Say “hello” to NAFTA 2.0—AKA the USMCA (United States-Mexico-Canada Agreement). Fulfilling a campaign promise in the 2016 election, President Donald Trump has spurred Canada and Mexico to revisit the 1993 trade deal. At the deadline—October 1, 2018—representatives from each member-country agreed upon a draft to present to their respective governments. On November 30 the trade agreement was signed at the G-20 Leaders’ Summit, however there is still a lot of work to be done.
American industry thrives on free trade and open markets—especially with our closest neighbors. These negotiations impact business owners at every level of the American supply chain.
Since the mid-nineties, trade among NAFTA partners has accounted for nearly 25% of American imports/exports and more than 25,000,000 domestic jobs. However, according to a Pew Research Center survey in May 2017, only 50% of Americans hold a favorable opinion of the treaty.
Although a majority of the previous deal remained intact, a few major changes have been proposed:
Milk and Agriculture
Under the USMCA, American farmers and dairy producers will have greater access to the Canadian markets. In addition, Canada will remove their "Class 7" milk pricing system, which has been seen as detrimental to the United States agricultural community. In return, the United States will now provide new domestic access to Canada for dairy, peanut products and sugar.
The agreement raises the copyright period in Canada to 70 years after the original creator’s passing. This marks a dramatic shift from Canada’s previous cutoff at 50 years and brings the country in sync with American laws.
Steel and Aluminum
Despite the last-minute agreement between the three nations, U.S. steel and aluminum tariffs under Section 323 of the Trade Expansion Act remain for both Canada and Mexico. The Trump administration has stated that a timeline to address these tariffs has not been established and will be negotiated separately from the USMCA.
Labor and Wages
The deal also uses trade rules to encourage higher manufacturing wages. Manufacturers will be required to produce 40% — 45% of automotive content using workers earning an average base wage of at least $16 an hour. Moreover, countries can now sanction each other for violations of workers’ rights.
The USMCA also takes aim at China with two provisions aimed at limiting member-country trade agreements with non-free market economies. All countries must be notified three months in advance of entering into negotiations with these nations and, moreover, all agreements are subject to review by each participant.
Automotive Rules of Origin
The USMCA contains new rules of origin and origin procedures, including product-specific rules for passenger vehicles, light trucks and auto parts, providing greater incentives to source goods and materials from the United States and North America. The new guidelines require that 75% of auto content must be produced in North America and that essential auto parts always originate from within the country. If a product does not meet these standards a tariff will be applied.
The agreement must be reviewed every six years by the participating countries and expires after 16 years.
With the leaders of the United States, Canada, and Mexico all formally agreeing to the terms of the agreement at the G-20 Summit, the USMCA now begins the ratification process. The national legislative bodies of each of the participants must approve the treaty before any action can be taken or guidelines go into effect.
Interestingly, the U.S. Congress may be the most significant hurdle left for the USMCA. With a divided House and Senate, the stage is set for both Democrats, who have hesitations about the labor and environmental provisions to the deal, and Republicans, who have claimed that the deal limits free trade, to stall a final vote.
Overall, a vote in the “lame duck” session is highly unlikely due to the laundry list of requirements before reaching the floor. Most likely, a vote will be scheduled well into the new year, sparking one the first major battles of the 116th Congress.