The U.S.-Mexico-Canada Agreement (USMCA), which was ratified in March of this year with the final sign off by the Canadian government, will officially go into effect on 1 July.

The U.S.-Mexico-Canada Agreement (USMCA), which was ratified by the Mexican government last year and by the U.S. and Canadian governments earlier this year, will officially go into effect on 1 July. It replaces the North American Free Trade Agreement (NAFTA) which governed trade policies between the three countries for 25 years.

On 19 December, 2019, the U.S. House of Representatives passed the United States-Mexico-Canada Agreement Implementation Act (H.R.5430) by a 385-41 vote, which then passed the Senate by an 89-10 vote to finally be signed into law by President Donald Trump on 29 January, 2020. Mexico also passed legislation in early December, but faced delays until it was confirmed that U.S. attaches to Mexico would help coordinate the implementation of labor reform provisions of the agreement and would not inspect Mexican facilities. Canada was the last country to approve the USMCA due to Prime Minister Justin Trudeau losing a ruling majority in the 2019 Canadian elections, thereby limiting an expedited consideration of the agreement.

Under the new agreement, requirements are increased for more of a vehicle’s parts to be assembled in North America to avoid tariffs. The level for such parts raises from 62.5% to 75%, while also mandating an increased percentage of parts on tariff-free vehicles to come from “high wage” factories, or those with a minimum wage of at least $16 an hour. This may lead some suppliers to shift work away from Mexico to the U.S. or Canada or to a lower wage country outside of North America.

Other changes include opening Canadian dairy markets to increased U.S. exports, increased intellectual property protections that include new technologies, higher safety and environmental standards, and an understanding that Mexican workers have more of an ability to organize and form unions. To help resolve trade disputes, the Chapter 19 provision from NAFTA was kept in place. Overall, the USMCA has bipartisan support in the U.S., with the Trump administration as well as Congressional Democrats touting the agreement as a victory.