NAFTA Renegotiation Can Be Mutually Beneficial: Here’s How

04.11.18

After the seventh round of NAFTA renegotiation talks concluded, US Trade Representative Robert Lighthizer said in a statement, “All three countries agree that NAFTA is outdated, and I believe we should be able to reach agreement on new issues like digital trade, labor, and environment, intellectual property, and much more.”

One of the reasons these talks haven’t made much progress is because several of the US demands—such as doing away with NAFTA’s dispute-resolution panels or making changes to how much North American content a car must have to be duty-free—are non-starters for Mexico and Canada.

Rather than get stuck debating these points, we at IVEMSA feel the talks would make more progress if they focused on other issues. Here are a few ways we think NAFTA can be updated that would benefit all three nations.

E-commerce

When NAFTA was adopted in 1994, e-commerce was barely a blip in the economy. Now, it’s a multi-billion dollar segment that continues to grow rapidly. The NAFTA renegotiations present an opportunity to codify e-commerce regulations to reduce barriers to entry and consumer purchases, such as:

  • Eliminate tariffs on digital items
  • Allow commingled shipments of small items
  • Increase transparency through collaboration between the three countries’ border security agencies

NAFTA’s de minimis rule exempts imports from customs duties if they are valued at or below a certain threshold. One of the biggest changes that could be made is to harmonize these de minimis values to equalize the transaction cost of selling to Mexican and Canadian customers. Currently, imports valued at or below $800 can enter the US without duty payments, but those values are $50 for Mexico and $15 for Canada.

Mexico and Canada have historically resisted raising those values because they argue that doing so would threaten their local retailers. Their concerns can be mitigated if the higher values only apply to goods manufactured in North America—not those that are just packaged and shipped from one of the three countries.

Download: Mexican Manufacturing Cost Fact Sheet

Labor Standards

Earlier this year, US and Mexican unions made a formal complaint to the US Department of Labor, claiming that Mexico is in violation of NAFTA’s labor standards. Their goal was to push the US representatives in the NAFTA renegotiation talks to argue for stronger labor rules.

Originally, NAFTA included only a supplemental agreement that allowed each country to enforce its own labor standards. Since its inception, union leaders and human rights organizations have argued that a labor clause should be the central part of the agreement. This is a chance for the three countries to come to agreements on minimum wage, benefits, unionization, and health and safety standards in each country. They should also create mechanisms to investigate complaints and punish violations.

Earlier in the NAFTA talks, Canadian Prime Minister Justin Trudeau called for the Mexican government to brings its labor laws in compliance with international labor standards, arguing that this will increase wages for workers in the US and Canada as well.

Intellectual Property Protections

Similar to e-commerce, protecting intellectual property has become a bigger issue over the years, and each government has dealt with it in different ways. The NAFTA renegotiation should be an opportunity to codify these protections. It’s important for each country to agree on how to protect companies’ intellectual property, technology, and content, as well as consumer rights and privacy.

Read: Why Mexico Manufacturing Improves the US Economy

In any trade agreement, member countries need to protect the intellectual property of other member countries. These protections are critical to a number of industries, including technology, biopharmaceutical, hospital/medical devices, aerospace, and others. NAFTA’s Chapter 17 addresses this, but it should be strengthened to protect patents and regulatory data and provide speedy mechanisms to investigate and resolve disputes.

Mexico’s IP protection laws, in particular, have been evolving, but more can be done—and in doing so, Mexico may become a more viable option for biopharmaceutical companies.

Find out if moving your manufacturing to Mexico is right for your business.

At this point, it’s tough to predict the outcome of the NAFTA renegotiation talks. Our team at IVEMSA is following each round of talks closely (along with everything that happens in between) so we can support our clients and help them prepare for various possible outcomes. No matter what happens when the negotiations finally conclude, we will be prepared to help our clients stay competitive.

 

Interested in moving your manufacturing to Mexico? IVEMSA can help. Request a consultation with us today.

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