First off, let’s make one thing clear. Both presidents needed this, for different political reasons. For Donald Trump this was critical. After all his North Korea summit has not done as well as he promised. Yes, the danger from North Korea remains, even if not in the headlines. Nor are they getting rid of their nuclear arsenal. So Trump needed “a win.”
He can claim to his base that he delivered in getting rid of the evil North American Free Trade Agreement. He also can say that he did deliver in making Mexico submit. And trust me, this is part of the messaging for his base. If you watched the bizarre announcement from the Resolute Desk, including a call with the Mexican president, it was all about messaging.
Why would Enrique Pena Nieto submit himself to this humiliation, ritual as it may be? There are internal Mexican politics at play. He is in the midst of a transition to his successor, Manuel Lopez Obrador (AMLO). Now lets make this clear, AMLO is hardly a fan of NAFTA, though for different reasons than Trump. He perceives this treaty as part of the neoliberal agenda that has surrendered Mexican sovereignty to other countries, especially the United States. Suffice it to say, there is some hyper-nationalism involved in this view. This treaty, if ratified by both Congresses, will come in effect around the time AMNLO would take the oath of office. The agreement is getting fast tracked in both countries, Meaning neither congress can modify it. It is an up or down vote.
This was also a surprise, since as of 24 hours ago, there were still significant differences. And one of the differences what that Canada had to be part of the agreement according to Mexico. Trump may have jumped the gun in the announcement. Incidentally, this is classic divide and conquer and will go like a lead balloon in Ottawa,
So the next step will be for Canada to resume negotiations, and likely they will join this. There is one detail the US wants with Canada, and this is a sunset clause, which according to Excelsior this agreement does not include with Mexico. For that matter, it is expected to be renegotiated every sixteen years. Strategically this locks AMLO out of any present or future revision. The Mexican president serves for six years. This is hardly accidental on the part of Pena Nieto. It also makes investors happier, as it provides stability.
The agreement will bring up to date rules governing the internet. The internet was very young when the treaty was originally signed 24 years ago. However, this is a critical aspect for the treaty, as details start to emerge:
To qualify for zero tariffs under Nafta, car companies would be required to manufacture at least 75 percent of an automobile’s value in North America under the new rules, up from 62.5 percent previously. They will also be required to use more local steel, aluminum and auto parts, and have a certain proportion of the car made by workers earning at least $16 an hour, a boon to both the United States and Canada.
It will discourage US Automakers from moving to Mexico, or will push salaries up in Mexico. I suspect, when all is said and done, it will be a combination of both.
As to Canada, this is critical:
”Given the encouraging announcement today of further bilateral progress between the U.S. and Mexico, Minister Freeland will travel to Washington, D.C., tomorrow to continue negotiations,” said a spokesperson for her office. “We will only sign a new NAFTA that is good for Canada and good for the middle class.”
”Canada’s signature is required,” Freeland’s office emphasized.
The fact is that in my view, Pena Nieto wants to finish this and sign it, before his successor is sworn in. He wants, in other words, to lock it in. And while there are representatives from the AMLO transition in DC, it is clear to me what is going on. This is not just about American politics and Trump’s desire for a win. It is clearly about Pena Nieto’s legacy as well.
In some ways, the ball is actually in Otawa’s court. Part of the reason, a full new bilateral agreement with Otawa, will require far more than just fast track. The last thing that Trump needs is for congressional review, especially when the mid sterns are fast approaching.
As to how good, or bad the update will be, this will take time. In reality, NAFTA was updated every so often. And lets be clear. The President of the United States is hardly a details oriented person. So the USTR may have done a very good agreement that will benefit all sides, for all we know. Time will tell. And as more details emerge, we will know more about how this will affect trade in the region. For the moment. NAFTA is not goin away, and by extension upwards of five million American jobs that directly depend on it, will not go away either.
Incidentally, most of what Mexico and the United States wanted, was achieved by this round.