21-Dec-2019: United States-Mexico-Canada Agreement — the replacement for NAFTA

The House of Representatives has passed the United States-Mexico-Canada Agreement — the replacement for NAFTA, or the 1994 North American Free Trade Agreement. The new deal includes stronger labor and environmental provisions. American labor groups have backed the new trade deal.

It’s basically NAFTA 2.0, with major changes on cars and new policies on labor and environmental standards, intellectual property protections, and some digital trade provisions. The changes include:

• Country of origin rules: Automobiles must have 75% of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (up from 62.5 percent under NAFTA).
• Labor provisions: 40 to 45 percent of automobile parts have to be made by workers who earn at least $16 an hour by 2023. Mexico has also agreed to pass laws giving workers the right to union representation, extend labor protections to migrant workers, and protect women from discrimination. The countries can also sanction one another for labor violations.
• US farmers get more access to the Canadian dairy market: The US got Canada to open up its dairy market to US farmers, which was a big issue for Trump.
• Intellectual property and digital trade: The deal extends the terms of copyright to 70 years beyond the life of the author (up from 50). It also extends the period that a pharmaceutical drug can be protected from generic competition.
• It also includes new provisions to deal with the digital economy, including prohibiting duties on things like music and e-books, and protections for internet companies so they’re not liable for content their users produce.

Sunset clause: The agreement puts in a 16-year “sunset” clause — meaning the terms of the agreement expire, or “sunset,” after a set period of time. The deal is also subject to a review every six years, at which point the US, Mexico, and Canada can decide to extend USMCA.

NAFTA is the initialism for the North American Free Trade Agreement, an agreement signed by Canada, Mexico, and the United States that reduced or eliminated trade barriers in North America. (Since the U.S. and Canada already had a free trade agreement (signed in 1988), NAFTA merely brought Mexico into the trade bloc.)

Negotiations for the trade agreement began in 1990 under the administration of George H.W. Bush and were finalized under Bill Clinton’s presidency in 1993. The agreement went into effect on January 1, 1994.

In 1993 the European Union (EU) created a “single market”—one territory without any internal borders or other regulatory obstacles to the free movement of goods and services. This allowed every country and business in the EU to have access to more than 500 million consumers. NAFTA, which was approved that same year, was designed to have a similar effect, providing a way to allow the exchange of goods and services to flow more freely across national borders without the artificial restrictions. NAFTA provided for progressive elimination of all tariffs on any goods qualifying as North American. The deal also sought to protect intellectual property, establish dispute-resolution mechanisms, and, through corollary agreements, implement labor and environmental safeguards.

NAFTA was controversial when first proposed, mostly because it was the first [free trade agreement] involving two wealthy, developed countries and a developing country. Some people felt that allowing free trade with a developing country provides an incentive for U.S-based business to move their operations to that country.

Since its implementation NAFTA has remained a prime target of trade protectionists (those who advocate taking measures such as taxing imports to “protect” domestic industries from foreign competition).