The new trade agreement between Mexico, the United States and Canada (T-MEC), which on Wednesday replaced the North American Free Trade Agreement (NAFTA), in force since 1994, presents several important changes in a trade flow between the three countries that amounts to about 1.2 trillion dollars.
The agreement will lead the three countries to modernize their trade relationship by including issues such as e-commerce facilitation and data storage, but will also raise costs in the North American automotive sector.
The three NAFTA signatories initialled the T-MEC in November 2018, but the ratification process took more than a year in the United States due to doubts about the enforcement of environmental and labor standards, and it has not been until today, in the midst of the coronavirus pandemic, that it has officially begun.
AN END TO AMERICAN UNCERTAINTY
With its entry into force, the T-MEC puts an end to a period of uncertainty among the three countries that began when U.S. President Donald Trump announced he was canceling the old NAFTA in the first phase of his presidency.
“The implementation of the T-MEC removes the cloud of uncertainty that has been hanging over the North American economy since Donald Trump began threatening to withdraw from NAFTA during the presidential campaign in 2016,” Christopher Wilson, deputy director of the Wilson Center’s Mexico Institute, told Efe.
From now on, Wilson said he expects issues such as energy integration, entrepreneurship, innovation and workforce development “to become part of the North American regional agenda.
STRENGTHENING DAMAGED SUPPLY CHAINS
On the other hand, the implementation of this trade pact comes in a context where the coronavirus pandemic has greatly affected the supply chains of the three countries and those common between them.
That is why Steve Liston, director of the U.S. business organization AS/COA, which focuses on the development of the continent, argued that “it is important to remember that this is a long-term agreement and process.
“North American integration is really part of the answer to one of the problems we have, which is supply chain resilience, so the agreement will help ensure that we can maintain supplies of critical products,” he stressed in a note to his customers.
Despite that message, the launch of the T-MEC coincides with a decline in the volume of world trade, job losses in the three countries, and a projected contraction in the entire North American region, according to the International Monetary Fund (IMF).
A RENEWED NAFTA
The new trade pact has as its reference the old NAFTA, and therefore retains much of the free trade measures in North America already established in 1994 and now renewed.
“The T-MEC is 90 percent the same as NAFTA: it guarantees free trade in North America. However, it updates issues like digital trade rules for the 21st century, but in return it also imposes rules on the automotive sector that are likely to be a step backwards,” Wilson said.
For the first time, there is a whole chapter on digital free trade in such a pact. It prohibits import tariffs and other charges on electronically transmitted digital products, discriminatory treatment of cross-border data transfers and forced location of data.
Among the new rules, the T-MEC stipulates that 75% of car production must be made from American products; that between 40% and 45% must be made by workers earning at least USD 16 an hour; and that 70% of the steel and aluminium used must also be from North America.
According to several surveys published on the subject, most vehicle manufacturers believe that these measures will increase their costs, but that in the long term they will be positive for the companies in the industry.
Regarding the primary sector, US farmers will have better access to Canada, which agreed to increase its duty-free quotas for dairy, poultry and egg products under its supply management regime.