The three countries signed the deal at the G20 on Friday.
Say goodbye to NAFTA — and hello to USMCA.
The US, Canada, and Mexico officially signed a new trilateral trade deal on Friday at the G20 summit in Buenos Aires. It’s known as the USMCA, or the United States-Mexico-Canada Agreement. (At least in the United States .)
While on the campaign trail, President Donald Trump had promised to renegotiate the North American Free Trade Agreement (NAFTA), which he called the “ worst trade deal ever .” After more than a year of talks between the three countries, he’s finally made good on that promise.
Trump, Mexican President Enrique Peña Nieto, and Canadian Prime Minister Justin Trudeau celebrated the new deal on Friday, and Trump referred to it as a “ groundbreaking agreement ” during his brief remarks .
Trump also tweeted about the pact, calling it “one of the most important, and largest, Trade Deals in U. S. and World History.”
Though it has a new name, the USMCA isn’t quite a “brand new deal,” as Trump has described it. It’s basically NAFTA 2.0: an updated version of the nearly 25-year-old trade agreement, with major changes for automakers, new labor and environmental standards, intellectual property protections, and some digital trade provisions.
Even if the changes don’t quite match Trump’s bloviating, experts say the changes are significant. “It’s a substantially different agreement than NAFTA,” Richard Miles, director of the US-Mexico Futures Initiative at the Center for Strategic and International Studies, told me in October.
Friday’s relatively low-key signing ceremony was the easy part. Now begins the arduous process of getting the deal approved by lawmakers in all three countries.
Congress won’t consider the agreement until 2019, when Democrats become the majority in the House — and they may be reluctant to ratify the deal and give the president an easy win. And since the approval process will take some time, most of the new USMCA provisions won’t go into effect until 2020.
In the meantime, lawmakers in Canada, Mexico, and the US are still debating whether these revisions to NAFTA are wins or losses — and whether this new trade agreement is an improvement on what came before.
Here’s everything you need to know about USMCA, the trilateral trade agreement formerly known as NAFTA, and what it may mean for the future.
The USMCA is similar to NAFTA, but with some hefty tweaks. Here are the major changes:
Under the new deal, cars or trucks must have 75 percent of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs. This is a substantial increase from 62.5 percent in the original NAFTA.
The goal is to boost auto parts manufacturing in North America by forcing car companies to use parts made here versus cheaper parts from Asia. This will probably increase the cost of cars and trucks, and it might make it harder for Mexico to make or sell certain smaller cars here in the US.
The most striking difference about this new deal involves protections for workers in all three countries.
The agreement calls for 40 to 45 percent of automobile components to be made by workers who earn at least $16 an hour by 2023. This provision specifically targets Mexico and is meant to bring wages there up to US and Canadian standards.
That’s good for Mexican workers, but that’s not the only motivation behind it. The Trump administration hopes that if Mexico no longer pays its workers a lot less than the US and Canada do, companies will no longer have a reason to move their factories there (and out of the US), thus keeping manufacturing jobs in the US and Canada.
In addition, Mexico has agreed to pass laws giving workers the right to real union representation, to extend labor protections to migrants workers (who are often from Central America), and to protect women from discrimination.
And unlike NAFTA, the new deal allows each country to sanction the others for labor violations that impact trade. It’s a complex, multi-step process modeled after similar protections in the Trans-Pacific Partnership (TPP), a multinational trade deal that Trump pulled the United States out of after taking office.
These are much-needed reforms, and they address a lot of concerns that US labor unions have long had about NAFTA.
But the labor provisions also offer certain complications — particularly how to enforce the $16-an-hour wage rule. “That appears to be a bit of a nightmare in terms of administration and red tape,” says Duncan Wood, the director of the Mexico Institute at the Wilson Center.
That’s because it’s not quite clear how countries are going to keep track of how much companies in Mexico are paying their workers, or how Mexican companies will determine that everyone is making $16 an hour.
This has been a pet issue for Trump and is thus considered a win for the US — and probably Canadian consumers.
Canada uses what’s called a supply management system for dairy (and eggs and poultry), which closely regulates how much of each product can be produced and places strict tariffs and quotas on those items when they’re shipped into the country.
The US got Canada to open up its dairy market, starting with a six-month phase-in of access that goes up to nearly 4 percent — an amount just slightly above that which was negotiated in the TPP.
Canada also agreed to eliminate Class 7 milk, which made it cheaper to buy certain high-protein milk products from domestic producers in Canada; US farmers complained that it blocked their ability to export their products to Canada.
Wood said that while the US can claim this as a win, it’s really a victory for a small number of US farmers.
