Escalating tensions between the U.S. and Mexico threatened to put the North American Free Trade Agreement (NAFTA) at risk for the first time since its birth in 1994. On January 26, Mexican President Enrique Peña Nieto announced his decision to cancel Mexico’s participation in the ‘three amigos’ meeting in Washington, D.C. The purpose of the planned meeting between the U.S., Mexico, and Canada was to discuss their current trade relationship, including the possibility of renegotiating NAFTA.

Following cancellation of the presidential summit, however, President Trump and President Peña Nieto spoke by phone on January 27 in an effort to put the bruised bilateral relationship back on track. The two leaders agreed not to talk publicly about “the wall” between Mexico and the U.S., or how it would be ultimately financed. Mexico’s Secretariat of Economy soon published a notice that it was proceeding with a 90-day consultation period with Mexican companies, to determine priorities from Mexico’s point of view for renegotiating NAFTA. Mexico is also pursuing a parallel renegotiation of its free trade agreement with the European Union.

Although the Trump administration has not as yet issued any notice calling for consultations or public comments from interested parties about NAFTA, President Trump remarked to members of the House Ways and Means and Senate Finance Committees in a meeting at the White House on February 2 that he hoped to accelerate discussions with Mexico and Canada on reworking NAFTA. All indications are that President Trump seems focused on renegotiating NAFTA – and perhaps even rebranding it – but not withdrawing from the agreement.

The prospect of renegotiating NAFTA raises a number of possible issues, including efforts by the Trump administration to develop certain “model approaches” to trade issues in NAFTA that could then be applied in subsequent negotiations with other partners. Examples of issues likely to be prominent in the Trump administration’s thinking are rules of origin for the auto sector and possibly textiles and apparel, disciplines over the production of steel and aluminum to prevent over capacity in the market, and rules governing trade in the North American energy sector. Details await the confirmations of Secretary of Commerce-designate Wilbur Ross and USTR-designate Robert Lighthizer. House Ways and Means Ranking Member Richard Neal (D-MA) has already mentioned including provisions on currency manipulation, and incorporating articles on labor and the environment in the NAFTA text.

American business will need to provide views to shape such proposals and minimize disruptions to North American supply chains.

For more information, contact: Melissa Morris, Patricia Wu, John Brew, Daniel Cannistra, Eduardo Mathison