July 1, 2020 has finally arrived, which means the new trade agreement USMCA (United States – Mexico – Canada Agreeement) has now officially gone into effect replacing the NAFTA (North American Free Trade Agreement). Many people heard about the old NAFTA in the past, but many did not know the details of what it was. What did free trade really mean anyways?
We know that the economic relationship between the USMCA partners is worth an astonishing $1.2 trillion and supports 14 million jobs. The modernization of NAFTA in the form of the USMCA protects those jobs and seeks to deepen the competitiveness and prosperity of all three countries. (3)
What is USCMA? The United States /Mexico/Canada Agreement is a free trade agreement between these three countries, replacing the NAFTA which was in effect since January 1994. Many has labelled the USCMA as a NAFTA 2.0, basically modernizing the old agreement. Under NAFTA, many of the tariffs of many goods passing through North America were gradually phased out. By 2008, many of the tariffs on agricultural and textile products and automobiles were reduced or simply eliminated. It is on this point that the Americans (Donald Trump) had an issue with and wanted to re-negotiate. Largely based on NAFTA, the new agreement of USCMA was signed on December 10, 2019, and was ratified by all three countries, with the final ratification (Canada) on March 13, 2020. (1)
In a nutshell, the agreement focused on these areas:
1. Dairy and Agriculture
2. Automobiles
3. Intellectual Property
4. Sunset Provision
5. Labor
Negotiations "focused largely on auto exports, steel and aluminum tariffs, and the dairy, egg, and poultry markets". One provision "prevents any party from passing laws that restrict the cross-border flow of data". Compared to NAFTA, USMCA increases environmental and working regulations, and encourages incentives to 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. The full list of differences between USMCA and NAFTA is listed on the USTR's website. (2)
In summary, the USMCA is not just a modernized update to NAFTA but it borrows heavily from the TPP (Trans-Pacific Partnership) and CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership – now that is a mouthful – LOL) trade agreements. It also contains new elements regarding stringent, enforceable and binding labor and environmental elements in the core of the agreement, macroeconomic policy, standard and regulations harmonization and digital trade. (3)
The key elements to remember:
a) The United States-Mexico-Canada Agreement (USMCA) is a free trade agreement between those three countries.
b) The USMCA replaced the North American Free Trade Agreement (NAFTA).
c) The USMCA took effect on July 1, 2020. If not renewed, the USMCA will expire in 16 years.
In conclusion, was the renegotiation of the agreement a positive thing? The real answer is time will tell, but some agreements do have to get renegotiated from time to time to reflect the new realities. I would assume that if the three countries agreed to it, then the three countries will benefit from this agreement. With the current state of the world economy, I am sure this agreement will help with the economic recovery of the 3 nations.
Any thoughts on this new trade deal? I want to hear from you !!!!
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