Business Samarth Baral

NAFTA to USMCA: Is it just a name change?

A new version of the NAFTA was instituted not too long ago. How different is it from the original, and what changes can we expect?

By: Samarth Baral

A new version of the NAFTA was instituted not too long ago. How different is it from the original, and what changes can we expect?

After an extended period of over a year of conferences, debates and discussions, the United States, Canada and Mexico finally set foot on a consensus of opinion in a new trade agreement to replace the North Atlantic Free Trade Agreement (NAFTA) on October 1st, 2018. In its functionality as a trading union, the new agreement, known as United States-Mexico-Canada Agreement (USMCA), is equivalent to NAFTA but with major transformations on the labor and environment benchmarks, and automobile, agriculture and dairy industries. The future prospects of UMSCA are projected to bring about different benefits for some stakeholders, while potentially impacting others negatively.

Before a stakeholder analysis of USMCA can be conducted, it’s essential to highlight the key change of rules and regulations between NAFTA and USMCA. Under USMCA, automobiles are required to have seventy five percent of their machineries manufactured in Mexico, Canada or the United States in order to qualify for zero tariffs, which is a virtual increase from sixty two percent under NAFTA. Consequently, car-manufacturing workers in these three countries could benefit and the aforementioned new rule could stimulate investment in the entire automobile industry in North America. In addition, workers who earn a minimum wage of $16 by 2023 are required to create around forty five percent of automobile components, and Mexico has passed laws that allow workers to form labor unions, increase labor protection and reduce women inequality and discrimination in attempts to improve overall labor standards. The impact on the automobile industry has also improved the geopolitical relations between the three members: USMCA includes letters from the US to the Canadian and Mexican governments that promise to exempt them from any potential tariffs or quotas imposed by the US on automobile components. This mainly for  approximately 3 million Mexican-manufactured vehicles, and US $32.4 billion and $108 billion worth of automobile components from Canada and Mexico. What’s more interesting about the agreement is the effect it could have beyond North America as well. Since the agreement requires manufacturers in North America to source more automobile parts from member states, China may take a significant hit on its exports. Donald Trump’s intentions are clear in that he wants to isolate China and limit trade options of his allies.

A big sticking point in the eyes of Donald Trump is also resolved: Canada’s dairy market. He has persistently insisted that Canada open up its dairy market to US farmers, and the USMCA is expected to grant US a domestic market share of 3.6%. However, according to The Dairy Farmers of Canada, an industrial entity, the implications of this on Canadian dairy farmers, are in a darker light: around 220,000 were coerced in order to seal the deal and their “livelihoods and future generations … are seriously at risk”. The US exports an annual average of $675 million worth of dairy products to Canada in comparison to the $282 million the other way around, which creates an export deficiency between the two nations, placing Canada in a disadvantageous position in the dairy industry. Further, when NAFTA was formed in 1994, the US dairy market became significantly more accessible to Mexico, which has been the largest exporter for them. Despite numerous trade discrepancies in NAFTA and USMCA, Mexico still remains as the largest importer of US dairy products as these outlines remain unchanged under the USMCA. However, Mexico has imposed tariffs on cheese as a retaliation move against the Trump Administration’s tariffs on Mexican aluminum and steel.

The exact efficacy of this trading bloc still remains unclear. The automobile and dairy product industries are subject to change the most under the new policies of USMCA. Due to disputes such as the US’ coercion on Canadian workers to agree with certain guidelines in the dairy market, pragmatically only harm them, and may act as a barrier for the upcoming ratification of the treaty. Although the USMCA is said to drive financial and fiscal growth among its parties, its image as a trading bloc is perceived as an America-first agreement, and it’s these differences in benefits that could further cause changes in the agreement.

Works Cited:

Image: South China Morning Post

Gerber, J. (2018, October 26). What revised NAFTA deal means for the US. The San Diego Union-Tribune. Retrieved from http://www.sandiegouniontribune.com/opinion/commentary/sd-utbg-trade-deal-nafta-usmca-20181026-story.html

Fernandez de Castro, R. (2018, October 26). How USMCA trade deal helps avert crisis for Mexico. The San Diego Union-Tribune. Retrieved from http://www.sandiegouniontribune.com/opinion/commentary/sd-utbg-trade-deal-mexico-usmca-20181026-story.html

Haggart, B. (2018, October 28). Make no mistake: The USMCA is an America-first trade deal. The Conversation. Retrieved from http://theconversation.com/make-no-mistake-the-usmca-is-an-america-first-trade-deal-104818

Kirby, J. (2018, October 3). USCMA, Trump’s new NAFTA deal, explained in 500 words. Vox. Retrieved from https://www.vox.com/2018/10/3/17930092/usmca-nafta-trump-trade-deal-explained

Muprhy, J & Sherman, N. (2018, October 1). USMCA trade deal: Who gets what from the ‘new NAFTA’? BBC. Retrieved from https://www.bbc.com/news/world-us-canada-45674261

Long, H. (2018, October 1). USMCA: Who are the winners and losers of the ‘new NAFTA’? The Washington Post. Retrieved from https://www.washingtonpost.com/business/2018/10/01/winners-losers-usmca-trade-deal/?noredirect=on&utm_term=.f88b31203f69

Pak, J. (2018, October 4). How will the USMCA trade deal impact China? Market Place. Retrieved from https://www.marketplace.org/2018/10/04/world/how-will-usmca-trade-deal-impact-china

Stuart, O. (2018, October 12). How will the shift from NAFTA to USMCA affect the auto industry? The Economy. Retrieved from https://www.industryweek.com/economy/how-will-shift-nafta-usmca-affect-auto-industry

 

 

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