The new free-trade agreement USMCA (United States, Mexico and Canada): main facets

The new free-trade agreement USMCA (United States, Mexico and Canada): main facets

On July 1, 2020, the new United States-Mexico- Canada (USMCA) Agreement came into force. This Agreement replace the North American Free Trade Agreement (NAFTA), a regional pact in place since 1994. 

 

This new Agreement concerns an area of 489 milion inhabitants and with a GDP (Gross Domestic Product) per capita of around 49.000 USD. Mexico and Canada displaced China as the main trade partners of the United States in 2019.  Just an example: 79% of the mexican exports went to the USA in 2019 and 75% of the Canadian exports went to USA in 2019.

 

The former NAFTA eliminated already most tariffs on products traded between the three countries, with a major focus on liberalizing trade in agriculture, textiles, and automobile manufacturing. Since its implementation, NAFTA benefited the economy through increasing overall trade to over 1 trillion USD between the three countries.

 

Some of the Key aspects of this new Agreement, which have to be underlined, are:

  • Country of origin rules: Automobiles companies must have 75 percent of their components manufactured in Mexico, the United States, or Canada to qualify for zero tariffs (up from 62.5 percent under NAFTA). 

 

  • Labor provisions: 40 to 45 percent of automobile parts must be made by workers who earn at least $16 an hour by 2023. Mexico agreed to pass new labor laws to give greater protections to workers, including migrants and women. 

 

  • Intellectual property and digital trade: The deal extends the terms of copyright to 70 years beyond the life of the author (up from 50). It also includes new provisions to deal with the digital economy: the USMCA establishes rules for digital trade and digital technologies such as e-books, videos, music, software and games (much of these technologies didn’t exist and weren’t addressed when NAFTA went into effect in 1994).

 

  • 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. On the sixth anniversary of its entry into force, a “joint review” of the agreement must be conducted by the parties.

 

  • Textiles: Revised rules were added to incentivize use of regional inputs with requirements to source sewing thread, narrow elastic fabrics, pocketing, and coated fabrics from within North America.

 

 

  • Customs and Trade Facilitation

 

 

  • Enforcement of Environmental Standards: This includes commitment to enforce environmental laws

 

The goals of the USMCA are to eliminate barriers to trade, strengthen the internal market, increase investment opportunities and enhance the competitiveness of the area. We also hope so.

 

Article written by Lloyd De Villamor

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