The United States, Mexico and Canada face an important deadline on Wednesday for the future of the mutual agreement that underpins North American trade.
But the negotiations are just getting started.
The text of the U.S.-Mexico-Canada Agreement, which President Trump signed in his first term, requires the three countries to jointly review the agreement six years after it entered into force, on July 1, 2020.
That date is now here, and the three countries will assemble for a virtual meeting on Wednesday. But they are still far from any consensus about how exactly their trade deal should be changed.
Last month, Mexico and Canada expressed their desire to extend the agreement for 16 years. But Mr. Trump has repeatedly suggested that he might pull out of the deal, raising anxiety among the United States’ neighbors. While the deal has many critics, industries like autos and agriculture are tightly integrated across the continent because of the pact. Its end, experts say, would be disruptive for both workers and businesses.
What is U.S.M.C.A. again?
The pact replaced and updated the 1992 North American Free Trade Agreement, which Mr. Trump criticized as the worst trade deal ever.
Aside from the name change, that negotiation left many parts of the original agreement intact. It also updated the pact with new provisions for digital technology, raised requirements for automakers to build more of their cars in North America, created new labor standards and modestly opened Canada’s dairy market to imports, among other changes.
Trump officials now say the new agreement hasn’t done enough to stop outsourcing, leading to the growth of U.S. trade deficits with Canada and Mexico. Mr. Trump has repeatedly threatened to scrap the deal, while his officials have proposed making changes to encourage more U.S. manufacturing. While many trade analysts believe that threat is a negotiating tactic, no one can be sure, given Mr. Trump’s desire to drastically change the trading system.
With the future of the deal hanging in the balance, businesses, farmers and unions have been watching nervously and lobbying their governments about what to do. Also looming over the meeting are tariffs Mr. Trump introduced on crucial industries like autos, steel and aluminum, which Canadians and Mexicans argue have violated the pact.
What happens July 1?
Expectations for the meeting on Wednesday are low, given that negotiations are continuing separately. The United States and Mexico have another round of talks scheduled for the week of July 20, while U.S.-Canadian negotiations have not started in earnest.
Both Canada and Mexico have publicly rejected the idea of replacing U.S.M.C.A. with separate bilateral agreements between the United States and its current trading partners.
Canadian officials have downplayed fears at home of an imminent end to the deal and suggested that July 1 is less a deadline than it is a starting point for talks.
U.S. officials have not clarified what they will say Wednesday, but with negotiations ongoing, they seem unlikely to make any commitment to extend the pact now. If no agreement is reached, the countries will begin a cycle of annual reviews, and U.S.M.C.A. will automatically terminate after a decade.
In Mexico, officials have started preparing for that situation, which they say is the most likely outcome. But they fear that the annual reviews will create frequent instability, making it more difficult to attract the major investments needed to strengthen North America’s economy and phase out Asian suppliers like China.
“If you drag us into a constant review process, you’re going to choke off investment,” Marcelo Ebrard, Mexico’s economy minister, said last week on a podcast. “That completely defeats the purpose of replacing your Asian suppliers. You can’t have it both ways.”
Public Citizen, a left-leaning advocacy group, said Monday that the shift to annual reviews would be “good news,” giving Democrats leverage to demand that Mr. Trump make significant changes to the pact.
But companies have argued that the uncertainty undercuts the agreement’s benefits. Matt Blunt, the president of the American Automotive Policy Council, which represents U.S. automakers, said that he was glad the governments were engaging constructively, but that uncertainty over the rules could delay investment decisions.
“The sooner the better, and delay is not our friend,” he said.
How could U.S.M.C.A. change?
The United States has proposed changes to the pact’s rules for agriculture, metals, cars and other goods. Those include a measure that is controversial for the auto industry. It would raise the requirement for how much North American content by value a car needed to have to qualify for tariff-free treatment.
The Trump administration would raise that threshold to 82 percent from 75 percent currently, while requiring 50 percent of a car’s materials to come from the United States, people familiar with the proposals said. The United States is also proposing expanding those rules to new types of car parts and setting new content requirements for other industries, including electronics.
Canada and Mexico also have their disputes, but mostly they are eager for the deal to be extended, and for the Trump administration to offer some relief for other tariffs it issued last year.
Mr. Trump has, so far, exempted most goods from Canada and Mexico covered by the trade agreement from tariffs. But that has not been the case for the crucial industrial sectors of automobiles, steel and aluminum, which face tariffs of up to 50 percent. Eliminating, or reducing, those duties is high on the list of demands for Canada and Mexico.
Prime Minister Mark Carney of Canada has made moves that have been widely viewed as concessions to the United States, despite his denials to the contrary. They include ordering a broadcast regulator to review a decision that would have tripled what large U.S. streaming services like Netflix pay to support Canadian television and film production. And after the United States threatened tariffs on countries it decided had inadequate controls on imports of products made using forced labor, Mr. Carney’s government introduced legislation to tighten its system.
But Mr. Carney has also vowed not to cave to Trump administration demands that could harm Canadian industries simply to preserve the trade deal.
Mexican officials have drawn a red line at any seasonal restrictions proposed by the United States to prevent Mexico from exporting agricultural goods during the seasons when the United States produces its own. If the Trump administration tries to enforce such constraints, Mr. Ebrard said last week, Mexico will look for alternative mechanisms to replace U.S. agricultural imports, of which corn is the most important.
“We would not accept changes of that nature,” he said. “We’ve told them that.”
