The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico and the United States, creating a trilateral trade bloc in North America. NAFTA was created in 1994 and is set to be replaced by the 2018 United States-Mexico-Canada Agreement (USMCA). NAFTA was controversial when first proposed, because it was the first free trade agreement between two wealthy, developed countries and a developing country. But, NAFTA helps to deepen economic relations between the three countries and USMCA will help promote a common trade agenda with shared values between the three countries. The renegotiations of NAFTA to the creation of USMCA will benefit Canada in the long term by preserving key elements of the trading relationship and reinforcing strong ties between Canada, Mexico and the U.S., incorporate new and updated provisions that seek to address 21st century trade issues and promote opportunities for North Americans.
Reinforce Strong Ties with U.S. and Mexico
According to the government of Canada, the U.S. and Mexico are Canada’s first and third largest merchandise trading partners in the world. Trade between Canada, the U.S. and Mexico has more than tripled since the agreement took effect in 1994 (Villarreal & Fergusson, 2017). In 2011, the trilateral trade among NAFTA partners reached $1 trillion (Villarreal & Fergusson, 2017). The new USMCA agreement helps to maintain the strong economic ties between the three partners and maintain the key elements of the trading relationship. The key elements maintained in the USMCA relationship are facilitating trade in goods, dispute settlements, and agriculture.
The original NAFTA eliminated almost all tariffs between Canada, Mexico and the U.S. with little exceptions. The USMCA maintains these benefits and ensures the majority of USMCA trade will continue to be duty-free. Additionally, to facilitate a free-flow of goods, a new Customs Administration and Trade Facilitation Chapter standardizes and modernizes customs procedures throughout North America. Important improvements to disciplines on technical barriers to trade have been made to make it easier for Canadian businesses to export goods within the USMCA region. As a result of the USMCA agreement, Canada has agreed to maintain a de minimis threshold, allowing consumers to order $150 of goods from U.S. retailers without paying duties, and $40 without paying the provincial sales tax of GST. These new provisions that further establish administrative procedures for courier companies should lead to lower service fees charged to Canadians by these companies (Government of Canada, 2018).
When looking at handling disagreements, the USMCA continues to offer Canada legal avenues that are the same as NAFTA. Preserving the use of binational panels to resolve disputes on countervailing and anti-dumping duty matters, which is crucial to preserving market access outcomes and defending Canada’s interests in trade remedy cases (Government of Canada, 2018). Through this mechanism, a nation can block imports if it believes that the country sending the goods is not behaving fairly in its trading relationship. The Canadian government made it clear that ditching this was a deal breaker, as Justin Trudeau explained, “we know we have a president who doesn’t always follow the rules as they’re laid out.” (Proudfoot & Markusoff, 2018). President Donald Trump and U.S. trade representative Robert Lighthizer disliked the provision, arguing it interfered with U.S. sovereignty. But this dispute resolution was previously very effective when used by Canada in the softwood lumber dispute in the early 2000’s, and arbitration panels ruled against the U.S. and Canada worked out a settlement. The preservation of the dispute resolution from NAFTA is seen as a huge success of the Canadian negotiators, as “Having a robust and fair dispute-resolution mechanism is absolutely critical to maintaining a rules-based trading system and providing an avenue for Canada and Canadian companies to appeal unwarranted duties,” Susan Yurkovich, president of the B.C. Lumber Trade Council, said in a statement.
The USMCA will also preserve the existing agriculture commitments between Canada, the U.S. and Mexico, which will continue the highly integrated industry. Canada secured a number of beneficial outcomes for agriculture including; new market access in the form of tariff rate quotas for refined sugar and sugar-containing products; a modernized Committee on Agriculture Trade, providing a conference for Parties to address issues and trade barriers; and obligations for agricultural biotechnology that will boost innovation, transparency and predictability (Government of Canada, 2018). The new USMCA agreement helps to maintain the strong economic ties between the three partners by maintaining the facilitation of trade in goods, dispute settlements and agriculture.
Updated Provisions on Trade Issues that Seek to Address 21st Century Trade Issues
This modernized trade agreement preserving key elements of the trading relationship between Canada, the U.S. and Mexico, it also includes updates and new chapters to address modern-day trade challenges and opportunities. The USMCA agreement incorporates new and updated provisions that seek to address the 21st century trade issues of environment, automobile industry and agreement review process.
A thorough environment chapter was added to USMCA and aims to introduce new commitments addressing global environmental challenges. Canada is completely committed to the idea that trade liberalization and environmental protection should be mutually supportive. The chapter introduces new commitments addressing global environmental challenges such as; illegal wildlife trade; illegal fishing and the depletion of fish stocks, species at risk, conservation of biological diversity, ozone-depleting substances and marine pollution (Government of Canada, 2018). The parties recognize these important issues and are committed to working together to address them.
The revision of the automotive rules of origin now require a higher regional content minimum, rising to 75% from the current 62.5% (Proudfoot & Markusoff, 2018). There has also been a new requirement added stating that at least 40% of content must be made by workers earning US $16 per hour or more (Proudfoot & Markusoff, 2018). Donald Trump previously threatened to apply tariffs of up to 25% on any vehicle or automotive part entering America (Government of Canada, 2018). With the successful closure of the USMCA agreement, the Canadian and Mexican automotive industries no longer have to face this crippling threat. This encourages more growth in Canada’s automotive exports, currently worth around $50 billion (Government of Canada, 2018). The tougher rules of origin for the auto sector will help keep the benefits of the agreement in North America and reduce the incentives to make investments and sourcing decisions based on the availability of low-cost labor, while promoting good, well paying jobs for Canadians.
In the USMCA agreement, a new clause was added called the “sunset clause”. The “sunset clause” is an agreement that states that the USMCA deal will run out after 16 years, unliked the NAFTA agreement that had no expiry date (Government of Canada, 2018). As the U.S. wanted the deal to run out after 5 years, Canada and Mexico wanted more stability but agreed to review the deal will in 6 years from now, and ultimately have the option to extend it beyond that term (Government of Canada, 2018). This new review process will help insure that the agreement stays relevant, effective and beneficial to North American workers. It will also help to address issues before they become major threats, and provide both predictability and stability for Canadian businesses and consumers. The USMCA agreement includes crucial updates and addresses modern-day challenges and opportunities, with new and updated provisions that address the 21st century trade issues of the environment, automobile industry and agreement review process.
Promote Opportunities for North Americans
The new USMCA trade agreement not only reinforces strong ties with U.S. and Mexico and incorporates new and updated provisions that seek to address the 21st century trade issues, but it also promotes opportunities for North Americans. The USMCA promotes opportunities for North Americans by addressing; workers rights, labour standards and working conditions, and gender and indigenous equality within the three countries.
The USMCA includes a robust chapter on labor, a chapter that aims to equalize the playing field on labor standards and working conditions between the three countries, consisting of commitments in ensuring