United States–Mexico–Canada Agreement
|Drafted||30 September 2018|
|Signed||30 November 2018|
|Location||Buenos Aires, Argentina|
|Effective||Not in force|
|Condition||Ratification by all signatories|
|Expiration||16 years after entry into force (renewable)|
The Agreement between the United States of America, the United Mexican States, and Canada is a signed but not ratified free trade agreement between Canada, Mexico, and the United States. It is referred to differently by each signatory—in the United States, it is called the United States–Mexico–Canada Agreement (USMCA); in Canada, it is officially known as the Canada–United States–Mexico Agreement (CUSMA) in English (though generally referred to as "USMCA" in English-language Canadian media)[original research?] and the Accord Canada–États-Unis–Mexique (ACEUM) in French; and in Mexico, it is called the Tratado entre México, Estados Unidos y Canadá (T-MEC). The agreement is sometimes referred to as "New NAFTA" in reference to the previous trilateral agreement it is meant to supersede, the North American Free Trade Agreement (NAFTA).
The Agreement is the result of a 2017–2018 renegotiation of NAFTA by its member states, which informally agreed to the terms on September 30, 2018, and formally on October 1. The USMCA was signed by United States President Donald Trump, Mexican President Enrique Peña Nieto, and Canadian Prime Minister Justin Trudeau on November 30, 2018 as a side event of the 2018 G20 Summit in Buenos Aires. Each country's legislature still must ratify the agreement.
Compared to NAFTA, USMCA increases environmental and labour regulations, and incentivizes more domestic production of cars and trucks. The agreement also provides updated intellectual property protections, gives the United States more access to Canada's dairy market, imposes a quota for Canadian and Mexican automotive production, and increases the duty free limit for Canadians who buy U.S. goods online from $20 to $150.
- 1 Background
- 2 Negotiations
- 3 Provisions
- 4 Signature and pending ratification
- 5 Reaction to the USMCA
- 6 See also
- 7 References
- 8 External links
The United States–Mexico–Canada Agreement is based on the North American Free Trade Agreement (NAFTA) which originally came into effect on January 1, 1994. The present agreement was the result of more than a year of negotiations including possible tariffs by the United States against Canada in addition to the possibility of separate bilateral deals instead.
During the 2016 U.S. presidential election, Donald Trump's campaign included the promise to re-negotiate NAFTA, or cancel it if re-negotiations were to fail. Upon election, President Trump proceeded to make a number of changes affecting trade relations with other countries. Withdrawing from the Paris Agreement, ceasing to be part of negotiations for the Trans-Pacific Partnership, and significantly increasing tariffs with China were some of the steps he implemented, reinforcing that he was serious about seeking changes to NAFTA. Much of the debate surrounding the virtues and faults of the USMCA is similar to that surrounding all free trade agreements (FTAs), for instance, the nature of FTA's as public goods, potential infringements of national sovereignty, and the role of business, labor, environmental, and consumer interests in shaping the language of trade deals.
The formal negotiation process began on May 18th, 2017 when the United States Trade Representative, Robert Lighthizer, notified Congress that he intended to renegotiate NAFTA starting in 90 days. In accordance with Trade Promotion Authority statutes, the USTR releases its key negotiating objectives document on July 7, 2017. Negotiations began on August 16th, 2017 and continued with eight formal rounds of talks until April 8, 2018. Lacking any resolution, Lighthizer stated on May 2, 2018, that if no deal was reached by the end of the month, negotiations would be halted until 2019. This statement was motivated by the pending change of government in Mexico, in which the then-incoming President, Andres Manuel Lopez Obrador, disagreed with much of the negotiated language and might be unwilling to sign the deal.
Separately, on May 11, 2018, Speaker of the House Paul Ryan set May 17 as a deadline for Congressional action. This deadline was disregarded and the deal with Mexico was not reached until August 27, 2018. At this time Canada had not agreed to the presented deal. Because Mexico’s outgoing president, Enrique Peña Nieto, left office on December 1, 2018, and 60 days are required as a review period, the deadline for providing the agreed text was the end of September 30, 2018. which was reached precisely on September 30. Negotiators worked around the clock and completed the agreement less than an hour before midnight of that date on a draft text. The next day on October 1, 2018, the USMCA text was published as an agreed-to document. The agreed text of the agreement was signed by leaders of all three countries on November 30, 2018 as a side event to the 2018 G20 summit in Buenos Aires, Argentina. The draft is still subject to "legal review for accuracy, clarity, and consistency"[according to whom?] and as of November 2018 only available in English, although the Spanish and French versions will be equally authentic.
The agreement will take effect after ratification from all three states through the passage of enabling legislation.
Provisions of the agreement cover a wide range, including agricultural produce, manufactured products, labour conditions, digital trade, among others. Some of the more prominent aspects of the agreement include giving US dairy farmers greater access to the Canadian market, guidelines to have a higher proportion of automobiles manufactured amongst the three nations rather than imported from elsewhere, and retention of the dispute resolution system similar to that included in NAFTA.
The dairy provisions are similar, but slightly higher, to those Canada agreed to in the never-ratified Trans-Pacific Partnership (TPP), giving the U.S. tariff-free access to 3.6%, up from 3.25% under TPP, of the $15.2 billion (as of 2016) Canadian dairy market. Canada agreed to eliminate Class 7 pricing provisions on certain dairy products, while Canada's domestic supply management system remains in place. Canada agreed to raise the duty-free limit on purchases from the U.S. to $150 from the previous $20 level, allowing Canadian consumers to have greater duty-free access to the U.S market.
Automobile rules of origin (ROO) requirements mandate that a certain portion of an automobile's value must come from within the governed region. In NAFTA, the required portion was 62.5 percent. The USMCA increases this requirement by 12.5 percent, to 75 percent of the automobile's value. The initial proposal from the Trump administration was an increase to 85 percent, and an added stipulation that 50 percent of the automotive content be made by United States auto manufacturers. While the deal's text did not include the more demanding version of this provision, there is concern that the increased domestic sourcing will come with higher input costs and disruptions to existing supply chains.
USMCA Annex 23-A requires Mexico to pass legislation that improves the collective bargaining capabilities of labor unions. The specific standards Mexico is required to comply with are detailed in the International Labour Organization's Convention 98 on freedom of association and collective bargaining. The administration of Mexico's President, Andrés Manuel López Obrador, introduced legislation in late 2018 which pursues compliance with these international standards.
Other labor related measures include a minimum wage requirement in the automotive industry. Specifically, 40 to 45 percent of the automobiles manufactured in North America must be made in a factory that pays a minimum of $16 per hour. This measure will be phased in during the first five years after USMCA ratification.
The USMCA will extend the copyright length in Canada to life plus 70 years, and 75 years for sound recordings. This extension mirrors the same IP policy captured in the text of the Trans-Pacific Partnership, paragraph 18.63. USMCA also extends the patent for biologics such as vaccines to 10 years. This is relative to the existing standard in Canada of 8 years and Mexico of 5 years.
Dispute Settlement Mechanisms
There are three primary dispute settlement mechanisms contained in NAFTA. Chapter 20 is the country-to-country resolution mechanism. It is often regarded the least contentious of the three mechanisms, and it was sustained in its original NAFTA form in USMCA. Such cases would involve complaints between USMCA member states that a term of the agreement had been violated. Chapter 19 disputes manage the justifications of anti-dumping or countervailing duties. Without Chapter 19, the legal recourse for managing these policies would be through the domestic legal system. Chapter 19 specifies that a USMCA Panel will hear the case and act as an International Trade Court in arbitrating the dispute. The Trump administration attempted to remove Chapter 19 from the new USMCA text, though it has thus far endured in the agreement.
Chapter 11 is the third mechanism, known as investor-state dispute settlement, wherein multinational corporations are enabled to sue participating governments over allegedly discriminatory policies. Chapter 11 is broadly considered the most controversial of the settlement mechanisms. The Canadian negotiators effectively removed themselves from Chapter 11 in the USMCA version of this measure, Chapter 14. Canada will have full exemption from ISDS three years after NAFTA has been terminated.
Additionally, there is a stipulation that the agreement itself must be reviewed by the three nations every six years, with a 16-year sunset clause. The agreement can be extended for additional 16-year terms during the six-year reviews. The introduction of the sunset clause places more control in shaping the future of the USMCA in the hands of domestic governments. However, there is concern that this can create greater uncertainty. Sectors such as automotive manufacturing require significant investment in cross-border supply chains. Given the dominance of the United States consumer market, this will likely pressure firms to locate more production in the US, with greater likelihood of increased production costs for those vehicles.
A new addition in the USMCA is the inclusion of Chapter 33 which covers Macroeconomic Policies and Exchange Rate Matters. This is considered significant because it could set a precedent for future trade agreements. Chapter 33 establishes transparency requirements for currency and macroeconomic transparency which, if violated, would constitute grounds for a Chapter 20 dispute appeal. The US, Canada, and Mexico are all currently in compliance with these transparency requirements in addition to the substantive policy requirements which align with the International Monetary Fund Articles of Agreement.
Interactions with other Trade Agreements
The USMCA will impact how member countries negotiate future free trade deals. Article 32.10 requires USMCA countries to notify USMCA members three months in advance if they intend to begin free trade negotiations with non-market economies. Article 32.10 permits USMCA countries the ability to review any new free trade deals members agree to going forward. Article 32.10 is widely speculated to be targeting China in intent.
Signature and pending ratification
The trade agreement was signed on November 30, 2018 by all three parties at the G20 summit in Buenos Aires, as expected. Each country must now follow its domestic procedures before the agreement can be ratified and thus take effect.
Domestic procedures for ratification of the agreement in the United States are governed by the Trade Promotion Authority legislation, otherwise known as "fast track" authority.
Growing objections within the member states about U.S. trade policy and various aspects of the USMCA have affected the signing and ratification process. Mexico stated they would not sign the USMCA if steel and aluminum tariffs remained. There was speculation after the results of the November 6, 2018 U.S. midterm elections that the Democrats' increased power in the House of Representatives might interfere with the passage of the USMCA agreement. Senior Democrat Bill Pascrell argued for changes to the USMCA to enable it to pass Congress. Republicans opposed USMCA provisions requiring labor rights for LGBTQ and pregnant workers. Forty Congressional Republicans urged Trump against signing a deal that contained "the unprecedented inclusion of sexual orientation and gender identity language"; as a result, Trump ultimately signed a revised version that committed each nation only to "policies that it considers appropriate to protect workers against employment discrimination" and clarified that the United States would not be required to introduce any additional nondiscrimination laws. The Canadian government expressed concern about the changes evolving within the USMCA agreement.
On December 2, 2018, Trump announced that he would begin the 6-month process to withdraw from NAFTA, adding that Congress needed either to ratify the USMCA or else revert to pre-NAFTA trading rules. Academics debate whether the president can unilaterally withdraw from the pact without the approval of Congress.
On March 1, 2019, numerous organizations representing the agricultural sector in the U.S. announced their support for the USMCA, and urged Congress to ratify the agreement. They also urged the Trump administration to continue upholding NAFTA until the new trade agreement is ratified. However, on March 4, House Ways and Means Chairman Richard Neal predicted a "very hard" path through Congress for the deal. As of March 7, senior White House officials have been meeting with House Ways and Means members, as well as moderate caucuses from both parties, such as the Problem Solvers Caucus, the Tuesday Group, and the Blue Dog Coalition in their efforts to gain support for ratification. The Trump administration has also backed down from the threat of withdrawing from NAFTA as the negotiations with Congress continues.
Reaction to the USMCA
President Trump has been highly critical of NAFTA, oftentimes describing it as “perhaps the worst trade deal ever made.” New rhetoric from President Trump extols the USMCA, claiming, “This is a terrific deal for all of us.”
Trade experts have differed in opinion on whether the shift in trade terms are significant enough to warrant this shift in perspective from the White House. Former US Trade Representative to former US president Bill Clinton, Mickey Kantor, who oversaw the signing of NAFTA, said, “It’s really the original NAFTA.” Representatives from the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) have criticized the labor standards in the USCMA as unenforceable and toothless. Senator Elizabeth Warren of Massachusetts said, “The new rules will make it harder to bring down drug prices for seniors and anyone else who needs access to life-saving medicine,” reflecting on the measure that expands the patent length for biological substances to 10 years, limiting access for new generic drugs to enter the market.
The United States Trade Representative publishes Fact Sheets which highlight the accomplishments of this negotiated form of the USMCA, providing the counter-argument to the above-mentioned critics, citing new digital trade measures, the strengthening of protection for trade secrets, supporting manufacturing through its automobile Rules of Origin adjustments, as some of the
On April 28, 2019, Republican Senator Chuck Grassley of Iowa, wrote an op-ed in the Wall Street Journal, stating that "Congress won’t approve USMCA while constituents pay the price for Mexican and Canadian retaliation," referring to Mexico and Canada's retaliatory tariffs.
- Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
- North American Free Trade Agreement (NAFTA)
- North American Leaders' Summit (NALS)
- Trans-Pacific Partnership (TPP)
- US public opinion on the North American Free Trade Agreement
- US-China trade war
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Aides said there were no immediate plans to withdraw from the 25-year-old agreement, though the president hasn't completely ruled out doing it eventually if the negotiations over approving USMCA fall apart.
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