USMCA: A Brand New NAFTA

Just this Sunday (30/9), President Donald J. Trump of the United States of America announced that the government of USA, Canada, and Mexico had agreed on new revisions made in order to fix the long-established North American Free Trade Agreement, or NAFTA in short. The United States-Mexico-Canada Agreement (USMCA), according to Trump in his tweet, will “solve the many deficiencies and mistakes in NAFTA, greatly opens markets to our farmers and manufacturers, reduce trade barriers to the US and will bring all three Great Nations closer together in competition with the rest of the world.” However, it must be noted that the leaders of each country must first ratify the agreements through their respective congresses before they sign the deal in place.

What makes the USMCA different than NAFTA? A lot of major additions (and reductions) have been implemented. To boost automobile manufacturing in each country, the Country of Origin rules are now intensified. In order to receive no import/export tariffs, cars or trucks must contain 75% of their components created in Mexico, the US, and Canada. Labor provisions, intended to protect workers from the three countries and increase the wages standard in Mexico, are also put in plan. The agreement will also increase the lifespan of a copyright from 50 years after the author’s life to 70 years. The US succeeded in creating access to the Canadian dairy market - a highly complex system in which local dairy farmers are super protected with guaranteed prices and high import tariffs. On the other hand, Canadian farmers say it will have “dramatic impact”. Hence, the new trade pact will undercut the industry by limiting exports and opening up the market to more American products.

The new trade pact still contains a former dispute between US and Canada which Canada fought hard to maintain to protect its industry and other sectors from US anti-dumping tariffs. Conversely, the agreement limits the settlement of investor-state dispute to private or public sectors dominated by state firms. A US official said, carrying Chapter 19 will not affect the implementation of anti-dumping and anti-subsidy laws. Moreover, Toronto-based trade lawyer, Mark Warner, denotes that Chapter 19 may not be worth fighting for. Not only the anti-dumping cases which used to block imports, but also the setting tariffs on about US$ 46 billion in steel and aluminum imports. The so-called “Section 232” conveyed by President Donald Trump is prompting retaliatory taxes from the likes of Canada, Mexico, China and the European Union. The tariffs were delayed until June 1 for Canada, Mexico, and the European Union whereas some countries have been exempted from the tariffs. Steel prices are now more than 50% higher in the US than they are in China. As defied to current NAFTA, the new agreement does not remain in perpetuity, it is valid for 16 years at a time. As for certainty, US and Mexico agreed to convoke every six years and hold vote for treaty continuation considering another 16-year period or begin renegotiation process before the deal ceases.

Above all, responses around the region have been positive. Both Canadian Prime Minister Justin Trudeau and the President of Mexico Enrique Peña are satisfied with the new ramifications the agreement brings. For the three North American countries, the boon that comes with this new agreement will create a stronger and more detailed regulations on regional trade, as trilateral exports and imports are a very important aspect. Richard Miles, director of the US-Mexico Futures Initiative at the Center for Strategic and International Studies said that USMCA is a substantially different agreement than NAFTA. As significant as the deal is, it isn’t as huge of a deal President Trump say it is. David Fickling, in his Bloomberg Opinion article, states, “As with the revised US-South Korea deal announced last week, the achievement is declared to be historic while the changes made are cosmetic”. Helen Long, an economics correspondent for Washington Post, argues that the deal may not prove fruitful for Mexico, which has to give a lot of concessions for automobile companies and big businesses, which now have lost the Chapter 11 Regulation. And as the regional trade strengthens, the implications this deal shows the commitment of the US Government to continue domestic economics growth in facing the trade war with China.

Sources:

Business Insider

Washington Post

Vox

Bloomberg