The USMCA was signed at the G20 summit this weekend - with two big changes you need to be aware of. Find out what the new NAFTA will mean for Canadian trade and business.
The United States-Mexico-Canada Agreement (USMCA) was signed as a replacement to NAFTA last Friday (November 30) at the G20 summit in Buenos Aires, Argentina.
The trade agreement that aims to replace NAFTA has been referred to by a few different names - including Canada-United States-Mexico Agreement (CUSMA) by the Canadian government, Tratado México Estados Unidos Canadá (TMEUC) by the Mexican government, and simply T-MEC by the Mexican media.
A largely ceremonial signing
Mexican's new leader Andrés Manuel López Obrador was sworn into office over the weekend - and he might have different ideas about the agreement than his predecessor.
Negotiations over the new NAFTA have been going on for over a year. The signing at the G20 is largely ceremonial as it will still need to be ratified by all three countries before it is formally in effect. This is not expected to happen until next year - and it may still be challenged by the respective governments of each countries.
What's changed for the new NAFTA at the G20 summit?
800,000 additional tariff-free automotive imports for Canada
Canada has signed a side letter with the U.S. on automotive imports that's effective immediately. A side letter is a one-on-one provision related to, but not formally part of the trade agreement.
Canada will now be able to export up to 2.6 million passenger vehicles into the U.S. without tariffs.
These 2.6 million vehicles will also not be bound to the original tariff-free provisions in the USMCA text with its continental content and labour requirements.
The previous tariff-free limit for Canadian automotive imports was 1.8 million vehicles. Scotiabank Economics predicts that Canada will not reach the new limit until at least a decade from now as vehicle production in Canada declines along with consumer demand.
Watered down sexual orientation, gender identity and labour rights
The original text of the USMCA stated that all three countries will support “policies that protect workers against employment discrimination on the basis of sex, including with regard to pregnancy, sexual harassment, sexual orientation, gender identity.”
The final agreement has watered this down saying that the signatories will implement policies each “considers appropriate to protect workers against employment discrimination on the basis of sex.”
A footnote says that American federal hiring policies “are sufficient to fulfil the obligations” on labour rights, and “thus requires no additional action” by the U.S.
There has previously been some resistance from Republican congressmen regarding any wording on sexual orientation gender identity in the trade agreement.
What did the U.S. and Canada previously agree on?
As previously reported by OMX, the trade agreement between the U.S. and Canada features the following:
In terms of agriculture
Canada will reduce dairy protections, providing the U.S. greater access to about 3.6% of its current dairy market. Canada will also provide the U.S. with greater access to its chicken, turkey, and eggs markets.
Interested in more about the dairy and agriculture changes, and why Quebec farmers are so angry? Read more here.
In terms of auto manufacturing
The U.S. has agreed that there will be no hard limit on Canadian auto exports to the U.S.
The White House had previously threatened Canada with national security tariffs that would add 20-25% duties on cars and auto parts imported into the U.S.
If global national security tariffs are imposed, Canada will also be included. However, Canada will still be able to export cars and parts tariff-free up to a certain amount - although the precise number of cars or parts that will be allowed is still unclear.
Experts say that Canada is unlikely to exceed this cap. "Pure free traders in both countries will go crazy, but in practical terms I don't see how the automakers come off any worse," said Dan Ujczo, a leading Canada-U.S. trade lawyer who represents clients in the auto industry, to the CBC.
According to the United States trade representative, Canada exported $71 billion in car and parts to the U.S. last year.
In terms of steel and aluminium tariffs
Canada did not win any relief regarding the 25% steel and 10% aluminium tariffs imposed earlier in the year. Canada had imposed counter-tariffs of $16.6 billion on the U.S. involving goods such as bourbon and playing cards.
Canada produces about 5% of the world's steel and 1% of the world's aluminum. Canada exported about $24 billion in steel and aluminum to the U.S. last year.
In terms of dispute resolution
Canada claims a major victory as Chapter 19 remains unchanged.
Chapter 19 is the section of NAFTA that allows companies to request arbitration if they believe there has been unfair anti-dumping or countervailing duties. There has been a long history of U.S. resistance to the idea - going back to Canada's first trade deal with the U.S. in the 1980s.
However, Chapter 11, regarding investor-state dispute settlements, will be phased out, allowing businesses to sue governments at special tribunals.
What did the U.S. and Mexico previously agree on?
The agreement between the United States and Canada builds on the previous U.S. deal with Mexico in August.
The U.S. and Mexico agreed to updates to provisions surrounding the digital economy, automobiles, agriculture, and labor unions. American companies being able to operate in Mexico and Canada without tariffs - seen as a core of the trade pact - remains unchanged.
The biggest change surrounds automobile manufacturing with the aim of bringing car production back to the U.S. from Mexico. These changes include:
- Car companies are now required to manufacture at least 75% of an automobile’s value in North America under the new rules, up from 62.5 percent, to qualify for Nafta’s zero tariffs.
- Car companies will be required to use more local steel, aluminium, and auto parts
- 40 - 45% of the car must be made by workers earning at least $16/hour