{“content-type”:“text/markdown”,“value”:"## What Is the USMCA?
The United States-Mexico-Canada Agreement (USMCA) is a comprehensive trade deal between the United States, Mexico, and Canada. Signed on November 30, 2018, and effective from July 1, 2020, the USMCA replaced the North American Free Trade Agreement (NAFTA), which had been operational since January 1994. NAFTA had systematically reduced tariffs on numerous goods traded among the three countries by 2008, promoting more seamless commerce.
Key Takeaways
- The USMCA establishes a free trade area between the United States, Mexico, and Canada.
- It replaced the older North American Free Trade Agreement (NAFTA).
- The deal went into effect on July 1, 2020.
- The agreement is set to expire in 2036 unless renewed for another term.
A Deep Dive into the USMCA
The USMCA aims to be advantageous for the working population, agriculture sector, automotive industry, and enterprises in North America. Comprising 34 chapters and multiple side letters, many of its provisions mirror those of NAFTA but with notable refinements:
- Stronger protection for intellectual property rights
- Enhanced labor and environmental regulations
- Streamlined dispute settlement procedures
- Updated rules of origin for the automotive sector
The agreement is set for a 16-year term, to be reviewed in 2026 to decide on its renewal for another similar period. NAFTA faced criticism for encouraging U.S. manufacturing outsourcing to Mexico, resulting in job losses and wage suppression. Thus, the USMCA aims to address these issues with more favorable terms.
Timeline of USMCA’s Formation
The groundwork for the USMCA was laid before President Trump’s tenure. President Obama had also pledged to renegotiate NAFTA but didn’t proceed. Trump campaigned for better terms, sending a 90-day notice to Congress to begin negotiations on August 16, 2017. The talks culminated on September 30, 2018. Here’s the timeline for ratification:
- June 19, 2019: The Mexican Senate ratified the agreement.
- December 12, 2019: The Senate approved the amendments.
- December 19, 2019: The U.S. House of Representatives ratified the deal.
- January 16, 2020: The U.S. Senate passed the legislation.
- January 29, 2020: President Trump signed it into law.
- March 13, 2020: The Canadian Parliament ratified the treaty.
Challenges Faced by the USMCA
The USMCA faced several obstacles, both pre and post-implementation:
- Threat of Tariffs on Mexican Imports: The U.S. considered imposing a 5% tariff on Mexican imports in June 2020 over immigration disputes. A settlement was reached by June 8, 2020.
- Canadian Aluminum Tariffs: In August 2020, the U.S. reinstated tariffs on Canadian aluminum, responding to Canada’s plan for counter-tariffs. These tariffs were suspended on October 27, 2020.
Vital USMCA Provisions
According to the Office of the United States Trade Representative, the USMCA promises mutual benefits for workers, farmers, ranchers, and businesses across North America. Some of its key provisions are highlighted below:
Dairy and Agriculture
American farmers will gain better access to Canada’s dairy market, allowing up to 3.6% tariff-free entry. Tariff-free amounts for certain poultry products will also be expanded.
Automobiles
Key regulations mandate that 75% of automotive components be manufactured within the three countries, up from 62.5% under NAFTA. Additionally, 40-45% of work on eligible vehicles must be done by employees earning at least $16 per hour.
Intellectual Property
Strengthened provisions extend copyright protections to 70 years after the creator’s death and set new rules accommodating digital trade. Tariffs on digital goods like music and e-books are prohibited, and internet companies are granted copyright safe harbor.
Sunset Provision
The USMCA features a unique provision where it will expire after 16 years unless extended. Comprehensive reviews every six years will decide its future course.
Labor
An independent panel now ensures adherence to labor laws, with Mexico committed to labor reforms easing unionization and tackling workplace violence. These measures aim to improve labor conditions in Mexico and create a level playing field in wages.
Comparing USMCA and NAFTA
Here’s a snapshot of major differences between USMCA and NAFTA:
| Aspect | NAFTA | USMCA |
|---|---|---|
| Automotive | 62.5% of parts in U.S., Mexico, or Canada | 75% of parts in U.S., Mexico, or Canada |
| Dairy | Limited market access | Enhanced U.S. access to Canadian market |
| Environment | Weak enforcement | $600 million to tackle environmental issues |
| Labor | Lax provisions | Stronger labor laws and competitive wage stipulations |
| Technology | No digital trade regulations | Robust regulations for digital goods |
Key Milestones of the USMCA
The USMCA officially took effect on July 1, 2020. The negotiation process saw key ratification steps with the U.S., Mexico, and Canada governments finalizing their approval by early 2020. The agreement aims to usher in more equitable trade compared to NAFTA, with prominent benefits for American workers.
Differences Between USMCA and NAFTA
The USMCA seeks to extend and improve upon NAFTA’s terms, focusing on several critical aspects such as improved U.S. and Canadian dairy market access, robust labor laws preventing job relocations for cheaper labor costs, and increased regional automotive component production mandates.
The Duration of the USMCA
As per the agreement, the USMCA will be reviewed in July 2026, six years after its implementation, to decide on a possible 16-year extension.
In Conclusion
Free trade agreements like the USMCA facilitate the reduction or elimination of trade barriers and tariffs, streamlining the trade of goods and services. While NAFTA laid the groundwork for such initiatives in North America, the USMCA aims to incorporate more favorable terms for the region’s workers, farmers, and businesses. Slated for its first review in 2026, the deal has the potential for extension well beyond its initial 16-year lifespan.
Related Terms: NAFTA, Free Trade Agreement, Trade Policy, Economic Integration.
References
- Office of the United States Trade Representative. “United States-Mexico-Canada Agreement”.
- Congressional Research Service. “U.S.-Mexico-Canada (USMCA) Trade Agreement”. Page 1 and 2.
- Office of the United States Trade Representative. “North American Free Trade Agreement (NAFTA)”.
- International Trade Administration. “USMCA”.
- Congressional Research Service. “U.S.-Mexico-Canada (USMCA) Trade Agreement”, Page 1.
- Economic Policy Institute. “NAFTA’s Impact on U.S. Workers”.
- The American Presidency Project. “Press Release - Barack Obama’s Changing Positions: Everyone’s Been Listening To Him”.
- Congressional Research Service. “NAFTA and the United States-Mexico-Canada Agreement (USMCA)”, Page 1.
- Office of the United States Trade Representative. “USTR Robert Lighthizer: USMCA Ratification By Mexico ‘Crucial Step Forward’”.
- U.S. National Archives and Record Administration. “Conforming Amendments Related To Temporary Entry of Business Persons Under the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA)”.
- Office of the United States Trade Representative. “Ambassador Lighthizer Statement on Canada’s Approval of the USMCA”.
- Wall Street Journal. “U.S., Mexico Reach Deal to Avoid Tariffs”.
- Wall Street Journal. “Trump Threatens Tariffs on Mexican Imports In Response To Migrant Surge.”
- New York Times. “Trump Reinstates Tariff on Canadian Aluminum”.
- BBC. “U.S. Backs Off Canadian Aluminium Tariffs”.
- Office of the United States Trade Representative. “UNITED STATES–MEXICO–CANADA TRADE FACT SHEET Agriculture: Market Access and Dairy Outcomes of the USMC Agreement”,
- Undersecretary for North America. “United States – Mexico – Canada Agreement (USMCA) Sunset Clause Review and Term Extension”.
- Office of the United States Trade Representative. “United States-Mexico-Canada Agreement, Chapter 23: Labor”, Pages 1, 4-11, 16-18.
