USMCA

The United States, Canada and Mexico Come to a New Trade Deal to Replace NAFTA

Anthea Business Development

Recently, the United States, Canada and Mexico came to an agreement on a revised trade deal that could replace the North American Free Trade Agreement (NAFTA). The new deal, which is being referred to as the U.S.-Mexico-Canada Agreement (USMCA), could be signed as early as this month.

The USMCA borrows heavily from the original text of NAFTA as well as the now defunct Trans-Pacific Partnership. The USMCA includes, but is not limited to, the following.

Auto

Under the new USMCA rules, more of a vehicle’s parts must be made in North America if countries want to avoid tariffs.

Specifically, 75 per cent of the parts must be made in Canada, Mexico or the U.S., which is about 12 per cent higher than it was in NAFTA. In addition, by 2023, 40 to 45 per cent of automobile parts must be made by workers who earn at least $16 an hour.

These provisions will discourage overseas imports, reduce tariffs and stimulate growth for Canadian auto exporters—a $50 billion industry. Experts also believe these changes will help keep the production of car parts in North America and bring back production that had moved abroad.

Dairy

Under the original NAFTA, Canada limited how much milk, cheese and other dairy products could come in from the U.S. The USMCA will now give the U.S. tariff-free access to 3.6 per cent of Canada’s dairy market. This is likely to bring millions of dollars worth of product into Canada—a move that industry leaders say could further erode Canada’s dairy protections.

Additionally, Canada has agreed to end a system that kept the price of milk products low, further encouraging U.S. dairy products in the Canadian market.

Steel

Tariffs on steel and aluminum will stay at 25 per cent and 10 per cent respectively for both Canada and Mexico. This will greatly benefit the U.S., as they rely on steel and aluminum imports for their military needs. It should also be noted that Canada’s retaliatory tariffs will remain in place.

Intellectual Property and Digital Trade

The new USMCA deal extends copyright protection for intellectual property (e.g., music scores, books, computer programs,

artwork or sound recordings) to 70 years beyond the life of the author. While this will allow copyright holders to sustain rights to a work for an additional 20 years, it could make purchasing them more expensive.

Drugs

The USMCA extends the period that a newly developed pharmaceutical drug is protected from generic competition to 10 years. Effectively, this means it will take longer for generic medications to reach the market, and Canadians may have to pay more for pharmaceuticals.

Online Shopping

Under the USMCA, Canadian consumers can order up to $150 of goods from U.S. retailers without having to pay any duties and $40 without paying provincial sales taxes.

Sunset Clause

Unlike NAFTA, the USMCA has a sunset clause, which means the agreement will run out after 16 years. The deal is also subject to a review every six years.

Section 232

Section 232 is a trade loophole that the U.S. administration has used to impose steel and aluminum tariffs on Canada, Mexico and the European Union. Effectively, this loophole allows the U.S. to block the import of materials critical for national security, ensuring that the country has reliable supplies in the event of a war. While both Canada and Mexico wanted protection from these tariffs, they didn’t get them in the USMCA. However, the U.S. did make a side agreement that protects against possible auto tariffs.

Next Steps

While the USMCA will likely be signed in November, all three governments must still ratify the deal. While Canada and Mexico are expected to pass the USMCA, experts are concerned that it will get stuck in the U.S. Congress until 2019.

Here’s a news report that explains more details of the new USMCA: