United States-Mexico-Canada Trade Agreement Ratified

USMCA will take effect on 1 June, now that Canada has vote to approve the agreement.

 The U.S., Mexican and Canadian governments have now all ratified the United States-Mexico-Canada Agreement (USMCA), thereby replacing the North American Free Trade Agreement (NAFTA) governing trade policies among the three countries. The USMCA is scheduled to take effect on 1 June.

Canada Votes

Canada was the last country to approve the USMCA. In elections last fall, the Liberal Party of Canadian Prime Minister Justin Trudeau lost a ruling majority, thereby limiting its ability to expedite consideration of the agreement and the approving legislation came under scrutiny. However, the economic impact of COVID-19 and need for the Parliament to suspend its deliberations led to its quick passage on 13 March. The Canada Parliament is now in recess until at least 20 April.

U.S. Deliberations

The U.S. House of Representatives voted on 20 December 2019 (385 to 41) to pass legislation (H.R. 5430) to implement the U.S.-Mexico-Canada Agreement (USMCA). The United States Senate passed the bill by a vote of 89 to 10 on 16 January.

Mexico Votes

The Mexican legislature passed legislation in early December to implement the agreement. It had delayed consideration until concerns by the Mexican Government about five labor inspectors or attaches to be based at the U.S. Embassy in Mexico City were addressed. U.S. Trade Representative Robert Lighthizer wrote to Mexican Deputy Foreign Minister Jesus Seade to assure him the attaches would help coordinate the implementation of the labor reform provisions of the agreement and would not inspect Mexican facilities

President Trump made the renegotiation of NAFTA a key platform of his presidential campaign. On 2 February 2017, shortly after taking office, President Trump announced his intention to enter into negotiations with Canada and Mexico to revise NAFTA and on 30 November, the leaders of the three countries signed the agreement. The final revised agreement was then signed on 10 December of this year by their respective trade representatives. Both President Trump and Congressional Democrats, who pushed for additional labor reform considerations from the original deal, are stating the agreement as a victory while the Canadian and Mexican governments are also touting the provisions more favorable to their countries.

Tariff-Free Vehicle Thresholds

The new agreement increases the requirement for more of a vehicle’s parts to be assembled in North America to avoid tariffs. The level raises to 75% up from the 62.5% required in the original NAFTA. The deal also mandates an increasing percentage of parts on tariff-free vehicles to come from “high wage” factories with a minimum wage of at least $16/hr. This could cause some suppliers to shift work from away from Mexico to the U.S. or Canada, or to a lower wage country outside of North America.

Dairy Markets

The new deal also opens Canadian dairy markets to increased U.S. exports. Canada has also agreed to end a system that it used to keep the prices of some milk products low. The Chapter 19 provision that helps resolve trade disputes between the three countries was kept in place, a win for the Canadian government. The new agreement contains increased intellectual property protections that have been updated to include new technologies that were not around when NAFTA was originally negotiated. The deal also calls for higher safety and environmental standards and states that Mexican workers must have more ability to organize and form unions.