USMCA: What to expect from NAFTA 2.0

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By Danielle Minnett

BOLOGNA, Italy — On September 30, just before midnight, the U.S. and Canada struck a

chuttersnap-255216-unsplash — Photo by chuttersnap on Unsplash

deal to include Canada on a revised North American trade deal called the United States-Mexico-Canada Agreement (USMCA). With the 14-month negotiation period concluded, leaders of the three countries must now sign the agreement and seek approval from their respective legislators.

Many contentious elements of NAFTA did not result in change. Chapter 19, which gives members the right to challenge anti-dumping and countervailing duties in front of an independent panel, remains. U.S. tariffs on steel and aluminum imports also persist. Yet, the deal did include a number of updates:

New regulations for the auto industry: At least 75 percent of a vehicle’s inputs will need to be manufactured in North America in order to qualify for zero tariffs, an increase from the current minimum of 62.5 percent. Furthermore, workers earning at least $16 an hour must make up 40 to 45 percent of a vehicle’s manufacturing process by 2023. Finally, Canada will largely avoid national security tariffs on U.S. automobile imports under Section 232.

Investor-state dispute settlement (ISDS) scale back: NAFTA’s arbitration mechanism, which gave investors a platform to sue governments for discriminatory practices, will be phased out. Going forward, ISDS will only be available for investments within the oil and gas, energy, transportation and telecommunications sectors in Mexico.

Higher duty-free allowances: Canadian consumers will be able to order CAD$150 of goods from the U.S. without paying duties, and CAD$40 without paying provincial sales taxes, an increase from the current CAD$20 value. Mexico will also increase their duty-free cap from $50 to $117.

Increased Canadian dairy market access: U.S. dairy farmers will receive tariff-free access to 3.6 percent of Canada’s dairy sector. Canadian dairy manufactures will also loose artificial incentives under the Class 6 and 7 dairy pricing programs.

Strengthened intellectual property protections: Copyright protection in Canada will increase from the lifespan of the creator plus an additional 50 years to an additional 70 years. The agreement also extends data protection for new biologic drugs an additional two years.

New obligation to inform members of trade agreements with non-market countries: Members must be notified in advance should one party reach a trade deal with a non-market economy. After reviewing the potential agreement, dissatisfied members are able to provide six months’ notice and exit the USMCA. This specification applies to any country that has been labelled a non-market economy by at least one USMCA member.

Currency transparency requirements:

Obligations to report monetary policy and to commit to market-determined exchange rates will be included in the core, legally enforceable, text of the agreement. Failure to meet transparency requirements will be subject to the USMCA’s dispute settlement mechanism.

Sunset clause: The USMCA will expire in 16 years and the agreement will be open to review every six years.

The agreement is anticipated to be signed before the end of November while Enrique Peña Nieto is still in office. Canada and Mexico are both expected to ratify the agreement; however, the U.S. midterm elections may cause uncertainty as to whether Congress will approve the deal. If the USMCA does not obtain a majority endorsement, it may force negotiators back to the table.