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Saturday, February 4, 2023

USMCA Replaces NAFTA

USMCA Replaces NAFTA.   

The new deal will be known as the United States-Mexico-Canada Agreement, or USMCA. It won’t go into effect right away. Most of the key provisions don’t start until 2020 because leaders from the three countries have to sign it and then Congress and the legislatures in Canada and Mexico have to approve it, a process that is expected to take months.

The goal of the new deal is to have more cars and truck parts made in North America. Starting in 2020, to qualify for zero tariffs, a car or truck must have 75 percent of its components manufactured in Canada, Mexico or the United States, a substantial boost from the current 62.5 percent requirement.

Starting in 2020, cars and trucks should have at least 30 percent of the work on the vehicle done by workers earning $16 an hour, or about three times what the typical Mexican autoworker currently makes. That gradually moves up to 40 percent for cars by 2023.

While many economists think these new rules will help some North American workers, they also warn that car prices might rise and some small cars may no longer be made in North America because they would be too expensive under the new requirements.

The new agreement will come with improved labor and environmental rights, making a number of significant upgrades to environmental and labor regulations, especially regarding Mexico. For example, the USMCA stipulates that Mexican trucks that cross the border into the United States must meet higher safety regulations and that Mexican workers must have more ability to organize and form unions. Some of these provisions might be difficult to enforce, but the Trump administration says it is committed to ensuring these happen — a reason labour unions and some Democrats are cheering the new rules.

Mexico and Canada also get assurance Trump won’t pound them with auto tariffs. Trump has repeatedly threatened to slap hefty tariffs on car and vehicle parts coming from overseas into the United States. Along with the new trade deal, his administration signed “side letters” allowing the two nations to mostly dodge Trump’s auto tariffs.

The side letters say Canada and Mexico can continue sending about the same vehicles and parts across the border free of charge, regardless of whether auto tariffs go into effect down the road. Only parts above that quota could face tariffs.

Canada will somewhat open up its milk market to U.S. farmers. Trump tweeted often about how unfair he thought it was that Canada charged such high tariffs on U.S. dairy products. To ensure Canadian dairy farmers don’t go bankrupt, the Canadian government restricts how much dairy can be produced in the country and how much foreign dairy can enter to keep milk prices high. Trump didn’t like that, and dairy was a major sticking point in the negotiations. In the end, Canada is keeping most of its complex system in place, but it is giving greater market share, 3.5%, to U.S. dairy farmers.

The USMCA stipulates the three nations will review the agreement after six years. If all parties agree it’s still good, then the deal will continue for the full 16 year period (with the ability to renew after that for another 16 years). This was a compromise provision: Trump wanted ability to renegotiate the deal frequently.

Canada, for some reason, sold out Intellectual Property.  Now Canadian businesses will have to get even more creative to retain their IP value. 

How did business react to the USMCA news?   The US stock exchange rose 300 points, Canada’s stock exchange rose 30.  Positive, but about all that was accomplished is we get to keep most of our jobs.   

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