NAFTA? USMCA? What’s the Deal With It? – Part 1

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An Article Written by Sumedha Jain.

USMCA, a new agreement to replace NAFTA

On September 30, 2018, big news was made about USMCA, the pending agreement that will replace the near quarter-of-a-century agreement known as NAFTA. Before its intended ratification, knowing what the “historic change” is about, along with its impact on the involving countries compared to its preceding agreement is worth looking into.

What is NAFTA?

North American Free trade Agreement (NAFTA) is a 24 years old trilateral trade agreement between United States – Canada – Mexico. The deal was first signed by the 34 Democrats and 28 Republicans on the 1st of January 1994. It is known to have 2 supplements which are the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). The purpose – as the name suggests – was to eliminate trade barriers for a free flow of goods and services, help with manufacturing and stimulate investments between the 3 countries respectively. In addition to that, the much-needed reduction of red tape was promoted to favor small businesses. NAFTA replaced 30 percent of higher trade barriers, 250 percent higher duties charged on Mexican products by the US and created new openings for the US truckers and streamlining border approvals which earlier required long delays caused by paperwork for getting the license. Other areas included tariff reduction on motor vehicles, the establishment of Safety and Health standards, reduction in textile, and more emphasis on environment and rampant pollution issues.

They also put more resources collectively to expand their telecommunication trade, free trade in agriculture, beginning of insurance markets, liberalization of land transport and increase in intellectual rights as well as investment opportunities.

When everything was kept in favor of the 3 countries, what was the need to change NAFTA?

NAFTA was accused to have induced interest of the US firms to make their way to Mexico as they benefited from the cheap labor there. Now, this created a serious issue for the US economy in the 2000s; hence they faced downfall and were trapped in the phase of “Jobless Recovery”. Moreover, there was a trade imbalance as the US imported more product and services from Mexico and Canada than exporting. After looking at some of such issues, President Donald Trump decided to renegotiate the “worst trade deal”. Mexican President Enrique Peña Nieto called it a “win-win-win agreement.” Canadian Prime Minister Justin Trudeau said North American trade had been “preserved and modernized for the 21st century.” (Kirby 2018).

Out with NAFTA, In With USMCA

With more than $1 trillion trade among the US, Canada, and Mexico, the US economy generates $20 trillion by exchange of good and services. (nick-Gillespie 2018)

There hasn’t been a complete scrapping of the old deal rather they have just come up with an updated version of NAFTA, called as USMCA (United States-Mexico-Canada Agreement). This agreement proposes some benefiting changes to intellectual property protections, standards on the environment, digital trade, and new policies on the labor market. In addition, the proposed agreement plans to inaugurate the access to the Canadian Dairy Market to the American milk producers where Canada has agreed to terminate their “Class 7 pricing” which is nothing but the slashed pricing on milk products and ingredients such as milk powder and skim milk, which is used to make yogurt and cheese. (CBC News 2018)

Now, this agreement shall be approved by all countries legislatures and looking at the favorable response from both Canada and Mexico this shall be approved by the year 2020. This agreement is expected to last for at least 16 years. The next article would be a detailed version of what were the changes made in the sectors mentioned and more emphasis on the impact of USMCA decision.

 

References:

nick-gillespie. “Is the USMCA, the Trade Deal That Will Replace NAFTA, a ‘Historic Transaction’? No.” Reason.com, Reason, 1 Oct. 2018, reason.com/blog/2018/10/01/what-you-need-to-know-about-usmca-the-tr.

New USMCA Trade Deal ‘Devastating’ to Canada’s Dairy Industry, Farmer Says | CBC News.” CBCnews,  CBC/Radio Canada, 1 Oct. 2018, www.cbc.ca/news/canada/manitoba/usmca-trade-deal-dairy-farmer-1.4845229.

Kirby, Jen. “USMCA, the New Trade Deal between the US, Canada, and Mexico, Explained.” Vox.com, Vox Media, 2 Oct. 2018, www.vox.com/2018/10/2/17923638/usmca-trump-nafta-trade-agreement.

North American Free Trade Agreement (NAFTA) – Encyclopedia – Business Terms.” Inc.com, Inc., 30 Nov. -1, www.inc.com/encyclopedia/north-american-free-trade-agreement-nafta.html.

 

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