On August 27, 2018, the United States and Mexico announced that they had reached a bilateral agreement that would replace the North American Free Trade Agreement (“NAFTA”). Although the agreement’s exact language is still subject to negotiation, the new agreement will reportedly:

• Establish new rules of origin for passenger vehicles, light trucks, and auto parts. Under the agreement, to be eligible for a preferential 2.5 percent tariff, a vehicle would need to consist of 75 percent U.S. or Mexican origin products, which represents an increase from the 50 to 62.5 percent levels now required under NAFTA. Additionally, to be eligible for the preferential tariff, 40 percent of the value of a car and 45 percent of the value of a light truck would need to be manufactured by workers making $ 16 an hour.

• Include a “sunset” provision limiting the term of the agreement. Under this provision, the new agreement would remain in effect for 16 years but will be reviewed by the parties every six years to determine whether it should be extended for another 16 years.

• Eliminate the existing dispute settlement process for antidumping and countervailing duty cases. Reportedly, however, the two countries remain open to the idea of retaining the existing system as part of a negotiated agreement with Canada.

• Revise NAFTA’s current dispute settlement process for investor-state issues. The dispute settlement process will cover only expropriation cases.

• Require Mexico to comply with International Labor Organization standards. This is expected to result in an increase in wages in Mexico.

President Trump has notified the U.S. Congress that he intends to enter into the new agreement with Mexico. In interviews with the press, he has stated that he will terminate the current NAFTA treaty and replace it with the new agreement with Mexico, whether or not Canada also enters into a new agreement.

The Trump administration continues to engage in negotiations with Canada on a new agreement. As of September 6, 2018, the two countries have not reached an agreement but negotiations have continued to move forward. Canada’s Minister of Foreign Affairs Chrystia Freeland visited Washington this week to continue negotiating a new agreement with the United States but no agreement has resulted.