DEFINITION of U.S.-Mexico Trade Agreement

President Donald Trump's administration has taken a hard stance against the North American Free Trade Agreement (NAFTA), the treaty dating back to 1994 which governs trade between the U.S., Mexico, and Canada. After months of contested tariffs and speculation that Trump's protectionist policies could escalate to a full-blown trade war on one or more fronts, the White House announced that it had reached a preliminary agreement on new terms set by August 27, 2018. This new agreement, which remains subject to finalization and implementation, pertains solely to the U.S. and Mexico, although it leaves the option open to become a trilateral agreement between these two nations and Canada.

BREAKING DOWN U.S.-Mexico Trade Agreement

There remains some confusion as to how the recent agreement relates to NAFTA. While some, including Bank of America, suggest that the agreement is set to replace the North American Free Trade Agreement, others indicate that the current agreement updates NAFTA, surpassing it but not fully replacing it.

In terms of timing, the U.S. trade representative, Robert Lighthizer, indicated his plans to notify Congress on August 31, 2018 that President Trump plans to sign the deal in 90 days. Mexican president Enrique Peña will then need to sign the agreement by November 30 in order to advance it. If Canada wishes to join the deal, it theoretically has until August 31 to join. However, it may be possible for the terms of the agreement to be changed after that date to include Canada, although it will become significantly more challenging to do so.

There are a number of significant changes to current NAFTA policy laid out in the preliminary agreement. One of the primary areas of trade between the U.S. and Mexico centers around the automotive industry. The two nations have pledged stronger rules of origin than those currently in existence under NAFTA; in the new deal, at least 75% of car content must be made in the home nation in order for the vehicle to be exported (this is compared against 62.5% for NAFTA). Similarly, the new deal stipulates that 40-45% of the automotive content be created by workers earning at least $16 per hour.

Agriculture is another significant area of trade which has seen major revisions in the new agreement. The new agreement will bring tariffs on agricultural products between the two countries to zero.

In the world of intellectual property, the new agreement grants enforcement authorities greater power over potentially counterfeit materials.

Mexico has also agreed to "specific legislative actions to provide for the effective recognition of the right to collective bargaining," according to the Bank of America report.

Initial reactions to the trade agreement have been mixed, with some analysts suggesting that the new deal could reduce uncertainty over trade negotiations between the U.S. and Mexico. This, in turn, could spur investment into Mexico. However, whether or not the new agreement will have any significant impact on the trade balance between the two nations is more difficult to say. Further, it's likely that the terms of the agreement will continue to shift if legislative bodies in both countries move forward. Canada also remains a significant mystery, although some analysts have expressed a belief that Canada is likely to join the agreement before the final deadline. In 2019, the U.S. Congress as well as the Canadian Parliament would then review and, ultimately, approve the deal, should it end up as a new partnership between all three nations.Even if the deal remains exclusively between the U.S. and Mexico, Congress would still review and, potentially, approve the deal by 2019. At this point, only time will tell how the new deal continues to develop.