Here is What is in the New NAFTA

Post: Oct. 2, 2018

US, Mexico, and Canada Reach agreement to Update NAFTA: Here’s what’s in the “New NAFTA”

After more than a year of intense negotiations, the United States, Canada, and Mexico reached an agreement to update the North American Free Trade Agreement, the 1994 pact that governs more than $1.2 trillion worth of trade among the three nations.  Congress and the legislatures in Canada and Mexico have yet to approve it, a process that is expected to take months, so most of the key provisions don’t start until 2020.

Here’s what’s in the “new NAFTA.”

New name. The new deal will be known as the United States-Mexico-Canada Agreement, or USMCA.

Big changes for cars. The goal of the new deal is to have more cars and truck parts made in North America. Starting in 2020, to qualify for zero tariffs, a car or truck must have 75 percent of its components manufactured in Canada, Mexico or the United States, a substantial boost from the current 62.5 percent requirement.

There’s also a new rule that a significant percentage of the work done on the car must be completed by workers earning at least $16 an hour, or about three times what the typical Mexican autoworker makes. Starting in 2020, cars and trucks should have at least 30 percent of the work on the vehicle done by workers earning $16 an hour. That gradually moves up to 40 percent for cars by 2023.

Dairy Canada opens up its milk market to U.S. farmers. Canada has a complex milk and dairy system. To ensure Canadian dairy farmers don’t go bankrupt, the Canadian government restricts how much dairy can be produced in the country and how much foreign dairy can enter to keep milk prices high. In the end, Canada is keeping most of its complex system in place, but it is giving a greater market share to U.S. dairy farmers. U.S. negotiators say they got a major victory by forcing Canada to eliminate the pricing scheme for what are known as Class 7 dairy products. That means U.S. dairy farmers can probably send a lot more milk protein concentrate, skim milk powder and infant formula to Canada (and those products are relatively easy to transport and store).

Dispute Resolution Chapter 19, allowing for a special dispute process, stays intact. Chapter 19 allows Canada, Mexico, and the United States to challenge one another’s anti-dumping and countervailing duties in front of a panel of representatives from each country. This is generally a much easier process than trying to challenge a trade practice in a U.S. court. Over the years, Canada has successfully used Chapter 19 to challenge the United States on its softwood lumber restrictions.

Side Letters Mexico and Canada get assurance the US won’t pound them with auto tariffs. Along with the new trade deal, the administration signed “side letters” allowing the two nations to mostly dodge Trump’s auto tariffs. The side letters say Canada and Mexico can continue sending about the same number of vehicles and parts across the border free of charge, regardless of whether auto tariffs go into effect down the road. Only parts above that quota could face tariffs.

Steel and Aluminum These tariffs stay in place (for now). Canada wanted the US to stop the 25 percent tariffs on Canadian steel. That didn’t happen — yet. The two countries are still discussing lifting those tariffs, but a senior White House official said Sunday that process is on a “completely separate track.”

Improved labor and environmental rights. The USMCA makes a number of significant upgrades to environmental and labor regulations, especially regarding Mexico. For example, the USMCA stipulates that Mexican trucks that cross the border into the United States must meet higher safety regulations and that Mexican workers must have more ability to organize and form unions. Some of these provisions might be difficult to enforce, but the Trump administration says it is committed to ensuring these happen — a reason U.S. labor unions and some Democrats are cheering the new rules.

Increased intellectual property protections. The new IP chapter is 63 pages and contains more-stringent protections for patents and trademarks, including for biotech, financial services, and even domain names. Many business leaders and legal experts believed these updates were necessary given that the original agreement was negotiated 25 years ago.

NAFTA Chapter 11, Is (mostly) gone. Chapter 11 is eliminated entirely for Canada and mostly for Mexico, except for some key industries such as energy and telecommunications. Chapter 11 gave companies and investors a special process to resolve disputes with one of the governments in NAFTA. The idea was that if investors put a lot of money into a project and then the government changed the rules, there was a clear dispute process — outside the court system — where investors could get their problem resolved.