Top 3 Things to Know About the New NAFTA Deal
After a year plus of negotiation the U.S., Canada and Mexico have agreed on a revamped version of NAFTA called the USMCA.
While the nation was consumed with the confirmation of Brett Kavanaugh to the Supreme Court, President Trump reached a trade deal with Mexico and Canada to replace NAFTA. The deal is named the United States-Mexico-Canada Agreement or USMCA for short, some are also calling it NAFTA 2.0.
Most of the new USMCA policies won’t likely go into effect until 2020, as leaders from all three countries have to sign it and legislatures in Canada and Mexico will have to approve it.
So what is in the new deal, who benefits and at what cost?
Here are the top three changes USMCA makes to North American trade.
1. The Auto Industry
Some of the most significant changes that have come out of the new trade deal are in the automotive industry. Previously, car companies were required to manufacture a minimum of 62.5 percent of their vehicle’s components in Mexico, the United States, or Canada. Under USMCA, that minimum was increased to 75 percent.
Similarly, 30 percent of the vehicle has to be manufactured by workers who make a minimum of $16 per hour. In 2023, that figure will rise to 40 percent. Any vehicle that does not rise to these minimum standards will be subjected to tariffs. While the deal will likely increase U.S. jobs for cars produced for the North American market, it is likely to reduce jobs in the U.S. for cars that are meant for the Chinese market.
The increased labor costs could also increase consumer cost for vehicles purchased in North America. As part of the deal, Mexico and Canada will be spared American auto tariffs in the future.
2. Canadian Dairy
Canada has long vigorously protected its own dairy market, by setting limits in Canada for American dairy imports. Additionally, the Canadian government supports the nation’s dairy industry, dramatically impacting American dairy producers ability to compete in a global market. Dairy was one of the most contentious issues in the trade negotiations between the United States and Canada.
Under the USMCA, Canada will gradually open their dairy market to American dairy products. Exports from the U.S. to Canada of “fluid milk, cream, butter, skim milk powder, cheese, and other dairy products” will be permitted. Additionally, Canada will stop the government programs that support some dairy product production, making the global market more competitive for American producers. The agreement also lists cheeses that can be sold in Mexico and the United States without any restrictions.
3. Resolution of Disputes
The United States delegation went into negotiations with a desire to eliminate a key enforcement provision that existed within NAFTA. The chapter 19 provision of NAFTA made for level ground between the three nations when addressing disputes between them. The provision provided that there would be a panel with representatives from each North American nation when a trade dispute arose between them. Despite the U.S. interest in forgoing the provision, Canada insisted and so the provision was included in USMCA.
Also, chapter 11 of NAFTA, which gave companies a special process to challenge governments and resolve disputes, has been eliminated for the United States and Canada, and significantly limited between the United States and Mexico. A few key industries including oil, energy and telecommunications retained Chapter 11 privileges.