Call/text: (617) 682-9697 | e: [email protected] | f: 617-391-3067
US Mexico Canada Agreement (USMCA)

US Mexico Canada Agreement (USMCA)

From Wikipedia

The Agreement between the United States of America, the United Mexican States, and Canada[1] is a signed but not ratified free trade agreement between Canada, Mexico, and the United States. It is referred to differently by each signatory—in the United States, it is called the United States–Mexico–Canada Agreement (USMCA); in Canada, it is officially known as the Canada–United States–Mexico Agreement (CUSMA) in English[2] (though generally referred to as “USMCA” in English-language Canadian media)[original research?] and the Accord Canada–États-Unis–Mexique (ACEUM) in French;[3] and in Mexico, it is called the Tratado entre MĂ©xico, Estados Unidos y Canadá (T-MEC).[4][5] The agreement is sometimes referred to as “New NAFTA”[6][7] in reference to the previous trilateral agreement it is meant to supersede, the North American Free Trade Agreement (NAFTA).

The Agreement is the result of a 2017–2018 renegotiation of NAFTA by its member states, which informally agreed to the terms on September 30, 2018, and formally on October 1.[8] The USMCA was signed by United States President Donald Trump, Mexican President Enrique Peña Nieto, and Canadian Prime Minister Justin Trudeau on November 30, 2018 as a side event of the 2018 G20 Summit in Buenos Aires. Each country’s legislature still must ratify the agreement.

Compared to NAFTA, USMCA increases environmental and labour regulations, and incentivizes more domestic production of cars and trucks.[9] The agreement also provides updated intellectual property protections, gives the United States more access to Canada’s dairy market, imposes a quota for Canadian and Mexican automotive production, and increases the duty free limit for Canadians who buy U.S. goods online from $20 to $150.[10]

The key differences between NAFTA and USMCA are explained by Vox:

But the USMCA is essentially NAFTA 2.0, with a few updates. The pact has been tweaked to include changes for automakers, labor and environmental standards, intellectual property protections, and digital trade provisions.

Here are the biggest changes:

  • Country of origin rules: Automobiles must have 75 percent of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (up from 62.5 percent under NAFTA).
  • Labor provisions: 40 to 45 percent of automobile parts have to be made by workers who earn at least $16 an hour by 2023. Mexico has also agreed to pass laws giving workers the right to union representation, extending labor protections to migrant workers, and protecting women from discrimination. The countries can also sanction one another for labor violations.
  • US farmers get more access to the Canadian dairy market: The US got Canada to open up its dairy market to US farmers, which was a big issue for Trump.
  • Intellectual property and digital trade: The deal extends the terms of copyright to 70 years beyond the life of the author (up from 50). It also extends the period that a pharmaceutical drug can be protected from generic competition, and includes new provisions to deal with the digital economy, including prohibiting duties on things like music and e-books, and protections for internet companies so they’re not liable for content their users produce.
  • No section 232 tariff protections: Section 232 is a trade loophole that Trump used to impose steel and aluminum tariffs on Canada, Mexico, and the European Union. Canada and Mexico wanted protections from these tariffs as part of the NAFTA negotiations, and the fact that tariffs are still in place remains a sore subject, particularly for Canada. Canada and Mexico did get the US to make a side agreement that shields them from possible auto tariffs under 232.
  • Sunset clause: The agreement adds a 16-year “sunset” clause — meaning the terms of the agreement expire, or “sunset,” after a set period of time. The deal is also subject to a review every six years, at which point the US, Mexico, and Canada can decide to extend the USMCA.

The USMCA is signed — now it needs to get approved

Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto signed the deal in November, but it still needs to be ratified by all three governments. The US Congress hasn’t taken up the USMCA yet, and it’s unclear what lawmakers will do, especially now that Democrats control the House. Democrats currently object to parts of the deal, which could derail its approval.

General

USMCA Explained (2019). The explanation from this article is pasted above.

According to CNN’s What’s in the new deal (2019), there some additional significant changes.

Opening up Canada’s dairy market

In a win for the United States, USMCA will open up some of Canada’s dairy market to US farmers. The issue was a big sticking point between the two negotiating teams.
Under the original NAFTA, Canada limited how much milk, cheese and other dairy products could come in from the United States.
But under the updated agreement, Canada will set new quotas for the United States. It will increase market access for US dairy, poultry and eggs. In return, the United States will allow more Canadian dairy, peanuts and peanut products, and a limited amount of sugar to cross the border, according to a document from US Trade Representative’s Office.
Canada has also agreed to end a system that had kept the price of some milk products, including milk protein, low. This change will also allow more US dairy products to enter the Canadian market.
The Dairy Farmers of Canada quickly came out to criticize the new trade agreement, claiming it puts the livelihood of Canadian dairy producers at risk.
Canada recently made concessions in the Trans-Pacific Partnership and a trade deal with the European Union that also opened up its dairy market.

Car manufacturing

The new deal will require more of a vehicle’s parts to be made in North America in order for the car to be free from tariffs.
It requires that 75% of the parts must be made in Canada, Mexico or the United States, about 12 percentage points higher than under the original NAFTA.
The provision will help keep the production of car parts in the United States and bring back some production that moved abroad,
the USTR said.
Ford Motor Company applauded the agreement because it will “support an integrated, globally competitive automotive business in North America

Sunset Clause

Renew it or lose it.
The United States had wanted to include in the new agreement a clause that would kill NAFTA after five years unless all three
countries agreed to renew it.
Instead, negotiators stitched into the updated treaty new terms of the deal, agreeing to keep the trade pact for 16 years, unless all
three countries agreed to extend it.
That means the deadline could be extended far out into the future, if all three countries agreed to either renew or renegotiate the trilateral trade pact.
The United States, Canada and Mexico will be required to meet every six years to decide whether to do so.
The Trump administration had been seeking a shorter time frame of five years in an effort to keep the pact up to date. But Mexico and Canada were less in favor of that proposal arguing it would stunt investment in their countries if the future of the agreement was in question.

Exchange rate curbs

Tucked in the agreement is a foreign-exchange provision to deter countries from manipulating their currencies.
The language isn’t likely to impact all three NAFTA countries, which have a free floating exchange rate. Instead, it’s intended as a signal to other countries outside of North America.
Countries frequently commit to avoiding unfair currency manipulations. But the tougher language in the accord could give the United States more leverage in trade negotiations with countries like China.

Dispute resolution

When countries are found to be in violation of the agreement, there are hard and fast rules how to hold nations accountable.
Embedded in the old NAFTA agreement were three kinds.
Two of those dispute settlement systems will remain basically intact, but will be renamed.
The first is a system to resolve state-to-state disputes, formerly known as Chapter 20. The second mechanism is NAFTA’s old Chapter 19, which resolves disputes between two countries on anti-dumping and countervailing duties cases. That will also remain untouched in the new agreement.
One difference is that another settlement process, formerly known as Chapter 11, will be phased out between the US and Canada.
But will stick for certain key sectors like oil and gas, infrastructure and telecommunications between the US and Mexico.

Help for American workers

The new trade agreement aims to support American workers in several ways.
Most notably, it requires that 40% to 45% of car and truck parts be made by workers earning at least $16 an hour. The goal is to level the playing field between American and Mexican auto workers and to incentivize manufacturers to build more in the United States. One of the main criticisms of NAFTA is that it prompted American car makers to shift production south of the border, where workers earn much less than their US counterparts.
The deal also mandates that 75% of a vehicle’s parts must be made in North America, up from the current 62.5% rule. The Trump administration argues that this will help incentivize billions in new auto sector production in the US.
Also, Mexico has committed to recognize workers’ right to collectively bargain, and the three countries agreed to enforce rights recognized by the International Labor Organization.
President Trump said Monday that the agreement will transform North America back into a manufacturing powerhouse.
“Instead of jobs leaving for overseas, they will be returning back home,” he said in a Rose Garden ceremony.
Experts, however, are still sifting through the documents to determine the actual impact of the agreement.
“The bottom line is that we simply do not have enough information at this time to know whether NAFTA 2018 is in the economic interests of the United States,” AFL-CIO Trade Policy Specialist Celeste Drake wrote in a blog post. “On labor, despite progress, more work remains to be done.”
Some trade experts are skeptical that the deal will boost auto sector employment. In fact, the new mandates may prompt American carmakers to shift production to Japan, Korea or other countries outside North America. They’ll have to pay a 2.5% tariff, but they may find it more economical than adhering to the USMCA rules, said Robert Lawrence, a professor of international trade and investment at Harvard.
“The jobs aspect is uncertain at best,” said Robert Scott, director of trade and manufacturing policy research at the Economic Policy Institute, a left-leaning organization.
One wildcard is whether the Trump administration will try to raise the 2.5% tariff on importing cars and auto parts. The president is considering levying a 25% tariff on imported vehicles, citing national security.

‘Modernizing’ NAFTA for the digital age

The new agreement addresses issues that have emerged over the past 25 years.
For example, it outlines criminal penalties for pirating movies online.
It prohibits duties on digital music, books, software and video games that are distributed electronically.
There are also stronger intellectual property protections, including patents for biotech and financial services.

Other tariffs

One big question is how the three countries will resolve disputes over US tariffs on steel and aluminum imports from Canada and
Mexico.
For now, that part, along with retaliatory tariffs countries have imposed, were left out of the deal.
That piece will have to be negotiated separately, senior administration officials said.

Geoffrey Getz, in 5 Things to Know About the USMCA (2019), argues the changes are mostly cosmetic:

Overall, the changes from the old NAFTA are mostly cosmetic. After a year and a half of negotiations, the three parties are going to end up with a new trade deal that looks remarkably similar to the old NAFTA. The main structure of the deal is largely intact; the biggest changes include higher rules-of-origin requirements for the auto sector, marginally greater U.S. access to the Canadian dairy market, and a scale-back of the investor-state dispute settlement (ISDS) rules. Thus we shouldn’t expect to see any dramatic economic effects from this deal—though if it convinces businesses’ that U.S. withdrawal from NAFTA is no longer on the table, resolving this uncertainty may lead to a small increase in investment.

The Heritage Foundation, in An analysis of the US-Canada-Mexico Free Trade Agreement (2019) reaches similar conclusions to those above.

Pro

USMCA Brings NAFTA in the 21st Century (2019).

Such economic transformations explain why businesses in all three countries are so keen for a 21st-century trade deal.

USMCA fits the bill. The deal maintains NAFTA’s most successful provisions but incorporates critical improvements. It’ll strengthen the alliance here in the North American neighborhood.

Consider USMCA’s section on agriculture. In 2017, the United States exported $24 billion and $19 billion worth of agricultural products to Canada and Mexico, respectively. These two countries represent America’s largest and third-largest agricultural markets in the world. And these exports support 325,000 American jobs.

USMCA is a big relief to Mexico’s avocado farmers, who supply Americans more avocados each year than farmers from any other nation. The deal maintains zero tariffs on agricultural products for all three nations, which helps farmers cheaply ship goods across borders. That will protect farming jobs in Mexico and lower Americans’ grocery and restaurant bills.

USMCA would boost job creation and wage gains for auto manufacturing workers as well. The deal requires 75 percent of a vehicle’s parts to be manufactured in North America to qualify for tariff-free treatment. That’s up from the current requirement of 62.5 percent. This provision will foster job growth in all three nations.

The new deal also dictates that 40 to 45 percent of auto content sold in North America be manufactured by workers earning a minimum of $16 an hour. This provision will incentivize companies to manufacture more vehicles and vehicle parts at their U.S. and Canadian factories.

Canadian autoworkers and American consumers will benefit from another USMCA provision. Currently, NAFTA allows Canada to export about 2 million automobiles to the United States tariff-free. USMCA would raise the number of tax-exempt vehicle shipments over 30 percent. That means more jobs for workers in Canada’s auto industry, which already adds $20 billion a year to the country’s economy and employs 130,000 people. And it means lower sticker prices for car shoppers.

USMCA will spur small-business growth across North America. America’s 30 million small businesses employ almost 60 million workers. Meanwhile, 99 percent of Mexico’s economy comprises small and medium-sized enterprises. And in Canada, small and medium businesses make up 90 percent of the private-sector workforce.

Recognizing the integral role of mom-and-pop shops, USMCA devotes an entire chapter to small and medium-sized businesses. The chapter includes provisions that cut down on the paperwork for express shipments valued below $2,500 and eliminate duties and tariffs on all shipments up to 40 Canadian dollars ($30.) Lower costs and fewer administrative hassles will increase revenues, allowing firms to raise wages and hire new workers.

United States International Trade Commission. US Mexico Free Trade Agreement (2019)

The Commission used a combination of detailed quantitative and qualitative industry analyses and an economy-wide computable general equilibrium model to assess the likely impact of USMCA on the U.S. economy and industry sectors.

The model estimates that, if fully implemented and enforced, USMCA would have a positive impact on U.S. real GDP and employment. The elements of the agreement that would have the most significant effects on the U.S. economy are (1) provisions that reduce policy uncertainty about digital trade and (2) certain new rules of origin applicable to the automotive sector. Of interest to stakeholders in many sectors, particularly services industries, are USMCA’s new international data transfer provisions, including provisions that largely prohibit forced localization of computing facilities and restrictions on cross-border data flows.

Industry representatives consider these provisions to be a crucial aspect of this agreement in terms of changing certain rules of trade across industry sectors, especially given the lack of similar provisions in the North American Free Trade Agreement (NAFTA). Because NAFTA has already eliminated duties on most qualifying goods and significantly reduced nontariff measures, USMCA’s emphasis is on reducing remaining nontariff measures on trade and the U.S. economy; addressing other issues that affect trade, such as workers’ rights; harmonizing regulations from country to country; and deterring certain potential future trade and investment barriers.

USMCA would strengthen and add complexity to the rules of origin requirements in the automotive sector by increasing regional value content (RVC) requirements and adding other requirements. USMCA’s requirements are estimated to increase U.S. production of automotive parts and employment in the sector, but also to lead to a small increase in the prices and small decrease in the consumption of vehicles in the United States.

The agreement would establish commitments to open flows of data, which would positively impact a wide range of industries that rely on international data transfers. USMCA would reduce the scope of the investor-state dispute settlement (ISDS) mechanism, a change that, based on modeling results, would reduce U.S. investment in Mexico and would lead to a small increase in U.S. domestic investment and output in the manufacturing and mining sectors. The agreement, if enforced, would strengthen labor standards and rights, including those related to collective bargaining in Mexico, which would promote higher wages and better labor conditions in that country.

New intellectual property rights provisions would increase protections for U.S. firms that rely on intellectual property. These changes are estimated to increase U.S. trade in certain industries. The Commission’s model estimates that USMCA would raise U.S. real GDP by $68.2 billion (0.35 percent) and U.S. employment by 176,000 jobs (0.12 percent).

The model estimates that USMCA would likely have a positive impact on U.S. trade, both with USMCA partners and with the rest of the world. U.S. exports to Canada and Mexico would increase by $19.1 billion (5.9 percent) and $14.2 billion (6.7 percent), respectively. U.S. imports from Canada and Mexico would increase by $19.1 billion (4.8 percent) and $12.4 billion (3.8 percent), respectively. The model estimates that the agreement would likely have a positive impact on all broad industry sectors within the U.S. economy. Manufacturing would experience the largest percentage gains in output, exports, wages, and employment, while in absolute terms, services would experience the largest gains in output and employment.

Fox News. Trump revolutionizes trade (2019)

Some of its breakthroughs include:

  • Aiding farmers by curbing Canada’s high tariffs and low quotas on U.S. dairy products.
  • Reinvigorating U.S. car manufacturing.  Previously 40 percent of a car could be made in China or other places with few labor or environmental standards and still considered to be “North American” and imported cheaply into the USA.  The agreement drops this foreign portion to 25 percent.
  • Easing the burden on sick Americans who fund drug development by paying full price for patented drugs.  Both Canada and Mexico have agreed to respect drug patents on biologic drugs—the most promising field of new cures—for a period of 10 years, which means Americans won’t be only ones from whom drug companies can recover expenses.

Cisco Systems.Agreement enables digital economy (2019)

While NAFTA was beneficial to Cisco and the U.S. technology sector, the new agreement significantly expands those benefits by:

  • Prohibiting the governments from requiring localization of communications infrastructure
  • Restricting the governments’ ability to constrain cross-border data flows
  • Promoting the use of risk-based approaches to cybersecurity
  • Requiring governments to recognize telecom certification test reports from each other’s countries
  • Promoting flexibility in approaches to telecom regulation, encourages light-touch approaches to value-added telecom services, and provides safeguards to help protect technology choice
  • Binding Mexico to its Telecommunications Reforms passed in 2013, as well as to implementing regulations promoting effective competition
  • Improving protection for intellectual property rights, including criminal and civil prosecution of trade secret misappropriation
  • Enhancing customs-related trade facilitation by providing for advanced rulings and requiring governments to post trade documentation on the Internet
  • Allowing for freer trade in remanufactured goods

Business Insider. Agreement is a huge win (2019)

According to the US International Trade Commission, the USMCA will create 176,000 US jobs and add over $68 billion to the US economy — that is, in addition to the 12 million jobs already in the US that are supported by trade with Canada and Mexico. This positive report suggests that pro-growth policies promoting free, fair, and enforceable trade are a win for American workers and job creators alike.

Supporters of the USMCA recognize that this agreement contains provisions that will help make American job creators more competitive. For agriculture, those provisions provide increased access to Canadian dairy markets. For manufacturing, the USMCA establishes requirements that promote American-made cars and machinery as well as new worker protections to ensure American factory jobs do not get shipped overseas.

MassLive. Passage critical to regional businesses (2019).

North American trade benefits the country as a whole, in addition to local communities like ours. Eastman is one of several local businesses that provide jobs in this region by exporting goods and services across our country’s borders. USMCA will preserve markets already in place while promoting new markets, products and technology. It will drive innovation, helping turn small businesses into large employers and ensuring that cutting-edge advanced manufacturing operations like Eastman continue to thrive in Springfield so we can support hundreds of workers and retirees in Western Massachusetts.

Dallas News. Deal is a major victory for Texas (2019)

Our farmers and ranchers throughout Texas will also thrive under this new trade agreement. Specifically, dairy farmers right here in my district will no longer be burdened by Canada’s unfair tariffs, which limits American farmers’ ability to sell their products abroad. Business opportunities will expand throughout the agricultural industry once the errors of NAFTA are corrected.

Con

Center for American Progress  Trump’s trade deal the road not taken (2019).

President Trump’s USMCA largely fails to deliver the strong labor and environment standards and enforcement that workers need. The complete omission of climate change as a priority to be addressed in trade is a significant failure in the agreement. The USMCA includes expanded monopoly protections for pharmaceutical companies that would help keep U.S. drug prices high, and it also exports these policies to Mexico and Canada. Moreover, large swaths of text—covering areas such as antitrust, regulatory coherence, and more—contain a strong deregulatory thrust that can chill needed changes in domestic policy. While the USMCA significantly limits NAFTA’s investor-state dispute settlement (ISDS) mechanism—which gives foreign corporations the special right to challenge government actions in private forums instead of domestic courts—for most sectors, it nonetheless retains it for the oil and gas firms with governmental contracts in Mexico.

The shortcomings in the USMCA are highly significant. Globalization has enabled a freer flow of ideas, people, and products than ever before, which has brought benefits to Americans and people around the world. But it has also brought significant economic pain to large segments of working populations both in America and abroad. The social and political backlash to this pain is contributing to the rise of authoritarian trends around the world that trample on fundamental democratic freedoms and rights.4 Those who support an open orientation toward the world, both economically and socially, must take seriously the need to place the economic well-being of working households more squarely at the center of how globalization delivers its benefits and thus at the center of the rules around trade.

CATO Institute. A marginal upgrade at a high cost (2019)

The USMCA is a marginal improvement over NAFTA—better in some areas, worse in others, about the same in most. Relative to the existing NAFTA, there are pros and cons. Though there is greater liberalization in goods trade, it is marginally to imperceptibly so. Taking into consideration the negative changes, especially to the rules of origin, it’s not obvious that USMCA is much of an upgrade from NAFTA. But it’s possible—even probable—that some of the less directly liberalizing, technical and procedural provisions, such as those governing “Digital Trade,” “Customs and Trade Facilitation,” “State-Owned Enterprises” and others, utilized in ways not completely apparent now, could lead to lower trade costs down the road.

Macleans. Agreement represents a failure of ambition (2019)

Likewise—and perhaps illustrative of the lack of a grand vision for expanded free trade rather than managed trade—even the much-ballyhooed changes to supply management under the proposed USMCA are minor compared to what could have been accomplished: completely unhooking Canada’s dairy and poultry sectors from their government-granted cartel status, paying them out over time as Australia did with its formerly protected agriculture sectors, and freeing up trade for that sector, which would have allowed it to grow in export potential over time. By focusing on what might be “lost” in domestic sales, the dairy and poultry industries have always focused on the trees and missed the free-trade forest—that is, the possibility to become a massive export industry for Canada.

There is a hidden cost in Trump’s new agreement (2019)

The Trump administration recently renegotiated NAFTA, and Donald Trump is now threatening to revoke the trade treaty in effect among the United States, Canada and Mexico since 1994. The replacement treaty — the United States-Mexico-Canada Agreement (USMCA) — is pending approval from Congress.

The USMCA resembles NAFTA in some ways but takes a strikingly different approach to dispute settlement. The proposed USMCA provisions are far more limited than NAFTA’s Chapter 11, which allowed investors to sue foreign governments directly over allegations of noncompliant policies.

Such investor-state dispute settlement (ISDS) clauses are common in international trade and investment treaties — and are a controversial topic with many U.S. lawmakers, business and civic organizations and analysts. But our research, which looks at ISDS clauses in bilateral investment treaties in 105 developing countries between 1981 and 2009, suggests that such clauses may hurt the United States far less than it will hurt countries in the developing worldOur additional research suggests that ISDS provisions and the treaties that contain them are related to lower labor and human rights standards. ISDS and the treaties that contain them protect corporations from governments. But they leave domestic groups and actors vulnerable by failing to explicitly ask that labor rights and human rights be observed at the same time as the rights of multinational corporations. That asymmetric protection increases government’s incentives to undermine labor standards, either by slacking on labor law implementation, reducing labor’s right to act collectively, or both