No matter what you call it--United States-Mexico Trade Agreement, Nafta 2.0, or Halfta--the preliminary agreement reached this week between the U.S. and Mexico is loaded.

While it's not clear if Canada will sign on--it has until Friday to do so--the pact may well reshape the 24-year-old North American Free Trade Agreement in meaningful ways. Given the significance of the accord--trade within the region soared to $1.1 trillion in 2016, from roughly $290 billion in 1993--even small changes to the pact will carry implications for U.S. businesses and entrepreneurs.

Parsing through how the new Nafta will impact U.S. businesses is a useful exercise, even at this early stage. Here are just five ways a new treaty could affect you.

1. Removes digital barriers

The new trade agreement includes a provision to limit a government's ability to force tech startups to disclose "proprietary computer source code and algorithms." It also includes a provision to ensure data can be transferred cross-border, and that limits on where it can be stored are minimized. The 1994 Nafta agreement did not offer any guidance on this topic. 

2. Lowers import costs

Per the agreement, Mexico will double its "de minimis shipment value" to $100, which is a small victory for e-commerce retailers, says Gary Hufbauer, a nonresident senior fellow at Peterson Institute for International Economics. Essentially, shipments of goods up to this amount can enter the country without customs duties or taxes. Granted, it's a tiny amount compared with the U.S. $800 allowance, but it is still twice as much as previously allowed (it was capped at $50).

3. Strengthens intellectual property

The trade agreement includes a chapter to protect intellectual property and deter piracy or trademark infringements. It extends the minimum copyright term to 75 years for works including music, movies, and books. It also establishes a "safe harbor" for internet service providers (ISPs) that shields them from liability if they take down pirated content when notified. The chapter also grants 10 years of data protection for biologic drugs, a win for pharmaceutical companies.

4. Limits settlement options

In a call with reporters on Monday, U.S. Trade Representative Robert Lighthizer said the new agreement would put limits on ISDS provisions--the mechanism through which investment conflicts are resolved. The new treaty is expected to make it harder for companies and foreign investors to invoke them. Exceptions include industries that work closely with the government, Lighthizer clarified, which are oil and gas, infrastructure, energy, and telecom businesses. These will get the "old-fashioned ISDS."

5. Provides incentives to automakers

The new framework mandates that 75 percent of automobiles be manufactured in the U.S. or Mexico, up from the previous 62.5 percent requirement. The so-called rules of origin allow vehicles that meet these specifications to be imported into either country without duties. Currently, foreign car manufacturers have to pay a 2.5 percent tariff to bring their cars to the U.S., though Trump is mulling raising that to 25 percent, and asked the Department of Commerce to look into it.

The changes also call for 40 to 45 percent of an automobile to be produced by workers earning at least $16 per hour, which would give an advantage to the U.S. and Canada, where wages are higher. The new requirements could bring in more work for U.S. auto parts manufacturers. Some industry experts worry that it would also make vehicle prices skyrocket, making the vehicles less appealing for customers to buy. 

President Trump expects to sign the deal in late November, before the new Mexican administration begins on December 1. Whether Canada will sign on should be known by the end of this week. 

Published on: Aug 29, 2018