For nearly 25 years, the North American Free Trade Agreement, or NAFTA, has dictated trilateral trade agreements between the United States, Mexico, and Canada. This month, President Trump and his Mexican and Canadian counterparts have been negotiating an updated trade deal to replace NAFTA. According to CNN, the new agreement, called USMCA, is expected to be signed by the end of the month, at which time it will be passed to Congress for approval sometime next year.
The provisional USMCA proposes changes that may affect various industries both directly and indirectly. At Acadian, we strive to keep you informed about relevant industry updates as they emerge. The changes in the new trade deal are summarized below, and you can read the full article here.
What’s Different About USMCA?
Under the USMCA deal, Canada will open up a larger portion of their dairy market to U.S. farms in exchange for an increased amount of peanut and sugar trade across borders.
According to the standing NAFTA agreement, 62.5% of a vehicle’s parts must be manufactured in North America to avoid tariffs. However, in an effort to bring some car production back to the United States, USMCA mandates that 75% of a vehicle’s parts be made in North America. USMCA also states that 40–45% of a vehicle’s parts must be made by workers earning at least $16/hour. Still, some trade experts are skeptical that the deal will increase auto sector employment, stating that American carmakers may opt to pay the 2.5% tariff if it’s more economical than abiding by USMCA rules.
Additionally, the new agreement requires Mexico to recognize workers’ right to collectively bargain, and all three countries have agreed to enforce rights recognized by the International Labor Organization.
Included in the new deal is a Sunset Clause, which states that the trade pact will be enforced for 16 years unless all involved countries agree to extend it. All parties agreed to meet every six years to determine the status of the contract.
Exchange rates between all three NAFTA countries will remain floating, according to USMCA. However, the language in the new trade deal is more explicit in an effort to avoid unfair currency manipulations, which may play to the United States’ advantage in trade negotiations with countries like China.
As of right now, there are three sections in NAFTA that outline the rules should a country be found in violation of the agreement. Two of those chapters, Chapters 19 and 20, will remain the same. Chapter 11, however, will be phased out between the U.S. and Canada and will remain intact for key sectors such as oil and gas, infrastructure, and telecommunications between the U.S. and Mexico.
USMCA accounts for digital evolution as well. Protections and processes regarding online movie pirating, electronically distributed digital assets and software, and biotech and financial service patents are all outlined in the new document.
Not mentioned in the new deal is how North American countries will resolve disputes over U.S. tariffs on steel and aluminum imports from Canada and Mexico. Senior administration said that these topics will be negotiated separately.
The Trump Administration seems to stand behind this new agreement, saying that it’s a win for the U.S. Experts, however, are still trying to ascertain the full impact of the trade agreement.