On Friday, November 30th, at the G-20 Summit in Buenos Aires, President Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto came together to sign the new U.S.-Mexico-Canada Agreement (USMCA). The signing took place just before Peña Nieto leaves office and newly elected President Andrés Manuel López Obrador takes over.
The USCMA is replacing the North American Free Trade Agreement but will still need to be ratified by all three countries’ legislative branches before officially taking effect. In order to pass in the United States, a majority vote in each chamber of Congress will need to take place. This would ensure that the Senate could not hinder the passage of the trade pact.
The U.S. Congress will not vote on the agreement until 2019 and it’s believed that the approval process may take some time. This could mean that most of the provisions in the USMCA will not come into effect until 2020.
What’s New in USCMA
Many of the elements originally set in NAFTA will remain in the USCMA but there will also be meaningful changes to car manufacturing, agricultural products, labor regulations, intellectual property protections, and some digital trade provisions.
Some of the major tweaks to keep an eye on, include:
- Country of origin rules: The USCMA will require that all cars and trucks must have 75 percent of their parts manufactured in the three countries in order to qualify for zero tariffs. This was an increase from the 62.5 percent in NAFTA. The idea is to incentivize auto manufacturers to purchase and use more parts made in North America versus China.
- Textile provisions: New provisions will incentivize textile and apparel producers in North America while facilitating cooperation among the three countries on issues related to textiles and apparel trade.
- Labor provisions: The USCMA will require that carmakers manufacture at least 40% of their vehicles in facilities where workers earn at least US$16 an hour. Additionally, workers will be able to join collective bargaining units which will encourage the development of unions. Each country will also be able to place sanctions on the others for labor violations that negatively impact the trade.
- Exemptions from future tariffs: The trade deal has certain provisions that will exempt Canadian and Mexican governments from future tariffs imposed by the U.S. on certain vehicles and auto parts. An agreement between the U.S. and Mexico would protect both countries from tariffs on $108 billion on automotive parts and 2.6 million cars shipped across borders.
- Digital trade provisions: The USCMA has included a few provisions for digital trade including no duties for items purchased electronically and another protecting Internet companies from liability for content produced by users.
- Investors can’t sue governments: Investors from the U.S. and Canada will no longer have the ability to sue governments over policy changes. This has been restricted in Mexico but not completely eliminated.
- Section 232 tariffs will continue on: Section 232 in the NAFTA agreement has been utilized to impose steel and aluminum tariffs on Canada, Mexico, and the European Union. The USMCA will keep these in tariffs in place for now.
- Sunset clause: The terms of the USCMA will expire in 16 years and the deal will also be subject to extension review every six years.
We encourage you to visit the El Grande Group site frequently in order to obtain the latest information on the USCMA trade deal.