The US, Canada, and Mexico's new trade pact looks a lot like NAFTA. Here are the key differences between the two.
- The US and Canada sealed the deal on the US-Mexico-Canada Agreement on Sunday, the first major update of the 25-year-old North American Free trade Agreement (NAFTA).
- The trade deal still bears a lot of similarities to the current NAFTA, but there are major differences as well.
- Some of the key differences: Increased dairy market access for the US, a new sunset clause, and tougher auto rules.
The US and Canada sealed the deal on a new trade agreement on Sunday night, which, along with an earlier US-Mexico agreement, opens to door to a rewrite of the North American Free Trade Agreement (NAFTA).
The new deal, which was dubbed the US-Mexico-Canada Agreement (USMCA), is expected te be signed by the leaders of the three member countries - US President Donald Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto - some time in November. The deal must also be approved by each country's legislature before it comes into force.
While Peter Navarro, the director of the White House National Trade Council, said the new deal means "NAFTA is dead," the USMCA still retains large swaths of the original deal.
For instance, Canada scored key wins with the preservation of NAFTA's state-to-state dispute resolution system and cultural provisions that carve out a certain amount of the Canadian media market for domestically produced programming.
But there are also some notable changes in the USMCA from the original NAFTA. From dairy market access to auto rules to a sunset clause, the three countries made notable edits to the 25-year-old trade deal.
Here's a rundown of some of the key changes in the deal:
- Review clause: The USMCA includes a provision that requires a review of the deal in six years - and a 16-year expiration date. The deal can be extended at the six-year review time. The review clause is less severe than the original demand of a sunset clause from the US, which would have forced each side to recertify the deal every five years in order to keep it in effect.
- Dispute settlement: NAFTA's dispute settlement system between governments will remain the same, a key win for the Canadians. The system allows member countries to bring grievances against other members over alleged unfair trading practices. The investor-state dispute settlement system, which allows investors to bring grievances against member-country governments, will be phased out for the US and Canada. Certain industries such as energy will be able to bring cases against Mexico.
- Dairy access: The US will now be able to export the equivalent of 3.6% of Canada's current dairy market. This is up significantly from about 1% right now, but only slightly above the 3.25% market access Canada would have given the US as part of the Trans-Pacific Partnership (TPP), out of which Trump pulled the US last year. In addition, Canada will get rid of the "Class 7" pricing system that disadvantaged US farmers.
- Access for other agricultural goods: Canada will give the US more access to its chicken, turkey, and egg markets and British Columbia will allow the sale of Us wines at its state-owned liquor stores. Mexico agreed to allow imports of certain US cheeses.
- Auto rules: NAFTA member countries must produce 75% of a car for them to pass through the countries duty-free, up from 62.5%. Additionally, 40% of each car must be produced by workers making $16 an hour or more to avoid duties.
- Tariff side deals: The US came to side agreements with Mexico and Canada that would largely protect the two countries from possible tariffs on imported auto and auto parts. Canada would be allowed to ship 2.6 million cars to the US tariff-free, well above the 1.8 million it sent last year, and send $32.4 billion worth of parts without getting hit by tariffs. Mexico's deal was similar, except the country can send $108 billion worth of parts.
- Commitment to not mess with currency levels: While the US, Mexico, and Canada do not actively intervene to strengthen or weaken their currencies, the pact to "achieve and maintain a market-determined exchange rate regime" could be a model for future agreements with countries that are more active in currency markets.
- Increase in the de minimis levels: The de minimis level is the amount of goods a person can take across the border without being hit with duties. Canada will increase the de minimis level for US goods to 4o Canadian dollars from the current 20 Canadian dollar level - for cross-border shipment like ecommerce, the level will be boosted to 150 Canadian dollars. Mexico will also bump their de minimis level to $50 and duty free shipments to $117.