NAFTA 2.0/U.S. – Mexico – Canada Agreement (USMCA)
With the signing of the U.S.-Mexico-Canada Agreement (USMCA) by the three largest countries in North America, work on the review and approval process begins. Mexico President Enrique Peña Nieto is expected to sign the agreement before leaving office Dec. 1, and the U.S. House and Senate will begin debating adoption when the 116th Congress convenes on Jan. 3, 2019, following the November mid-term elections.
If approved, most provisions of USMCA will not go into effect until 2020. According to its terms, the agreement must be reviewed after six years and can then be implemented for another 10 years. The agreement sunsets after 16 years. However, if any of the countries sign a trade deal with a “non-market” economy (i.e., China), they may be removed from USMCA.
According to NAFEM’s legal team at Barnes & Thornburg, here are the key things to know about USMCA:
- Section 232 tariffs on Mexican- and Canadian-produced steel and aluminum will remain in place, but the U.S. agreed to no Section 232 tariffs for automobiles and auto parts. However, to quality for zero tariffs, the automobile must now have 75 percent of its components from a USMCA country (up from 62.5 percent in NAFTA). Also, auto work must be completed by 30 percent of workers earning at least $16/hour, which increases to 40 percent by 2023.
- USMCA expands U.S. agricultural market access for the dairy, poultry and egg industries.
- Recognizing the digital economy, USMCA addresses digital trade, baring duties on e-books and electronic transactions, and increasing intellectual property for biologic drugs manufactured using living microorganisms, plants or animal cells.
- Anti-dumping dispute resolution provisions from NAFTA remain in USMCA, while the investor-state dispute settlement process has been eliminated with Canada and significantly minimized with Mexico.
Although it’s too soon to determine specific implications for NAFEM members, the National Association of Manufacturers (NAM) sees the agreement as positive, providing the following statement from President Jay Timmons:
“Manufacturers are extremely encouraged that our call for a trilateral agreement between the United States, Canada and Mexico has been answered. Today, there’s a massive amount of goods flowing across North America, meaning our countries’ economies are inextricably linked. What’s more, as the United States works to put an end to China’s cheating and unfair trade practices, we are better off united with our North American allies. We welcome the administration’s efforts to modernize this agreement and to create more opportunities for American manufacturing workers. As we review the agreement text, we will be looking to ensure that this deal opens markets, raises standards, provides enforcement and modernizes trade rules so that manufacturers across the United States can grow our economy.”