In late September, trade representatives from Mexico, Canada and the U.S. reached an agreement to replace NAFTA, the North American Free Trade Agreement, which was negotiated by the Clinton administration. NAFTA went into effect on Jan. 1, 1994.
On Sept. 30, the three countries reached a trade deal to replace NAFTA after a year of trade discussions. The new deal, called the United States-Mexico-Canada agreement (USMCA), contains changes in the automobile trade, labor and minimum-wage provisions, relaxed dairy-market constraints, new intellectual-property (IP) terms and some digital property rules.
Having negotiated the deal, the White House released the following declaration from the President: “USMCA is a great deal for all three countries, solves the many deficiencies and mistakes in NAFTA, greatly opens markets to our farmers and manufacturers, reduces trade barriers to the U.S. and will bring all three Great Nations together in competition with the rest of the world.”
This is seen as a campaign promise fulfilled for Donald Trump, who earlier this year took some heat for seemingly damaged trade relations with our closest geographic and economically significant trading partners. According to U.S. Trade Representative Robert Lighthizer, the three countries have targeted late November to sign the deal.
There are several provisions to USMCA that will be most relevant to the forging industry and automotive manufacturing in general. First and foremost, the new agreement stipulates that automobiles must have 75% of their components manufactured in the U.S., Mexico or Canada to qualify for zero tariffs. This is a hefty increase from the 62.5% under NAFTA and will help protect automotive jobs and incentivize automotive vehicle and parts production in North America.
Secondly, USMCA mandates that within five years (2023) 40-50% of auto parts must be made by workers who earn a minimum of $16 per hour. Additionally, Mexico pledged to pass laws giving workers the right to organize and protect migrant workers and women from discrimination. The important labor section of the agreement makes the labor provisions fully enforceable.
Regarding IP, the USMCA agreement extends the term of copyrights to 70 years (in NAFTA it was 50) beyond the life of the author and grants longer periods during which a pharmaceutical drug can be protected from generic competition.
Interestingly, though Canada and Mexico wanted them, there are no Section 232 tariff protections in this agreement. Section 232 is a clause of the Trade Expansion Act of 1962. This clause, invoked recently for tariffs on aluminum and steel, permits a president to investigate and determine if the importation of certain goods might impair national security interests enough to impose tariffs on those goods. As a side agreement to USMCA, however, the U.S. agreed to protect its trading partners to the north and south against tariffs on automobiles.
Finally, the terms of USMCA expire in 16 years and are reviewable every six years.
The agreement now needs to be signed by the leaders of the three countries, and their respective legislatures need to approve them. It seems likely that Canada’s and Mexico’s legislators will approve the deal. It may be a different story in the U.S. Now that the Democrats have taken control of the House, they may hesitate in handing the President a “win” so early in their tenure.
My hope is that the now-split Congress will consider this agreement on its merits and, for once, place our country first ahead of partisan political gain. I urge Congress to set party affiliations aside and, after healthy debate, ratify USMCA if it is a good deal or defeat it if it is not.