How the USMCA differs from NAFTA

On September 30, 2018, the Trump administration reached a new trade agreement with Mexico and Canada. The agreement, which would replace NAFTA, is called the United-States-Mexico-Canada-Agreement, or the USMCA.

Here are the major changes:

Standards for Automobile Tariffs

The agreement greatly increased NAFTA’s “rules of origin,” a set of manufacturing requirements to avoid paying tariffs. In order for Canada and Mexico to avoid automobile tariffs on imports to the United States, they must manufacture 75% of the parts within Mexico, the United States, or Canada. This is a steep increase from NAFTA, which required only 62.5% of automobile parts to be manufactured in one of the three countries.

This increased percentage aims to augment North American automobile manufacturing. However, the requirement of using North American automobile parts as opposed to cheaper alternatives creates a less profitable market. The agreement also sets a minimum percentage of automobiles which must be manufactured by workers whose salary is above a specified amount.

Access to Canada’s Dairy Market

Canada will raise the maximum amount of dairy products that the United States is allowed to export to Canada. In return, the United States will increase the maximum amount of dairy products, sugar, and peanuts Canada can export to the United States.

Dairy farmers in Canada have already began to criticize the provision, claiming that it will significantly hurt their businesses, especially after an agreement with the European Union similarly increased access to the Canada’s dairy market.

Sunset Clause

The USMCA will be reviewed by the countries every six years and will expire after a period of sixteen years. The countries may also decide to renew the deal for another sixteen years.

All three leaders have yet to sign the agreement, and are planning to do so by the end of November. While it is likely that the Mexican and Canadian governments will approve the agreement, its enactment would also require Congressional approval. The Congressional approval process will likely not be finalized until at least 2019.

Article by MoCo Student staff writer Kennedy Salamat of  Montgomery Blair High School