United States–Mexico–Canada Agreement
|United States–Mexico–Canada Agreement|
|Type||Free trade area|
As NAFTA: January 1, 1994|
As USMCA: September 30, 2018 (ratification pending)
|21,578,137 km2 (8,331,365 sq mi)|
• Water (%)
• 2018 estimate
|22.3/km2 (57.8/sq mi)|
|GDP (PPP)||2018 estimate|
• Per capita
The United States–Mexico–Canada Agreement (USMCA; Spanish: Tratado entre México, Estados Unidos y Canadá, T-MEC; French: Accord États-Unis-Mexique-Canada, AÉUMC) is a pending free trade agreement between Canada, Mexico, and the United States. It is also referred to as "NAFTA 2.0", in order to distinguish it from its intended current predecessor North American Free Trade Agreement (NAFTA). It is the result of the 2017–2018 renegotiation of NAFTA by its member states, which informally agreed to the terms on September 30, 2018, and formally on October 1. Final ratification and implementation is pending.
Compared to NAFTA, the agreement gives the U.S. more access to Canada's $19 billion dairy market, incentivizes more domestic production of cars and trucks, increases environmental and labor regulations, and introduces updated intellectual property protections.
The United States–Mexico–Canada Agreement is based on the North American Free Trade Agreement which originally came into effect on on January 1, 1994. The present agreement was the result of more than a year of negotiations including threats of tariffs by the United States against Canada in addition to the possibility of separate bilateral deals instead.
During the 2016 US presidential election, Donald Trump's campaign included the promise to re-negotiate, or cancel if re-negotiations fail, the North American Free Trade Agreement. 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.
An initial agreement between the United States and Mexico was reached before finalization with Canada. Since Mexico’s outgoing president, Enrique Peña Nieto, will leave 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. Negotiators worked around the clock and completed the agreement less than 1 hour before midnight of that date. The agreement will take effect after being passed into law and signed by each country.
Provisions of the agreement cover a wide range, including agricultural produce, manufactured products, labor 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 a retaining of the dispute resolution system similar to what was 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.
Cars or trucks with at least 75% of their components made in the United States, Mexico, or Canada can be sold with zero tariffs. As this is an increase from the current requirement of 62.5%, the deal is intended to incentivize the production of cars in North America. Also, 30% of the work done on these cars must be done by workers who earn US$16 per hour (which is not indexed to inflation) starting in 2020. The percentage increases to 40% by 2023.
Additionally, there is a stipulation that the agreement itself must be reviewed by the three nations every 6 years, with a 16-year sunset clause. The agreement can be extended for additional 16-year terms during the 6-year reviews.
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.
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.
- Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
- North American Leaders' Summit (NALS)
- Trans-Pacific Partnership (TPP)
- US public opinion on the North American Free Trade Agreement
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