NAFTA to USMCA: Impact on North American Trade

NAFTA: The Significance

Why USMCA?

The Road ahead with USMCA

  • Safeguarding labor rights: As an increasing number of companies moved manufacturing to low-cost locations within Mexico, this was sometimes done without providing for suitable working conditions. USCMA included new provisions to protect the rights of Mexican workers, making it possible to even cancel shipments from companies violating labor laws.
  • Reforming arbitration: It also dismantled the Investor-State Dispute Settlement (ISDS) arbitration mechanism, which made it possible for businesses to sue governments. While no such system now operates between U.S. and Canada, its applicability to U.S.-Mexico cases has also been restricted.
  • Incentivizing North American manufacturing: USCMA prioritized manufacturing in North America over other regions. Now, in the automobile sector, automakers manufacturing 75% of a product within this trading bloc can qualify for zero tariffs.
  • Reducing protection for pharmaceutical patents: The protection from free trade offered to pharmaceutical companies has now been removed, but the validity of copyrights has now been extended.
  • Strengthening safeguards for technology firms: On the other hand, technology companies were made more secure, especially in areas related to intellectual property and privacy.
  • Caring for the environment: USMCA has also put an emphasis on environmental safeguards, including a commitment to improve air quality and reduce maritime litter. These environmental standards are no longer enforced by the ISDS, but national authorities.

How does it impact you?

  • Customs and trade facilitation: USMCA reduces the paperwork required for trade between the three countries, even admitting informal documentation to complete certificate of origin. However, while doing this, it also raises the threshold for the entry of low-value goods duty free into each country. This has been raised to $150 CAD (for customs duties) and $40 CAD (for taxes) in Canada, $117 USD (for customs duties) and $50 USD (for taxes) in Mexico, and $800 USD in the U.S.
  • Impetus for dairy products: It increases opportunities for U.S. dairy, poultry, and egg producers, who now have access to 3.6% of Canada’s dairy market. In addition, barriers to importing U.S. ultra-filtered milk have been reduced, but Canada’s dairy supply management system stays.
  • Automotive sector regulation: Now, to qualify for zero tariffs the total required North American content in a vehicle is raised to 75%, which is an increase from the previous limit of 62.5%. In addition, 70% of the steel, aluminum, and glass used in the vehicle must be manufactured in North America. Mexico and Canada would each get a tariff-free passenger vehicle quota of 2.6 million passenger vehicles exported to the United States annually.. Mexico will get an auto parts quota of $108 billion annually, while Canada will get a parts quota of $32.4 billion annually in the event of U.S. autos tariffs. The quotas are significantly above existing production volumes in each country, allowing for some export growth. A common minimum low wage is set for the sector across North America.
  • Steel and Aluminium: Besides the gains for steel and aluminum in North America through the automotive sector, the U.S. retains its right to impose tariffs in this sector on the grounds of national security.
  • Intellectual property: USMCA also acknowledges the importance of intellectual property to drive innovation. Copyright terms also get a fillip, with an extension of 20 years, which now expires 70 years after an author’s death.
  • Digital trade: USMCA is also the first U.S. trade agreement to have a digital trade chapter. Among its other provisions, it encourages digital trade in products and services, and it prohibits any tariffs on digital products transmitted electronically.

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