Supply Chain Research

The latest round of NAFTA negotiations have made progress, with the official governments’ statement saying “consolidated texts” being worked in “most areas”, with a particular focus on small and medium sized enterprises. U.S. calls for a so-called sunset-clause, as outlined in Panjiva research of September 14 do not appear to have derailed the discussions.

However, there is still “an enormous amount of work” to be done in areas that are the most controversial. U.S. Trade Representative, Robert Lighthizer continues to focus on the trade deficit including specific reference to supporting “farmers and ranchers”. That is likely a reference to Canadian agricultural limits.

Panjiva data for meat, dairy and grains/beans shows the U.S. exports generally have struggled in the past five years. Exports of meat to Canada have fallen 2.3% annually, compared to global exports that have risen 0.3%. Shipments of grains and beans fell 0.1% compared to a global increase of 1.7%, while Canada accounts for just 2.3% of exports vs. 12.0% for Mexico. Shipments of dairy have been more successful, rising 6.7% vs. 1.7% globally, though at 8.8% of the total there is room for more growth given Canada’s strict supply rules.

Chart shows U.S. exports of meat, dairy and grains/beans to Canada. Right hand axis shows all three as a proportion of U.S. global exports of the three product groups. Source: Panjiva

The trade deficit focus also means there needs to be a focus on automotive rules of origin. This is the largest area where the U.S. trade deficit with Mexico can be meaningfully reduced. That deficit is still going the wrong way, with the deficit (based on Mexican import and export data) in the past 12 months to August 31 reaching the highest since at least 2011. The U.S. did not present its proposals in the latest round of talk in detail Bloomberg (paywall) reports.

Chart shows Mexico’s trade with the U.S. from the Mexican perspective. Calculations prior to current month based on Inegi data, current month compares shipment import and export data Source: Panjiva

Time is running out. All parties appear to want to conclude a deal to be signed in time for the elections in Mexico in July. The U.S. Trade Representative has given notice to the House Ways and Means committee of the need for changes to trade law, making March 22 the earlier the deal can be signed by the U.S. However, the administration also has to give notification of an intent to sign 90 days before that, and publish details 60 days before.

That would suggest the text needs to be concluded by year end to allow a signing by end March. However, Mexican Economics Minister Ildefonso Guajardo has suggested they could run into early next year, Reuters reports. The next formal round is due on October 11, though negotiations are continuing in the background before then.