Much of today’s news has focused on the in-the-works trade deal with China as well as the impending impeachment of the current US president. Lost in the shuffle, however, is the USMCA- a trilateral trade agreement between the US, Canada and Mexico meant to replace the North American Free Trade Agreement (NAFTA), which went into effect on January 1, 1994.
So what is the USMCA anyway?
The United States-Mexico-Canada Agreement (USMCA) is a renegotiation of NAFTA. It was signed on November 30, 2018, however, each country’s respective legislature must still ratify the agreement. The US House of Representatives passed the bill on Thursday, December 19, giving the Senate an early Christmas gift. The Senate, in turn, is expected to the pass the bill early next year (after the impeachment trial, according to Majority Leader Mitch McConnell) which will send it to the president’s desk for a final signature. While NAFTA and the USMCA are quite similar, they also have a few significant differences.
For starters, country of origin rules have changed. Under NAFTA, cars or trucks must have 62.5 per cent of their components manufactured in the US, Mexico, or Canada to qualify for zero tariffs. Under the USMCA, that figure has increased to 75 per cent.
The agreement also aims to provide worker protections. It calls for 40 to 45 per cent of automobile components to be made by workers who earn at least $16 an hour by 2023. This will help bring wages of Mexican workers up to US and Canadian standards. Also, Mexico has agreed to pass laws giving workers the right to union representation and protections to women from discrimination.
Additionally, the US will be gaining greater access to Canadian dairy and poultry markets. Prior to the USMCA, Canada closely regulated how much of these products could be produced and placed tariffs and quotas on their imports. Canada will now be loosening these restrictions, giving American farmers a new market to tap into, albeit over the span of a 6-month phase-in process.
Intellectual property protections and digital trade provisions have been added, extending the terms of copyright from 50 years beyond the life of the author to 70 years. It also creates new provisions aimed at accommodating e-commerce, eliminating duties on electronically-purchased products and adding protections for online companies, ensuring that they cannot be sued for content created by their users (affecting Facebook, YouTube, Twitter, and the like). In the latest version of the deal, an initial provision providing pharmaceutical companies 10 years of exclusivity with regards to their patents was removed, which will help consumers but hurt companies hoping to maintain profits from their patents.
There will also be an increase in environmental protections, as Mexico has agreed to enhance monitoring to stop illegal fishing, protecting whales and other marine life from pollution and overfishing. All three countries have also agreed to stop subsidizing the fishing of overfished species.
Protections against currency manipulation have been added, with provisions that state all three countries agree to “market-determined exchange rates,”keeping countries from devaluing their currencies, thus allowing them to sell their products cheaply on the global market and undercut their competitors.
Finally, the USMCA contains a 16-year sunset clause which means the terms of the agreement will expire after that period of time, and it also calls for a review every six years, during which the member countries may elect to extend the agreement.
As mentioned, all three countries’ respective legislatures must sign off on the agreement. The US is close, while Mexico’s congress ratified it in June, and Canadian Prime Minister Justin Trudeau has said he will be bringing a modified agreement up for a vote once it passes the US House.
Although the USMCA has been touted as much better than NAFTA, it is more akin to an update than a total renegotiation, and its impact is expected to be moderate. The US International Trade Commission, a federal government agency, found the initial version of the deal would create 176,000 jobs after six years and increase GDP by 0.35% (the US added 266,000 new jobs in November alone).
Ultimately the USMCA will be a win for workers both in America and Mexico, giving them a boost in enforcement of labor standards. Canadian farmers won’t be pleased as their dairy and poultry markets will be opened up to competition, but Canada does stand to gain protections from certain tariffs and gets to keep a provision allowing for a special arbiter to settle trade disputes rather than have to go through the traditional, more time-intensive court system.
The USMCA aims to level the playing field for American workers, stemming the outsourcing of jobs and manufacturing production and repatriating it back to the US. This may increase prices of certain products to the US consumer, particularly automobiles, since their real input costs (Mexican labor) are set to increase, but this too is expected to have only a moderate impact. In any case, it will take time before we see any of these effects come into fruition, as it takes time for capital-intensive projects to be approved, completed, and yield results, good or otherwise.