Canada, Mexico, and the United States signed a new trade deal, the U.S.-Mexico-Canada Agreement (USMCA), on Nov. 30, 2018 in Buenos Aires, Argentina. It replaces the North American Free Trade Agreement (NAFTA), a 1994 deal that revolutionized trade among the three countries.
For over a year, Democrats in the U.S. Congress held up approval of the USMCA, until the White House struck a deal with U.S. House Speaker Nancy Pelosi and other Democratic leaders in early December 2019.
They agreed that the three countries would amend the 2018 agreement to accommodate Democratic demands over unions, environmental issues, and biologic drugs, among other issues.
Following this, representatives of the three countries met in Mexico City on Dec. 10, where they signed a protocol amending the 2018 deal. Texas’ Congressional delegation has provided bipartisan support for the USMCA.
According to the Office of the U.S. Trade Representative, Texas exported $109.7 billion in goods to Mexico in 2018, representing 35 percent of the state’s total goods exported, and $27.5 billion to Canada.
Texas-based economic consultancy the Perryman Group estimates that the impact of the USCMCA on Texas, compared to not having a deal, will be 164,736 jobs, with the biggest job gains in information (52,174) and manufacturing (50,910).
Here are a couple of ways that the USMCA is different from NAFTA:
Agriculture
NAFTA slashed tariffs to zero on most agricultural products, but this wasn’t the case for Canada’s dairy and poultry markets. Canada limits foreign dairy imports under a dairy supply management system. The USMCA will require Canada to open a portion of its dairy market to U.S. farmers. The specifics of this are rather complicated, but overall the U.S. Farm Bureau estimates that U.S. producers will get a 3.6% bump in market share.
The USMCA also will remove Canadian restrictions on ultra-filtered milk, a type of protein-rich concentrated milk.
The USMCA prohibits agricultural export subsidies (Art. 3.4). NAFTA had discouraged but not prohibited export subsidies (Art. 705).
Intellectual Property Rights
The USMCA strengthens intellectual property protections. Changes include:
- International trademark protection for smells and sounds;
- Revision of NAFTA processes for enforcement of trademarks;
- Protection for “geographical indications,” which are terms like “Canadian whiskey” or “Florida oranges” (Articles 20.29-20.35);
- Guidelines for deciding what are “common” geographical names that can’t be protected, like “parmesan cheese”;
- Trade Secret Protections: New criminal procedures and penalties for trade secret theft, including cyber theft (Article 20.71);
- Enforcement for trademark and copyright infringement “in the digital environment,” an area not covered by NAFTA; and
- Safe harbor provisions to protect Internet Service Providers (ISPs) from liability for copyright infringements “that they do not control, initiate or direct, and that take place through systems or networks controlled or operated by them or on their behalf” (Article 20.88b).
Labor
The USMCA requires Mexico to adopt measures “for the effective recognition of the right to collective bargaining” (Annex 23-A).
The agreements says, “Mexico shall… prohibit, in its labor laws, employer domination or interference in union activities, discrimination, or coercion against workers for union activity…”
Automotive Rules of Origin
The USMCA requires that the total North American content of a vehicle be 75% or more, up from 62.5% under NAFTA.
To qualify for tariff exemptions, 70% of all steel, aluminum, and glass used in the production of an automobile must originate in North America.
The USMCA also requires that a greater percentage of automotive manufacturing work be done by workers earning at least $16 an hour: 40% for a car and 45% for a light truck.
Steel and Aluminum
The deal does not resolve an ongoing dispute over U.S. steel and aluminum tariffs, which the U.S. imposed on Canada and Mexico in June 2018 on national security grounds. Those tariffs were imposed under a 1962 trade law that allows the U.S. president to use tariffs to protect “critical industries” from trade-related harm.
Dispute Resolution
The USMA maintains many of NAFTA’s mechanisms for resolving international trade disputes, including an anti-dumping mechanism. But the deal largely eliminates a NAFTA-era public-private dispute resolution that enabled exporters to challenge a foreign government (NAFTA Chapter 11).
According to Livingston International, a customs brokerage and compliance company, “The removal of Investor-State Dispute System (ISDS) is considered more of a win for Canada than the United States as the United States government has never had to pay damages to a foreign corporation throughout NAFTA’s history. Conversely, Canada has been forced to pay damages of more than $300 million to U.S. corporations through ISDS resolutions.”
The investor-state mechanism is maintained for certain instances between the United States and Mexico.
Different Viewpoints on the Deal
The U.S. United Steelworkers (USW) and the AFL-CIO labor unions endorsed the revised deal. USW President Thomas Conway said, “There is still a great deal of work to do in terms of implementing, monitoring and enforcing the provisions, but the base for progress is there. The revised deal is better than the original USMCA and certainly better than NAFTA.”
Some Mexican business groups fear that Mexican President López Obrador has ceded too much, Reuters reported. Gustavo Hoyos, president of employers federation Coparmex, called the government “a bad negotiator.”
Texas Economist Dr. M. Ray Perryman, president of the Perryman Group, says that the USMCA ensures the free flow of trade, protecting business ties among the three nations. His company said in a briefing paper, “Cross-border supply chains are quite common along the borders, with certain aspects of production occurring in each country depending on relative comparative advantages. Without a trade agreement, such arrangements and other imports and exports would become more difficult and more costly… trade would revert to [WTO] tariff schedules.”
Jacqueline Varas, the Director of Trade Policy at the center-right think tank American Action Forum, criticized the USMCA quota for 40-45% of auto content to be made by workers earning at least $16 per hour. She said, “This rule is intended to shift auto manufacturing away from Mexico, where the average hourly wage for manufacturing workers is $2.60. Its more likely result, however, would be either to dramatically increase prices for U.S. consumers or simply cause more cars to be traded outside of the trade agreement, i.e. without tariff benefits.”
Rep. Richard Neal, the Democratic Chairman of the U.S. House Ways and Means Committee, commented in a press release, “The USMCA that the Trump Administration proposed was not enforceable and failed to make critical updates to the existing NAFTA. Democrats rejected that weak agreement and negotiated extensive improvements that make this new version of the USMCA a good deal for workers, patients, and our environment.”
Douglas Holtz-Eakin, president of the center-right think tank American Action Forum, criticized the Democrats’ changes to USMCA, saying, “For the left, the primary goal appears to be delivering targeted favors to specific constituencies: control over labor disputes to the unions, check; environmental provisions for the green wing, check; minimum wages and reduced auto competition for the auto workers, check; and so forth”
However, he added, “The choice seems to be USMCA or no trade deal at all. Given that choice, this deal, warts and all, looks like a step forward for those who favor continued efforts to open markets for U.S. trade.”
Jeff Moseley, the CEO of the Texas Association of Business, said the deal would ensure that Texas exporters have access to markets in Canada and Mexico and would reduce uncertainty around the terms of investing in those countries: “Getting this updated version of NAFTA is significant because it takes way some of the question marks about going forward in trade with Mexico and Canada… This agreement is also going to give the oil and gas sectors the ability to go in and grow jobs, helping Mexico and Canada develop their energy sector.”
