Indian Time - A Voice from the Eastern Door

A simple explanation of the new trilateral trade deal. The US, Canada, and Mexico struck a new trade deal to replace NAFTA on Sunday, September 30, 2018. It’s known as the United States-Mexico-Canada Agreement or USMCA.

The three countries reached a consensus after more than a year of talks, which began after President Donald Trump made good on his campaign promise to renegotiate the 25-year-old agreement.

It’s basically NAFTA 2.0, with major changes on cars and new policies on labor and environmental standards, intellectual property protections, and some digital trade provisions.

Here are the biggest changes:

Country of origin rules: Automobiles must have 75 percent of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (up from 62.5 percent under NAFTA).

Labor provisions: 40 to 45 percent of automobile parts have to be made by workers who earn at least $16 an hour by 2023. Mexico has also agreed to pass laws giving workers the right to union representation, extend labor protections to migrant workers, and protect women from discrimination. The countries can also sanction one another for labor violations.

US farmers get more access to the Canadian dairy market: The US got Canada to open up its dairy market to US farmers, which was a big issue for Trump. After the Trans-Pacific trade pact and Canada-European, this was the third straight deal to erode Canada’s dairy protections. Additional imports mean less captive domestic market for Canada’s farmers, which means more farms may downsize herds and close. It will ‘force Canadian dairy sector to become more competitive’ and may eventually translate into lower grocery prices.

Intellectual property and digital trade: The deal extends the terms of copyright to 70 years beyond the life of the author (up from 50). It also extends the period that a pharmaceutical drug can be protected from generic competition.

It also includes new provisions to deal with the digital economy, including prohibiting duties on things like music and e-books, and protections for internet companies so they’re not liable for content their users produce.

Steel and aluminum: Section 232 is a trade loophole that Trump has used to impose steel and aluminum tariffs on Canada, Mexico, and the European Union. Both Canada and Mexico wanted protections from these tariffs, but they didn’t get them. They did get the US to make a side agreement that protects them from possible auto tariffs under 232. The Trump administration is keeping the metals tariffs separate, under the pretense of ensuring the United States can ensure domestic supply for its military needs, protecting U.S. steel manufacturers. Canada’s retaliatory tariffs will also stay in place, pushing up industrial commodity prices in both countries on everything from cars to beer cans. Canada and Mexico will probably move to resolve this before the deal is signed later this year.

Wine: One narrow issue was all about British Columbia giving its wine preferential treatment over outsiders, where B.C. which allows only B.C. wine to be sold on regular grocery store shelves while imported wine may be sold in grocery stores only through a so-called ‘store within a store,’” What does it mean? The U.S. had lodged two disputes with the World Trade Organization over the practice, which it says it will drop if B.C. allows American wines to cozy up on grocery store shelves next to B.C. grape. Back in May, when the U.S. launched its second complaint with the WTO, the B.C. Wine Institute CEO issued a press release disputing the entire premise of the American griping stating, “We remain puzzled how they have been harmed as the U.S. has a wine trade surplus of $450.6 million.”

Sunset Clause: The agreement puts in a 16-year “sunset” clause - meaning the terms of the agreement expire, or terms of the agreement expire, or “sunset,” after a set period of time. The deal is also subject to a review every six years, at which point the US, Mexico, and Canada can decide to extend USMCA.

Indigenous exemption, but no separate chapter. The Canadian government spoke of wanting to add an Indigenous chapter to a revised NAFTA, to recognize and respect treaty rights and obligations. There is no standalone chapter on Indigenous rights in the USMC. But there is an exemption that says, “nothing in this agreement shall preclude a party from adopting or maintaining a measure it deems necessary to fulfil its legal obligations to Indigenous peoples.”

That would appear to ensure the new trade agreement doesn’t interfere with ongoing litigation over Indigenous rights, or other funding or policy decisions in Canada pertaining to Indigenous people.

USMCA has been negotiated - now it needs to get approved. Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto have to sign the agreement, which they plan to do before Peña Nieto leaves office at the end of November (possibly at the G20 summit in Buenos Aires in November).

The deal still needs to be ratified by all three governments. Canada and Mexico will likely do so. The real question is the US. Congress likely won’t consider any agreement until 2019, and if the Democrats take control of the House or Senate in the midterms next month, they might be reluctant to give the president a win.