What the new US-Mexico-Canada Agreement means for North American trade

A Canadian ratification of the United States-Mexico-Canada Agreement (USMCA) passed through both chambers of the House of Commons in a rush to close out on the new trade agreement before suspending legislative gatherings to help prevent the spread of COVID-19. The ratification from Canada, the last of the three North American countries to back the deal, will put the USMCA into effect in the following months. Its implementation will replace the now 25-year old North-American Free Trade Agreement (NAFTA) and create a new platform of terms by which Mexico, the United States, and Canada partner in international commerce.

Despite still having weeks of discussion planned for the proposal, the ratification passed quickly, leaving behind months of political setbacks.

Canada’s Prime Minister, Justin Trudeau, and his Liberal party had been trying to find common ground with the opposition of the New Democratic Party to push the USMCA through parliament. A Liberal loss of 20 parliamentary seats in the October elections damped momentum for the proposal and extended negotiations. Nevertheless, Trudeau appeared confident a consensus would be reached.

“We recognize this is an important issue of the Canadian economy and for millions of workers across the country,” Trudeau told news outlets in late January , “Yes we are going to have debate, but we are going to focus on ratifying it.”

In a time of economic uncertainty due to the spread of COVID-19, Canada’s move to ratify the USMCA opens the doors to a closer trade partnership between North America’s three countries. It’s an incredibly detailed plan. It contains three overarching sections and 63 chapters, 13 annexes, and 16 side letters. But in broad terms, the agreement can be boiled down to five core components.

Here’s what they look like.

Automobiles built from 75% of Mexican, American, or Canadian goods will receive a zero-tariff privilege across Mexico, Canada and the U.S., incentivizing manufacturers to keep things like steel, manufacturing goods, and assembly factories inside the country. According to The New York Times , it’s a decision designed to put pressure on competitors in German, Japanese, South Korean, and Chinese car industries.

Secondly, the proposal lays down new labour laws that guarantees better pay and increased protection for low-earning industries. NAFTA made similar provisions, but this new agreement adds a panel, tasked with investigating cases of labour abuse or forced labour. As part of these provisions, certain restrictions are placed on abusing environmental resources, such as over-fishing and taking clearer responsibility on hydrocarbons.

Agricultural producers will have greater access to Canadian and Mexican markets. At the same time, the agreement clearly outlines measures against anti-dumping—the flooding of a market with extremely cheap goods for the purpose of undermining another country’s industry. So while markets for products like cheese and distilled drinks will be more accessible, abuse of those markets has also been clearly defined and guarded against.

Intellectual property and copyright laws have been updated. Entire sections from the agreement are dedicated to simply defining the various terms needed to have a clear conversation on technology and information in the 21 century.

Section A, Chapter 20, for instance, lays out 65 pages of agreements, treaties, and intellectual property guidelines. This is immediately followed by a chapter laying out what competition in trade means. It extends to more than technology and intellectual property, but it has been updated for what that might look like in contexts that simply didn’t exist two decades ago.

Lastly, there’s a provision in the agreement that the deal will expire after 16 years to make sure its effectiveness is re-evaluated at a later date.

While these are general areas of emphasis, the deal is much messier than five agreements. In total, the Chapters 1-34 under section A—the core of the deal—adds up to 1,025 pages, detailing an incredibly wide range of definitions, protocols, and extremely technical rules.

Many of the ideas in the USMCA are carried over from principles in NAFTA. While negotiations for the USMCA began back in August of 2017, an attempt at economic cohesion between the three North American nations is decades-old. Originally, NAFTA’s attempt at a Canadian-American-Mexican agreement was intended to create an advantageous playing field for its participants by providing an agreed set of rules and by encouraging competition. Article 102 of that agreement quite plainly laid out its seven distinct purposes:

It was supposed to grant signatories a “most favored” status, and remove barriers to trade and trade transportation. It was supposed to promote fair competition between countries, but also stimulate investment. The agreement prioritized protecting intellectual property. And its plans included a platform by which to resolve trade discrepancies. And it provided room to continue growing the benefits of trade under the agreement as needed.

On December 8, 1993, President Bill Clinton signed the North American Free Trade Agreement into United States Law. Ninety days later, it went into effect. And for 25 years, NAFTA did exactly what it said it would do.

But for a trade deal that focused on the particulars of its day, NAFTA is old—almost three decades old. The key issues of trade in North America have changed. While there are substantial differences between the two, the USMCA could be understood as an attempt to update and build on the principles that motivated the creation of NAFTA, tailoring it to the needs of a 2020 international trade community.

According to Congressional Research Service, the core of the deal is designed to keep pace with more recent free trade agreements such as the US-Korean agreement and the updated versions of the Trans-Pacific-Partnership.

The CRS concluded that: “The US and global economies have changed significantly since NAFTA entered into force 25 years ago, especially due to technology advances. The widespread use of the commercial internet, for example, dramatically affected consumer habits and commercial activities, such as e-commerce and supply chain management.”

In the past two American presidential elections, both Republican and Democratic parties addressed NAFTA and expressed a desire to restructure the agreement. In the final debate of the 2016 president election, President Trump went as far as calling NAFTA “one of the worst things that ever happened to the manufacturing industry.”

Now with Canadian ratification, the USMCA quite possibly presents the most tangible solution to addressing the changes in an international North American economic community since the implementation of NAFTA.