Although both Mexico and the US touted an understanding regarding a new trade agreement, it seems nothing is clear yet especially considering that the bases of the so-called United States-Mexico Trade Agreement were founded on the possibility of a trilateral conversation with Canada, something that is in the air at the moment.
Opinions are mixed in terms of what the new deal represents for the Mexican economy and the impact that the different concessions made by the government will have on the national supply chain. But lead negotiator and Minister of Economy Ildefonso Guajardo says the new conditions are in line with global trends and will not hinder Mexico’s competitiveness.
Want to know more? Go straight ahead! But before you go, check out our interview of the week with Yasushi Takase, Ambassador of Japan in Mexico and the opening speaker at Mexico Automotive Summit 2018 next Wednesday.
Is the Agreement Moving Forward?
If Canada does not agree to a new NAFTA, Mexico and the US would have to revisit the conditions regarding rules of origin to be more in line with a bilateral agreement, said Minister of Economy Ildefonso Guajardo.
According to Chrystia Freeland, the concessions Mexico made during its negotiations with the US have been beneficial in moving the trilateral agreement forward. That being said, she still did not give a date for negotiations to be trilateral once again.
Mexico, however, is not worried about having a trade agreement without Canada. Guajardo says Mexico would rather maintain the label of NAFTA due to its impact in terms of positioning for many supply chains including automotive. Yet, only 10 percent of the country’s trade is with Canada while 85 percent is with the US.
Despite criticism regarding the new rules of origin established in the possible United States-Mexico Trade Agreement, Guajardo said the new agreement and the possibility of a renewed NAFTA will not be detrimental for Mexico. Furthermore, the Minister of Economy said that by agreeing to stricter rules of origin, the country also armed itself against potential tariffs of up to 30 percent implemented by the US under national security restrictions.
In exchange for maintaining Chapter 20 related to dispute resolution between countries, Mexico agreed to add a labor chapter in its agreement with the US that guarantees collective salary negotiation. Investors are worried this addendum will be used by the US as a way to restrict trade and investment flows.
What it Means for Companies in Mexico
Companies have three years to adjust from to a new rule of origin of 75 percent local content from the current 62.5 percent. They also have to comply with the labor restrictions of 40 percent and 45 percent established in the new agreement.
These new conditions, however, present new opportunities for many suppliers that meet the conditions to become part of the supply chain, according to Daniel Hernández, Director of the Queretaro Automotive Cluster.
Horacio Chávez, Managing Director of Kia Motors México, says the company is waiting for the final ruling regarding rules of origin when Canada enters the negotiations but is confident the company will be able to comply.