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– This is the script of CNBC's news report for China's CCTV on August 29, 2018, Wednesday.
NAFTA's future is reliant on the bilateral negotiation between US and Canada in this week and the progress of re-negotiation with Mexico. So Canada now faces huge pressure. Some analysts believe, US is taking so-called "compulsory strategy", which is strong arm tactics, means by taking a tough stance and threatening attitude to force the other into compliance. If we can't reach an agreement with Canada, then we will impose more auto tariffs, director of the United States National Economic Council Larry Kudlow told CNBC yesterday. Steven Mnuchin, United States Secretary of the Treasury, also expressed his hard line with CNBC, saying if the 3-parties negotiation is unsuccessful, then a separate bilateral agreement with Canada would be reached outside of NAFTA.
United States Secretary of the Treasury
I think we'll be successful but again, if we don't, we will move forward with Mexico, and then we will reach a separate agreement with Canada.
The legal said, this kind of tactic may indicate a meltdown will come to NAFTA, which has 20 years history. Earlier of this week, US president Trump was happy about the new trade deal with Mexico, and said, they would remove NAFTA this name and replace it with US-Mexico trade deal. In legal terms, trump temporarily doesn't have authority to change NAFTA's framework. First, this round of negotiation between US and Mexico is based on NAFTA clause, which covers US, Canada and Mexico throughout. So if US plans to reach a bilateral agreement with Mexico or Canada separately, meaning US has to officially withdraw from NAFTA.
However, President Trump doesn't have that authority to decide whether the United States can withdraw from the NAFTA, on the contrary, the white house needs the congress to repeal NAFTA legislation, and if the congress has discretionary power, then the poll results will face uncertainty. Additionally, even though the congress will votes for a U.S. exit,
This agreement is still valid for the remaining parties as NAFTA's Article 2205 states: "A party may withdraw from this agreement six months after it provides written notice of withdrawal to the other parties.
That is to say, even if NAFTA were to change its name, it would come as the United States withdraws, perhaps calling it a "Mexico trade agreement" rather than a "US-Mexico trade agreement. Finally, many market analysts and lawyers worry about the impact of the North American supply chain, which was already established under the NAFTA agreement, will be affected.
For example, A new agreement between the United States and Mexico demands 75% of car components from NAFTA signatories area, and at present the percentage is only 62.5%, that will allows the other suppliers beyond NAFTA, such as Asian suppliers, was forced to transfer their supply rights to countries such as Mexico. As for the specific influence, we have to see the negotiation between Canada and the United States.
But now, these 2 sides still have controversy, including disagreement on dairy products and government purchasing and steel aluminum tariffs bearded by Canada and Mexico, which may be another trump card of US. We will keep an eye on this issue.