On Sunday evening, news broke that the United States and Canada, before the President’s deadline, reached agreement on a key number of items to move forward with a new North American Free Trade Agreement.
More of those details have surfaced and the proposed agreement requires ratification by the governments of both countries, but here are four key differentiators that we know about today.
Automotive origin rule changes, duty rates.
The rate of origin content from the US and Mexico is increasing from 62.5% to 75%. Additionally, 40% of the vehicle’s value must come from workers whose pay averages more than $16/hour. The threat of additional duties on vehicles won’t become a reality unless exports top more than 2.6 units annually, which is 40% higher than the current rate.
No removal of steel and aluminum tariffs, but 60 day consultative period for future actions.
Understandably, Mexico and Canada wanted the steel and aluminum tariffs removed against their countries. The USTR was not willing to make this concession, but future trade actions for things like Section 201, 232 or 301 duties that would be applied globally would not happen for sixty days with Canada and Mexico and require prior discussion and consultation.
De minimis amounts to be increased.
The big winners here are companies shipping items into the respective countries. The US still has one of the highest de minimis amounts in the world at $800, but the Canadians increased theirs from CAD 20 to CAD 150 (approximately USD 117) and Mexico doubled theirs from $50 to $100.
No sunset to the agreement.
The United States was pushing vigorously for the right to kill the agreement after five years unless the countries agreed to an extension. When you consider the significant investment companies make in their supply chains and for locating employees, factories, distribution centers and offices, this was a non-starter for Canada and Mexico. They agreed to a sixteen year term for the deal.