Renegotiation of NAFTA

How will this renegotiation effect Mexico and Canada?

Reports on 27^th April, 2017 said that President Donald Trump of the United States was planning to withdraw the US from the NAFTA (North American Free Trade Treaty) which is an agreement signed between the US, Canada and Mexico that came into force in 1994. It supersedes the Canada-US Free Trade Agreement between Canada and the US.

Although President Trump has issued a statement saying he would not withdraw from the Treaty, he has stated that there will be a renegotiation that will take place.

What is the NAFTA?

The North American Free Trade Treaty is an agreement that creates a trilateral bloc consisting of Canada, Mexico and the US. Economists globally indicate towards the analyses that the NAFTA has had a small net effect on the US, a large net effect on Mexico and a negligible or insignificant effect on Canada.

The goal of the NAFTA was to eliminate trade barriers between the trilateral formed. Under the agreement, tariffs on half of Mexico’s exports to the US and one third of US exports to Mexico would be eliminated.

The Commission for Environmental Cooperation (CEC) was also created as part of the NAFTA. The CEC regulates the environmental measures taken by each country and also pressurizes the countries to increase their environmental protection mechanisms.

There are significant restrictions on the trade of agricultural products between the US and Canada whereas trade between Mexico and the US called for liberalization.

Withdrawal from the NAFTA

At present, Mexico is the United States’ second largest importer of agricultural products and with the increase in their per capita GDP, their ability to consume more agricultural products and meat has increased.

The increase in the GDP is mainly because of the Maquiladoras which is the assembly plant of imported products that are finally exported as final goods to the rest of the world. The plants that were once in the US have shifted to Mexico which is one of the main reasons Americans faced a shortage of jobs.

This speculation had led to President Donald Trump’s reassessing of the US membership in the NAFTA.

Assessment

If a renegotiation does take place, the US should take measures in such a way that it does not lose a major agricultural market which would lead to a loss of government revenue.

President Trump has threatened to impose a 35% border tax on US based companies that choose to locate their factories in the US rather than in Mexico which would mean rising costs of products imported by India from the US because of loss of cheap labor that exists in Mexico.

The United States should put its relations with Mexico as their foremost priority to reduce crime rates in the region which would occur if the US does not act in the best interests of Mexico.