USMCA expected to replace NAFTA

After a year of intense negotiation that seemed at times both fruitless and dangerous, the United States, Canada and Mexico reached an agreement Sunday night, avoiding a deadline by just hours. The USMCA brings sweeping changes to cars and parts, dairy and agriculture, labor, and a new “sunset” clause that requires the agreement to be renegotiated every six years. As NAFTA was agreed to in 1994, there are enormous technology advances that couldn’t be conceived of at its inception. This agreement looks to be more amenable to changes and updates as time passes, growing and evolving as individual countries change.

Auto and labor updates go hand in hand as Canada and the US seek to bring Mexico’s work force closer to equal wages. Under the USMCA, cars must have 75% of their components made by US Canada or Mexico to be eligible for free trade, in hopes to draw more auto parts from “domestic” sources and reduce the reliance on cheaper parts from Asian manufacturers. NAFTA required only 62.5% domestic parts. Another change focuses on the labor required to produce auto parts, stepping their pay up from 30% of workers making $14/hr by 2020 to 40% of  workers making at least $16/hr by 2023. While most agree these points will help reduce the flow of jobs out of the US and Canada to exploit cheap labor in Mexico, there’s a risk of car prices climbing to cover the added costs.

Canada finally relented in the case of dairy imports, allowing the US to increase their market share to 3.6%. The heavy regulations come from the Canadian government’s caution over farmers facing overly hostile competition that could negatively impact the trade of dairy, poultry and eggs from outside sources. The issue was a tough sticking point for both the US and Canada, threatening more than once to derail negotiations during the process. Additionally, the USMCA stipulates that Mexican trucks that travel into the United States must meet higher safety regulations; that Mexican workers must have more ability to organize and form unions; and female workers should be protected from from discrimination and hostile work environments. While there is a question about how these issues will be enforced, they are praised as long overdue for the countries involved.

The aluminum and steel tariffs will remain in place, but a side agreement is in the works to negotiate those outside the USMCA. Further negotiations under the USMCA are handled via Chapter 19 which gives the countries a way to challenge anti-dumping duties in front of a panel of representatives from each country instead of working through the courts in each country, significantly easing the process. Chapter 11, which gave the right to investors to use the dispute process against the governments, is essentially null. Chapter 11 was in place to allow those who invested deeply to have recourse if the government changed the rules around their industry. While energy and telecom industries will be able to use this instance, it’s severely limited.

Though the USMCA has been agreed upon, the nations still need to accept and ratify the agreement before it goes into full effect and it will still be years before the full impact is felt.

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