By: Shiv Soin
Is the new Nafta the definition of a good deal?
On September 30th, 2018, the United States, Mexico, and Canada collaboratively reached an agreement that would change the current iteration of the 1994 North American Free Trade Agreement, commonly referred to as NAFTA, which was created to strengthen the economic might of North America. This new agreement, dubbed the United States-Mexico-Canada Agreement (USMCA), was, in large part, a result of long-winded attacks from U.S. President Donald Trump on the existing deal and how Americans were losing profits and jobs from their participation in NAFTA. After a strenuous negotiation process, has Donald Trump been able to improve the issues he saw in the original trade agreement and, more importantly, what do these new guidelines mean for Americans and North America as a whole?
Under NAFTA, Canada maintained high tariffs on U.S. dairy products in order to protect Canadian dairy farmers’ market share. This tariff was only imposed after American imports exceeded their individual quotas, but President Trump has expressed his desire to increase dairy imports to Canada despite the quota. After negotiations, Canada has allowed for more U.S. dairy products to enter the country.
Another major point of contention revolved around the United States imposing tariffs on steel and aluminum on Mexico and Canada under Section 232 of the Trade Expansion Act of 1962. Both nations wanted protections from these tariffs, particularly Canada, who has found these tariffs insulting considering the close relationship between the two nations. Although most of the tariffs will remain intact, the U.S. has signed a “side agreement”, which protects Mexico and Canada from any automobile tariffs America will impose.
One of USMCA’s priorities is to increase car manufacturing in North America rather than having car companies resort to cheaper production in Asia. To accomplish their goal, the three nations have agreed that automobiles must have 75 percent of their components manufactured, increased from its current 62.5 percent threshold, within the three member nations to qualify for zero tariffs.
USMCA has also increased the wages of car workers. At least 40 to 45 percent of the work done on automobiles must be done by workers earning $16 an hour. This wage is three times higher than what is currently earned in Mexico, which is the purpose of the provision.
The USMCA agreement increases labor regulations, especially in Mexico. Mexican workers must be allowed to organize and form unions, as well as increase their safety regulations and protect women from discrimination in the workplace.
Chapter 11 and Chapter 19
Under NAFTA, Chapter 11 allows investors to challenge government policies that would hurt their businesses. In the USMCA, this provision has been eliminated from Canada and the U.S. and has been limited in Mexico.
The preservation of Chapter 19, which created an independent commission to resolve trade disputes between the member nations, was critical to Canada. It wanted to keep the United States accountable for their trade policies. Despite Trump’s desire to remove this provision, Chapter 19 remains in the USMCA agreement.
The intellectual property protections under NAFTA have been adapted for the increasingly digital world. Copyright terms have been extended to 70 posthumous years of the author from the original 50. E-commerce has also been directly addressed by ensuring no surcharges on electronically purchased products.
It’s almost impossible to predict the full impact trade deals can have on a nation. However, it’s still possible to see some of the possible benefits and loses the USMCA could produce.
One key requirement is that 75 percent of car components must be made from North America, up from 62.5 percent. Because of this stipulation, car manufacturers would be investing more money in the the U.S. rather than abroad. However, some companies may be de-incentivised from producing cars domestically, which could move the industry abroad. Another key requirement is the increase in minimum wage for workers. This increase could lead to a movement toward automation and a decrease in labor.
On an international level, USMCA could be seen as a targeted measure to combat China’s rising influence in the global economy. A senior Trump official commented to the Washington Post how “the deal would be a “playbook” for future trade deals.” The article suggests that “Washington could pressure other allies to loosen their trade ties with Beijing.” These actions could somewhat diminish the economic advantage China currently has.
On November 6th, 2018, the U.S. held their midterm elections to elect new members of Congress. The election resulted in a Democratic majority in the U.S. House of Representatives for the first time since 2011. Democrats are reluctant to pass the USMCA in its present form. Rep. Bill Pascrell (NJ-9), who is expected to chair the House Ways and Means Subcommittee, has stated that “the jury is still out as to whether this deal meets my standard for a better deal for American workers” in an interview with CNBC. Canada and Mexico, however, have explicitly stated that renegotiations will not occur.
USMCA has revitalized NAFTA in many elements, from tariffs to intellectual property and more. Although it’s impossible to understand the agreement’s full implications, indications show that possible adverse effects may occur in the auto industry and on the labor force. For America, President Trump entered these negotiations with hopes to improve the deal for the U.S. USMCA’s full impact is difficult to predict, but based on the actions taken in the auto industry, it may cause undesired results for Americans.
Image Source: https://www.farmfutures.com/trade/wait-celebrate-usmca
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