The North American Free Trade Agreement (NAFTA) is getting an update. It’s now going to be called the United States-Mexico-Canada trade agreement (USMCA), and if it’s implemented, a few things will change. Below we cover the significant parts of the USMCA that everyone ought to know.
The USMCA has finally been signed after more than a year of negotiations. Amie Simpson of Brownfield Ag News breaks down the basics.
USMCA will replace the older North American Free Trade Agreement (NAFTA), but still needs to be passed by each country’s legislatures. That might be a challenge. One major problem in ratifying the agreement has been steel and aluminum tariffs. Leaders from both Canada and Mexico have said that they want the tariffs removed before they’ll sign.
USMCA also might run into a bit of trouble with the US House of Representatives having shifted to democratic control, say Yujun Zhou, Kathy Baylis, Jonathan Coppess and Qianting Xie, from the University of Illinois Department of Agricultural and Consumer Economics. But Trump’s doing his best to sell it- calling the USMCA,
“The most important trade deal we’ve ever made.”
Trump then went on to speak of NAFTA as,
“The worst trade deal maybe ever signed anywhere.”
Alternatively to Trump, the US Department of Agriculture has identified NAFTA as being one of the most successful trade agreements in history.
NAFTA was signed 25 years ago, and is arguably overdue for some essential updates. The way countries trade with one another have transformed significantly since then due to advancements in digital commerce and the internet. Some of these updates were addressed in the Trans-Pacific Partnership (TPP), but the US withdrew from that agreement in 2016.
Though President Trump clearly says the USMCA is much better than NAFTA, most of the old agreement remains unchanged. There are large sections of the 1,809-page USMCA document that haven’t been touched. For example, there are no changes to the zero tariffs policy on most manufacturing and agricultural goods.
What HAS changed? How is the USMCA actually different from NAFTA? Trade expert Amanda M. Countryman of Colorado State University explains the significant updates to the agreement in Morning Ag Clips. As mentioned above, modernizing the agreement to be current with available technology is one of the changes.
The biotech sector, financial services, and domain names will all receive stronger protections for patents and trademarks. There are also new rules for the growth of digital trade and investment. Labor and environmental standards have been updated. This includes provisions that range from middle-wage pay for autoworkers, to fishing regulations to protect marine species, to tougher restrictions for Mexican trucks.
One policy that is remaining unchanged at the insistence of Canada- a clause to help settle disagreements that can be used when countries break the rules of the agreement. It’s essentially a “trade court” that makes it possible to dispute another country’s policies.
Changes to Dairy
One big change is in dairy trade. Both the US and Canada have had fairly protectionist policies in place for dairy. There are subsidies for dairy farmers, import quotas, and Canadian tariffs that can be between 200-300% if too much of certain products are exported. Some of these rules will change, and the new agreement should benefit both countries.
Canada will refrain from implementing some of their protectionist policies, and as a result, more US dairy products will be headed to Canada duty-free. Canada is dropping their Class 7 milk pricing system that set very low domestic prices for ultra filtered milk. This subsidy for Canadian dairy farmers essentially made imports of ultra filtered milk too costly to compete.
Products Made in North America
Another change to the trade agreement involves products made in North America. When it comes to auto manufacturers, in order to qualify for no tariffs when crossing borders, cars and trucks must be comprised of at least 75% North American made parts. In the old NAFTA agreement it was 65.2%.
It was also agreed that Mexican auto manufacturer workers should be paid more. Now, 40-45% of a car or truck’s parts need to be made by workers earning at least $16 per hour. For Mexican auto laborers that’s a really big deal.
The new USMCA trade agreement doesn’t have a lot of sweeping changes when compared to NAFTA, but it’s an improvement. It’s important to update our trade policies and, “Keep up with the times.” Now, we just need the US Congress and the Parliaments of Mexico and Canada to pass it.