In a last minute agreement, the United States, Canada and Mexico have come to terms on the renegotiation of their tri-lateral trade agreement, now called USMCA (United States Mexico Canada Agreement). While hailed as a great victory, the repackaging of NAFTA maintains most of the integrity of the original while updating the twenty-year-old agreement to include some digital protections, labor protections and a sunset clause for renegotiation after six years.
The USMCA brings new country of origin rules stating that cars must be manufactured with 75% of their components made in the US, Canada and Mexico to be eligible for free trade, an increase of 12.5% over NAFTA’s 62.5% requirement. The change is expected to reduce the import of less expensive parts from Asia and may drive up the price of cars moving out of Mexico and into the United States.
Quick on the heels of the auto changes, the USMCA requires 40-45% of auto components be made by workers paid at least $14/hr by 2023. Mexico is required to allow real union representation to their workers and extend protections to migrant workers, the latter of which will benefit workers from Central America. Further protections are required for women workers to avoid discrimination and hostile work environments – a definite win for the work force in Mexico. All three countries will be able to sanction the others for any labor violations that occur.
Perhaps the most crucial debate point was the opening of the Canadian dairy market to US exports. According to CNBC, “The deal includes a small reduction in protectionism for Canada’s dairy farmers. Under the new USMCA, American dairy producers will have access to 3.59% of Canada’s dairy market — slightly higher than the 3.25% they would have gotten had the US signed the Trans Pacific Partnership [TPP].”
Considering the age of NAFTA and explosion of the internet and digital technologies, guidelines for regulation across trade agreements have been sorely lacking. Primarily intellectual property protections have been extended from life of the author +50 years to life +70 years and a resolution that internet companies aren’t responsible for the content posted upon them. The intellectual protection extends to biologics, which are now granted 10 years of protection instead of 8, before generics are allowed.
Other notable changes
- Investors can no longer sue governments over health or environmental limitations under the USMCA.
- The USMCA requires the transportation sectors to streamline the flow of cargo with digital documentation and electronic logging.
- A side negotiation that isn’t included in the USMCA is expected to deal with aluminum and steel tariffs that aren’t included in the original agreement.
We at Nelson International will continue to monitor developments and update as they become public. Please feel free to reach out to your representative if you have questions or concerns.