North American Free Trade Agreement

Why in news?

U.S. and Canada pulled back from a standoff regarding the North American Free Trade Agreement (NAFTA).

What is NAFTA?

NAFTA came into effect in 1994.
It is a successor to the Canada-United States Free Trade Agreement.
NAFTA is a trilateral arrangement that includes Mexico.
It led to lower tariffs on most goods and services traded among the countries.
It encouraged big business to reorganise supply chains around the North American continent.
This eventually made industries such as automobiles globally more competitive.
Overall, regional trade has expanded more than three times since NAFTA came into effect.
The agreement has also led to a range of rules on food safety, intellectual property rights and the settlement of disputes.
It has generally deepened the political relationship among the three signatories.

What is the contention?

There is difference of opinion on the specific benefits NAFTA has brought to the US.
Trump continued to blame NAFTA for the trade deficit with Mexico.
He also linked it to the loss of American jobs.
The US President intended to sign a revised trade agreement with Mexico.
It was conveyed that revised agreement would be signed with Canada if it was willing.
Recently, the three countries began talks on overhauling the agreement.
They sought to address issues around labour, environment, etc.
Besides, changes necessitated by the expansion of new online businesses were also addressed.
It was soon announced that a deal had been reached with Mexico that would make NAFTA more fair.
But Canada was not showing any signs of consensus.
It was thus said the US administration would decide whether to have Canada or sign a separate deal.
The tussle thus threatened to lead to Canada’s exclusion from the NAFTA.

What is the US-Mexico deal?

The updated deal between Mexico and the US includes some new clauses.
These cover intellectual property, digital trade and investor disputes.
It was agreed that for a product to be tax-free, 75% of it must be manufactured in the two countries.
This is a higher floor than in the existing agreement.
The deal also says that 40-45% of every vehicle must be built by workers who earn at least $16 per hour.
This is to ensure that firms don’t find it profitable to move production to Mexico.
It's because wages are lower in Mexico than in the US, which might lead to skewed location preferences.

Why is Canada opposing?

Canada wants to ensure its publishing and broadcasting industries are not overrun by bigger US rivals.
It also wants to ensure that dairy imports did not pull down prices for its own farmers.
Another area of disagreement is the so-called Chapter 19 of NAFTA.
It deals with the mechanism for dispute resolution.
It allows the signatory countries to challenge one another’s anti-dumping and countervailing duty decisions before a committee.
The committee has members from each country that is part of the dispute.
Notably, in the mid-2000s, the dispute resolution panels ruled repeatedly against the US.
This eventually strengthened Canada's negotiating position.
The US has reportedly eliminated the Chapter 19 provision in the agreement with Mexico.
But Canada has insisted on retaining the provision.
It is to be noted that anti-dumping or countervailing duties can be challenged at the WTO as well.
However, the fact is that countries sometimes ignore WTO decisions.

What now?

Despite Trump's tough stance, the US negotiators have decided to keep negotiating.
This is primarily due to the fact that the US Congress wanted any revised deal to include both Canada and Mexico.
This is because Canada is the major export destination for 36 US states.
So there are demands that the decisions “do no harm” to the deal.

Source: Indian Express