U.S., Mexico and Canada Reach Agreement to Replace NAFTA

After over a year of negotiations, President Trump, Canadian Prime Minister Justin Trudeau and outgoing Mexican President Enrique Pena Nieto, signed a deal to implement USMCA and replace the North American Free Trade Agreement. In order for the deal to go into full effect, all three legislative bodies need to approve the agreement, which Trump states he will put pressure on Congress to get it approved.

The USMCA will account for more than $1.2 trillion in trade and will include changes to automakers, labor and environmental standards, intellectual property protections and some digital trade provisions. One big change is U.S farmers will gain more access to the Canadian dairy market, which was a sticking point for Trump. Canada will provide access for United States products including fluid milk, cream, butter, skim milk powder, cheese and other dairy products. Canada will also provide new access for United States chicken and eggs while also increasing its access for turkey. Under this agreement, all other tariffs on agricultural products traded between the United States and Mexico will remain at zero.

Canada has also agreed to grade imports of United States wheat in a manner no less favorable than it accords Canadian wheat and to not require a country of origin statement on its quality grade or inspection certificate. Canada and the United States also agreed to discuss issues related to seed regulatory systems. Mexico and the United States also agreed that grading standards and services will be non-discriminatory for all agricultural goods and will establish conversations to discuss grading and quality trade-related matters.

Another big change is automobiles must have 75 percent of their components manufactured in Mexico, the U.S. or Canada to qualify for zero tariffs. This percentage is up from 62.5 percent under NAFTA. Labor provisions will also be included with 40 to 45 percent of automobile parts have to be made by workers who earn at least $16 an hour by 2023. Mexico has agreed to pass laws giving workers the right to union representation, extending labor protections to migrant workers and protecting women from discrimination. The countries can also sanction one another for labor violations.

“I will be formally terminating NAFTA shortly,” said Trump to reporters on Air Force One on his way back from the G20 summit in Argentina, which was held this past weekend. If the President follows through, leaders will have six months to ratify the new deal. However, Congress isn’t so sure about approving the new agreement. The new wage requirement is certainly a bonus for autoworkers, but members of Congress remain unsure the provisions would be enforceable. “The work is not done yet,” Ohio Democratic Senator Sherrod Brown stated. “I understand the President said it’s final. The President needs to talk to Congress on this.” It’s not only Democrats who are unsure of the agreement, as Republicans are also doubtful. Pennsylvania Sen. Pat Tooney said he would support it with “a few tweaks that move it in the direction of a more pro-trade agreement.”

Before finalizing the agreement, Congress can suggest small changes to be made without having Mexico, Canada and the United States go back to the negotiation process. Analysts close to the situation say Congress will wait for an economic impact study from the United States International Trade Commission before voting. The commission has 105 days or until mid-March to release the report. If no deal is reached, the treaty would become void and result in restrictive trade, which will have negative consequents on both industry and agriculture.