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Trump negotiates NAFTA with Mexico without involving Canada. Now Canada has to decide upon the future of the free trade agreement.

What is NAFTA?

Concluded in 1994, the free trade agreement between the North American states USA, Canada and Mexico, called North American Free Trade Agreement (shortly NAFTA), rules the import and export duties and the general trade between the involved states.
Meanwhile, about 500 million people are affected by the contract.

Due to the agreement there are low duties mostly what facilitates the trade between the partners.

The agreement benefited new branches for foreign companies in other countries. In the USA agricultural and automobile companies, in Canada the dairy and wood industry profited. Because of foreign enterprises in the country, Mexico was able to provide hundreds of thousands jobs.

Although USA, Canada and Mexico generated about 23 trillion dollars, in Trumps opinion NAFTA is “the worst trade deal ever made”. According to the US president, NAFTA is responsible for economic deficits abroad and the loss of jobs in the USA. That is why he already announced the contract termination during his election campaign two years ago.

What does Trump plan for the future?

Because of that, Trump agreed with the Canadian head of government Justin Trudeau and the Mexican president Enrique Pena Nieto to update the contract. Mexico as well as USA pressed for a fast settlement, so the negotiations will not be part of the American Midterms in November and the change of office in Mexico in December.

Negotiating with Mexico the new elements of the contract, Trump talked about changes in the automobile trade. In future, only cars which are produced to large parts (75% instead of 62,5%) in the USA and Mexico, will be imported duty-free.
Especially European and Asian producers, who manufacture parts of their cars in North America, would be affected by this change.

Furthermore, up to 45% of the workers in car factories have to earn at least 17 dollars per hour, otherwise there will be certain duties. In Mexico most of these workers earn only 7 dollar per hour.

About other changes the three partners will discuss in the future.

What happens now?

As Trump negotiated only with Mexico, Canada is under pressure now. Without its permission the contract will not exist any longer. Otherwise Trump would have to conclude a bilateral agreement with Mexico. Therefore – and also for a termination of NAFTA – he would need the authorization of the Congress.

In case of a contract termination, especially the car industry all over the world would be affected.

On Tuesdays evening the negotiations with Canada have started.
Chrystia Freeland, the Canadian foreign minister, is optimistic. The national economies of USA and Canada are closely linked. Thus, an agreement is for both sides important.

Story by: Katrin Albrecht/