate requirement that would ensure that at least 40 percent of a vehicle’s value would be made by workers earning at least $16 per hour.
Another important note is a side-letter to the deal which would address the imposition of automotive tariffs under Section 232, Should Trump institute a global automotive import tariff of 25 percent, both Canada and Mexico will be permitted to import an annual maximum of 2.6 million passenger cars to the United States without tariffs, while pickup trucks will be exempted entirely.
“Ford is very encouraged by today’s announcement, and we applaud all three governments for working together to achieve free and fair trade in a strong regional agreement.” said automaker Ford in a statement pertaining to the USMCA. “We stand ready to be a collaborative partner to ensure this agreement is ratified in all three markets because it will support an integrated, globally competitive automotive business in North America. The benefits of scale and global reach will help to drive volume and support manufacturing jobs.”
As more details emerge of the deal’s context, it will become increasingly clear just how the auto industry will be affected. Some critics of agreement’s previous iterations believed that trade revisions would ultimately increase the end-cost for consumers. Furthermore, the reach of the deal would be fairly wide, affecting one in three vehicles imported from Mexico. In 2017, Mexico exported 2.33 million automobiles to the United States.