New NAFTA, who dis?

Posted on October 7, 2018

By Megan Mohler, BLG Fall Associate

NAFTA is out. USMCA is in. Just before the September 30 deadline to submit the full text of the new US-MX trade pact to Congress, Canada was able to agree to updated terms and sign on to the deal, narrowly preserving the tri-lateral trade agreement that will replace the North American Free Trade Agreement. The new agreement will be named the United States-Mexico-Canada Agreement.

Canada joined the agreement hours before the deadline set by President Trump’s notice to Congress in early September that the United States and Mexico had reached a deal on a new trade agreement. That started the clock for Canada to join the new deal before the United States and Mexico needed to provide Congress with full text of the new agreement. After much merry-go-round on American access to Canada’s dairy sector, and a state dispute resolution system, the three North American countries finally agreed on terms. Highlights of the new agreement include:

  • The U.S. will gain greater access to the Canadian dairy sector: 3.6%, up from the previous 1%. This will allow U.S. dairy farmers more ability to sell “Class 7” milk products such as milk protein concentrate, skim milk powder, and infant formula.
  • 30% of autos must be made by workers earning at least $16/hour. By 2023, this rises to at least 40%. Mexico must make it easier for their auto workers to form labor unions, as well.
  • For autos to qualify as duty-free, member countries must have produced 75% of content, up from 62.5%.
  • Canada will give the United States more access to its poultry market, and Mexico agreed to allow increased importation of certain American cheeses.
  • The copyright period in Canada will increase to 70 years after the creator’s death, up from 50 years, previously.
  • The de minimis level to transport U.S. goods across the U.S.-Canadian border will increase to 40 Canadian dollars, up from 20, and commercial shipments will increase to 150 Canadian dollars. U.S. goods traveling across the U.S.-Mexican border will increase to $50 and $117, respectively.
  • The agreement has a sunset clause such that it will last 16 years and will be reviewed every 6 years.
  • The antidumping and countervailing duty dispute resolution mechanism from the old NAFTA will remain intact.
  • The company and investor dispute resolution chapter is gone. Companies and investors must now go through the court system to dispute member-country action, minus a few key industries like energy and telecommunications.

Canada and Mexico will push to resolve the metal tariffs over the next two months and hope to resolve the steel and aluminum tariffs before the USMCA is signed.

Now, the USMCA must be signed by each country’s leader, then approved by each country’s respective government bodies.  The agreement would potentially take effect as early as Jan. 1, 2020.