Trade Cases

Leibowitz on Trade: U.S. Pact with Mexico Leaves Many Questions Unanswered

August 7, 2018

Lewis Leibowitz, trade attorney and contributor to Steel Market Update, offers the following commentary on the latest developments in Washington:

While attending and giving a presentation to the SMU Steel Summit conference in Atlanta on Monday, word came that the U.S. and Mexico had reached a tentative deal on a revised trade agreement. President Trump says it will replace NAFTA, but there is much to be done before that happens.

The U.S. Trade Representative’s Office issued a fact sheet yesterday that contains a summary of what the U.S. and Mexico have at least tentatively agreed to. The text of the new agreement had not been released as of this morning. There are six major sections to the fact sheet: (1) intellectual property protection; (2) digital trade; (3) de minimis value for Mexico raised to $100 (this is the value per entry into Mexico that will not require formal entry, an advantage for small businesses and e-commerce retailers); (4) financial services; (5) labor (including a requirement that 40-45 percent of labor used in automobile production be paid at a rate of at least $16 (U.S.) per hour; and (6) the environment. The fact sheet does not mention steel and aluminum tariffs under Section 232 or any reform of antidumping and countervailing duty measures, although the U.S. had been pushing for changes to the dispute settlement provisions of NAFTA (Chapter 19).

Reports surfaced yesterday that Mexico had agreed to steel and aluminum quotas to replace the Section 232 tariffs. These reports could not be confirmed. As I’ve reported before, the quota agreements governing steel imports from Brazil, South Korea and Argentina are in important ways worse than the tariffs. On the other hand, Australia has a special arrangement that appears to be less onerous than the other quota agreements. Mexico and Canada may be looking at Australia as a model—but there is not much to see. Both Australia and the U.S. have essentially been silent on the details of their arrangement.

Canada was not included in the bilateral discussions that led to yesterday’s announcement. The Canadian trade minister will arrive in D.C. today for talks. There are certain to be important issues (dairy, digital trade, and steel and aluminum tariffs) that will be discussed. Trade Representative Robert Lighthizer has said that the Mexico deal will be referred to Congress on Friday, triggering a 90-day period for finalizing the text. If Canada signs on, it will be a trilateral agreement; if not, it will be a bilateral agreement.

There are many questions remaining: If Canada does not sign on, will President Trump terminate NAFTA and impose tariffs on Canadian exports? Can the president legally terminate NAFTA (there is considerable controversy on this point)? Will the steel and aluminum tariffs on Canada and Mexico be altered in important ways as part of the negotiation? No news on these points was forthcoming yesterday, other than the report mentioned earlier.

Lewis Leibowitz

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