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There is a lot to digest in the new trade agreement that the United States, Mexico and Canada finalized on Sunday, starting with a name change: if the new agreement is adopted by the three countries, the Agreement North American free trade will give way to US-Mexico-Canada or USMCA agreement
It is an aesthetic change for a set of otherwise significant revisions.
"It's not Nafta redone, it's an unprecedented deal," President Trump told the White House on Monday.
The text of the pact, released late Sunday, includes major adjustments in several key areas of countries' trade relations. The agreement establishes new rules for auto production, aimed at encouraging the production of cars and trucks in countries that pay higher wages. It reduces barriers to US dairy farmers selling cheese, milk and other products to Canada. It retains a court for the settlement of trade disputes that the United States has attempted to eliminate.
It gives Canadian and Mexican manufacturers greater access to some major US markets, such as cars and light trucks, but raises doubts about their ability to avoid tariffs on steel and aluminum exports in the USA.
Here are the highlights of the text of the agreement and the 12 "coaching letters" that countries have negotiated alongside.
An attempt to direct more car production in the United States
Nafta required automakers to produce 62.5% of the contents of a vehicle in North America to qualify for zero rates. The new agreement raises this threshold to 75%. This is intended to force builders to buy fewer parts for a "Assembled in America" car (or Canada) from Germany, Japan, South Korea or China.
For the first time, the new agreement also provides that an increasing percentage of parts for any vehicle exempt from customs duties – exceeding 40% in 2023 – must come from a so-called "high-wage" factory ". The agreement states that these factories must pay at least $ 16 an hour in average wages for production workers. That's about triple the average wage in a current Mexican plant, and administration officials hope this provision will force builders to move their suppliers from Mexico to Canada or the United States.
There are risks to this change. Auto industry analysts have warned that this provision could have a damaging effect. effect for Americans, by increase costs for US car buyers and encourage automakers to move their production to low-cost countries other than the United States, like China.
Conversely, the final disposition, as it is written, could prove relatively ineffective to alter production because it is not indexed to inflation. An average salary of $ 16 / hour in 2023 dollars will be less compelling than today.
Reduced future car rates in Canada and Mexico
Over the past year, Mr. Trump has repeatedly threatened to impose tariffs on imported automobiles. At a press conference last week, he suggested that Canada would face such tariffs if it did not reach an agreement with the United States on a new trade deal. The Trump administration has begun a survey that could lead to auto rates, but it seems unlikely that it will end in the near future. The threat of auto tariffs has clouded trade negotiations with several countries, including Japan and South Korea, which import cars and auto parts into America.
Canada and Mexico will not need to do this. The new agreement includes accompanying letters granting exemptions from any future US tariff to 2.6 million passenger vehicles imported from each of these countries. It's a few more vehicles than Mexico exported to the United States in the last year and nearly 1 million more than Canada exported.
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Victories for American cheese (and wine)
Perhaps the most difficult part of last month's negotiations was the issue of Canada's protection of the dairy market, including restrictions on dairy products imported from the United States and government support for Canadian products. advantage in international markets over US products.
"Dairy products have been a decisive factor," Trump said on Monday.
The new deal gives the United States victories on both fronts. It is gradually opening up the Canadian market to more American dairy products exported, including "fluid milk, cream, butter, skim milk powder, cheese and other dairy products". Canada has agreed to eliminate a program that helps Canadian sellers of certain dairy products at home. and abroad.
A victory for Canada on the settlement of disputes
Trade agreements usually involve enforcement mechanisms. As part of its renegotiation efforts, the United States sought to eliminate one of these Nafta the so-called Chapter 19 provision, which gives the three countries a sort of neutral gambling site – a panel with representatives from each country – to challenge the mutual imposition of tariffs and other actions.
Canada won the battle to maintain this provision in the revised agreement. It has agreed to eliminate another form of enforcement between the United States and Canada, which allows investors to sue for relief from foreign countries. Consumer groups have long criticized this resolution mechanism, claiming that it allowed big business to challenge environmental and other regulations. The new agreement leaves this mechanism in place for disputes between the United States and Mexico, but not for Canada.
Goodies for unions, banks and pharmaceutical companies
Among other things, the new agreement provides for a move to encourage Mexico to facilitate the formation and membership of workers in unions, measures to allow US financial services companies to have better access to the Canadian and Mexican markets, and a intellectual property protections of US pharmaceutical companies selling prescription drugs in Canada.
This latter provision will provide longer protections for US biologics, against biosimilar competitors, and will likely increase the profits of these manufacturers when they sell in Canada.
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