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U.S., Mexico, Canada Reach Trilateral Trade Agreement

After months of stalls and deliberations, late Sunday night, the United States, Canada and Mexico reached a new trade agreement to replace NAFTA right before the U.S.-imposed Sunday deadline.

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After months of stalls and deliberations, late Sunday night, the United States, Canada and Mexico reached a new trade agreement to replace NAFTA right before the U.S.-imposed Sunday deadline. NAFTA is still in effect while the new agreement, called the United States-Mexico-Canada Agreement (USMCA), goes through Congressional review. The timing allows outgoing Mexican President Enrique Peña Nieto to sign the USMCA prior to him leaving office.

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United States Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland issued a joint statement Sunday following the news:

“Today, Canada and the United States reached an agreement, alongside Mexico, on a new, modernized trade agreement for the 21st Century: the United States-Mexico-Canada Agreement (USMCA). USMCA will give our workers, farmers, ranchers and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region. It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home.

“We look forward to further deepening our close economic ties when this new agreement enters into force.

“We would like to thank Mexican Economy Secretary Ildefonso Guajardo for his close collaboration over the past 13 months.”

Industry associations including MEMA and the Auto Care Association have been watching negotiations closely. In August, MEMA issued a statement urging a renewed focus on a three-party agreement that included Canada, after a bi-lateral deal between the U.S. and Mexico was reached.

Earlier this week, Auto Care President and CEO Bill Hanvey commented on this new tri-lateral deal, “We are encouraged to see the United States reach a trilateral trade agreement with Mexico and Canada, allowing duty-free movement of auto parts to continue between the three countries. As we continue to review the text, we hope the modernized agreement strengthens trade in the region and promotes consistency and predictability for U.S. Auto manufacturers, distributors, retailers and service providers.”

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Among the changes, the updated auto rules of origin (Chapter 4) requires that 75 percent of a vehicle’s content must come from North America, up from the current 62.5 percent to receive duty-free treatment. The agreement also includes a labor wage provision requiring a percentage of a vehicle to originate from workers earning at least $16/hour to be eligible for duty-free treatment.

In two separate side letters, the U.S. agreed to a quota that would cap the following imports from Canada and Mexico if actions are taken as a result of the U.S. Section 232 Autos/Auto Parts investigation:

  • 2.6 million passenger vehicles imported from Canada and Mexico each annually;
  • light trucks imported from Canada and Mexico; and
  • imports of auto parts amounting to $32.4 billion from Canada and $108 billion from Mexico.

The three countries will determine how to monitor and allocate quantities of imports eligible for this treatment or discuss any modifications to the quota stated above due to changes in production, capacity or trade. Canada and Mexico also retain their WTO rights to challenge any Section 232 measures.

The Auto Care Association also shared the full text of the agreement on its website, which can be viewed here.

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