The US, Canada, and Mexico's new trade pact looks a lot like NAFTA. Here are the key differences between the 2.
- The US and Canada on Sunday sealed the deal on the US-Mexico-Canada Agreement, the first major update of the 25-year-old North American Free Trade Agreement.
- The new trade deal bears a lot of similarities to NAFTA, but there are major differences as well.
- Some of the key differences: increased dairy-market access for the US, a new sunset clause, and tougher auto rules.
The US and Canada on Sunday sealed the deal on a new trade agreement that, along with an earlier US-Mexico agreement, opens to door to a rewrite of the North American Free Trade Agreement.
The new deal, dubbed the US-Mexico-Canada Agreement, is expected to be signed by the leaders of the three member countries — US President Donald Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto — in November. The deal must also be approved by each country’s legislature before it can come into force.
While Peter Navarro, the director of the White House National Trade Council, said the new deal means that “NAFTA is dead,” the USMCA still retains large swaths of the original deal.
For instance, Canada scored wins with the preservation of NAFTA’s state-to-state dispute-resolution system and cultural provisions that carve out a certain amount of the Canadian media market for domestically produced programming.
But there are also some notable changes in the USMCA from the 25-year-old NAFTA, including increased dairy-market access, new auto rules, and a sunset clause.
Here’s a rundown of some of the key changes in the deal:
- Review clause: The USMCA includes a 16-year expiration date and a provision that requires a review of the deal every six years, when it can be extended. It’s less severe than the US’s original demand for a sunset clause, which would have forced each side to recertify the deal every five years to keep it in effect.
- Dispute settlement: NAFTA’s dispute-settlement system, which allows member countries to bring grievances against other members over allegations of unfair trading practices, will remain the same, a key win for the Canadians. The investor-state dispute-settlement system, which allows investors to bring grievances against member-country governments, will be phased out for the US and Canada, while certain industries such as energy will be able to bring cases against Mexico.
- Dairy access: The US will be able to export the equivalent of 3.6% of Canada’s dairy market, up from the existing level of about 1%. This is slightly above the 3.25% market access Canada would have given the US as part of the Trans-Pacific Partnership, which Trump pulled the US out of last year. In addition, Canada will get rid of the “Class 7” pricing system that was seen as disadvantaging US farmers.
- Access for other agricultural goods: Canada will give the US more access to its chicken, turkey, and egg markets, and British Columbia will allow the sale of US wines at its state-owned liquor stores. Mexico agreed to allow imports of certain US cheeses.
- Auto rules: Members must produce 75% of a car for it to pass through the countries duty-free, up from 62.5%. Additionally, 40% of each car must be produced by workers making $16 an hour or more to avoid duties.
- Tariff side deals: The US came to side agreements with Mexico and Canada that would largely protect the two countries from tariffs on imported autos and auto parts. Canada would be allowed to ship 2.6 million cars to the US without tariffs, well above the 1.8 million it sent last year, and send $32.4 billion worth of parts without getting hit by tariffs. Mexico’s deal was similar, except the country can send $108 billion worth of parts.
- Commitment to not mess with currency levels: While the US, Mexico, and Canada do not actively intervene to strengthen or weaken their currencies, the pact to “achieve and maintain a market-determined exchange rate regime” could be a model for future agreements with countries that are more active in currency markets.
- Increased protections for intellectual property: The deal increases the copyright period in Canada to 70 years after the creator’s death, up from 50 years, bringing the country in line with the US. Additionally, exclusivity for biologic drugs before generics can be produced will be increased to 10 years in Canada from eight years, a win for the pharma industry.
- Increase in the de minimis levels: The de minimis level is the amount of a good a person can take across the border without being hit with duties. Canada will increase the de minimis level for US goods to 4o Canadian dollars from 20 Canadian dollars; for cross-border shipments like e-commerce, the level will be boosted to 150 Canadian dollars. Mexico will also bump its de minimis level to $50 and duty-free shipments to $117.
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