Just the Facts

Five facts on the United States-Mexico-Canada Agreement

By No Labels
October 1, 2018 | Blog

In late August, President Trump announced that the U.S. and Mexico had come to a preliminary agreement on a revised framework to succeed the new North American Free Trade Agreement (NAFTA) deal. But it was still unclear of this new framework would include Canada, until last night when the U.S. and Canada reached a last minute agreement. Here are five facts on the newly named “United States-Mexico-Canada Agreement” (USMCA).

THE ORIGINAL NAFTA WAS SIGNED BY PRESIDENT GEORGE H.W. BUSH IN DECEMBER 1992

Talks on NAFTA began in 1990 when President Bush and Mexican President Salinas de Gortari ordered talks to begin on a free-trade deal between the two countries. The U.S. and Mexico were joined by Canada in 1991, which paved the way for three-way negotiations. The deal eliminated most tariffs on trade between the three countries and created the largest free-trade area in the world.  While NAFTA has had its critics, many of whom claim it has sent U.S. jobs down to Mexico, it has also helped to increase trade between the three countries by 390%.

On August 27, Mexico and the U.S. announced their version of the trade deal

On a call with reporters, U.S. Trade Representative Robert Lightizer outlined several key provisions of the Mexico only deal; these provisions though have mostly been carried over into the final version that includes Canada. If the deal is passed by Congress it will include several new requirements including a notable one on cars: For an automobile to qualify for tariff-free status between the two countries, 75% of its parts must be produced in the U.S. or Mexico — under the current NAFTA agreement, only about 62% of parts are required to be produced in the U.S., Mexico or Canada.  In addition, the new deal would require that 40% to 45% of auto parts in cars sold in North America be made by workers earning at least $16 USD per hour. Finally, the deal has several provisions designed to address the current deficiencies when it comes to digital commerce.

ON SEPTEMBER 31, PRESIDENT TRUMP ANNOUNCED THE FINALIZATION OF THE USMCA AS A RESULT OF LAST-MINUTE CONCESSIONS BY CANADA

Under the deal, Canada will give U.S. dairy farmers access to 3.5 percent of Canada’s $16 billion-a-year dairy market. In turn, the U.S. agreed to keep intact the system that allows the countries to rely on an independent body to resolve disputes; this provision is known as Chapter 19. Trump’s 25 percent steel tariffs also remain intact, restrictions Trudeau earlier called “insulting and unacceptable.”

Vehicles, machinery and agricultural products make up much of the goods traded between the countries.

Because of this, the largest new requirements in the USMCA affected these industries the most. The trade deal that Mexico and the U.S. had previously agreed to now contains the updated arrangements that Canada required. As a protection for their car industry, Canada and Mexico have a quota of 2.6 million cars they can export to the U.S. if the U.S. imposes a 25% global tariff on car imports. Canada also secured protection from U.S. anti-dumping tariffs through the preservation of a dispute-settlement mechanism.

Despite the countries reaching their self-imposed deadline, there are still many hurdles to be cleared before it can go into effect.

The text of the deal was released prior to midnight on September 30 in order to comply with a congressional notification requirement; the leaders of the U.S., Canada and Mexico, are expected to sign the new treaty within 60 days. But the agreement must still win ratification by the U.S. Congress, which administration officials say may not happen this year. And passage could also be further complicated if the balance of power changes in Congress. The new USMCA is intended to last 16 years, but will be reviewed every six years by the three countries to decide whether to renew.

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