Say Good-bye to NAFTA, and Hello to USMCA!

Tuesday, October 2, 2018

Say Good-bye to NAFTA, and Hello to USMCA!

Canada and the United States have officially reached an 11th-hour deal with Mexico to modernize the North American free trade agreement.

The new trilateral pact, now known as the United States-Mexico-Canada Agreement – or USMCA won’t go into effect right away. Most of the key provisions don’t start until 2020 because leaders from the three countries have to sign it and then Congress and the legislatures in Canada and Mexico have to approve it, a process that could take several months.

What are some of the differences?

There is some substance, although nothing dramatic, as it turns out. New “Rules of Origin” will force automobile manufacturers to use more parts from the region – up 75% from 62.5%

A new wages condition states that a minimum input must be added in factories that pay workers at least $16 per hour, which may move some work from Mexico back to the U.S. Starting in 2020, cars and trucks should have at least 30% of the work on the vehicle done by workers earning $16 per hour in wages.

A new “sunset clause” states that USMCA will expire in 16 years, whereas NAFTA ran indefinitely.

Steel tariffs will remain in place for now. The U.S. and Canada continue to discuss lifting these tariffs but a senior White House official said on Sunday that this process is on a completely different track.

Other provisions include:

Canada opens up its dairy market to U.S. farmers.

Canada has complex set of milk and dairy rules to ensure that Canadian dairy farmers don’t go bankrupt, and the Canadian government restricts how much dairy can be produced and how much foreign dairy can enter to keep milk prices high. Canada will maintain most of its system but is giving greater market share to U.S. dairy farmers.

Chapter 19

Stays intact, which allows for a special dispute process. This allows the U.S., Canada, and Mexico to challenge one another’s anti-dumping and countervailing duties in front of a panel of representatives from each country.

Improved labor and environmental rights.

The USMCA makes some significant upgrades to environmental and labor regulations, especially regarding Mexico. Trucks from Mexico that cross the border into the U.S. must meet higher safety regulations and Mexican workers must have more ability to organize and form unions.

Increased intellectual property protections.

The New IP chapter contains more stringent protections for patents and trademarks for biotech, financial services and even domain names.

Chapter 11:

Giving investors a special way to fight government decisions is, for the most part, gone. The idea was that if investors put tons of money into a project the then the government changed the rules, a dispute process, outside the court system, was where investors could get their problem resolved.

For more information on USMCA click here: https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/united-states-mexico