NAFTA’s New Clothes

Almost a year and a half after President Trump’s executive order declaring his intention to revise the North American Free Trade Agreement (NAFTA), negotiations have finally produced a preliminary update to the 24-year-old trade deal. The new deal, re-christened the “United States–Mexico–Canada Agreement” (USMCA), required concessions from all parties involved to flourish. The legislation is not being reported as a great departure from its predecessor, but here are most of the major areas of impact:

Agriculture

The agricultural industry has been reportedly pleased with the new law. The industry, which benefited from a quadrupling in trade after the passage of the original NAFTA, will not see any major changes to their operations. All agricultural products that are currently sold without tariffs will continue to do so in the USMCA.  One major change brought upon by the legislation will impact the dairy industry. The USMCA addressed some of Canada’s protectionist dairy policies, allowing the American dairy industry to increase their presence in the Canadian market. The move, predictably, has been lauded by American dairy companies. At the same time, their Canadian counterparts have demonstrated disdain for their governments “betrayal” of the domestic industry. However, many experts say because of the policies limited changes in tariff policies, the changes will not spur considerable differences in the current state of the industry. Overall, agriculture remains relatively unaffected.

Automobile Industry

Some of the most hallmark changes to NAFTA were the ones that add new regulations to the auto industry. The new agreement requires that by 2023, automobile makers to use 75% North American parts in order to continue to sell cars duty-free. This change is provoking concern about the rising cost of production for American businesses and could result in the increased cost of goods. Another part of the agreement requires that 40-45% of these goods must be manufactured by workers earning wages of at least 16 dollars an hour, about 3 times the average current pay of Mexican workers. This could benefit US manufacturers struggling to compete with Mexican firms. Overall, this policy is seen as a victory for American workers because of their increased abilities to compete with once lower-paid Mexican workers.

 Digital Trade

While NAFTA was signed in the infancy of the internet, the USMCA takes steps to regulate digital trade. Ironically, many of its provisions are taken from the now-defunct Trans-Pacific Partnership (TPP). Just like the TPP, the agreement bans customs duties on digital products. The new agreement also bars data localization laws that prohibit data of a certain country’s citizen being stored in a different country) within member countries. This is can be read as a rebuke to the more protectionist policies of China and Russia, where data localization requirements are seen as barriers to the free flow of digital trade. Additionally, the agreement includes provisions that establish personal information protection laws, ensure that government data is provided in a machine-readable format and enforce consumer protection laws online. Although the effects of these specific policies have yet to be examined by industry experts, the USMCA is the first agreement of its kind to include thorough examinations of digital trade laws.

China

The USMCA contains a provision that stipulates that should one of the three signatory countries enter into a free-trade agreement with a non-market country, the other countries can terminate the trilateral agreement after 6 months and enter into a bilateral one with the other remaining country. This clause has been noted by most experts as directly opposing the continuing increase in Chinese global entanglements. It is particularly troublesome for Canada, whose second largest trading partner (after the United States) is China. Additionally, the place of origin requirement for auto-industries might have an effect on the number of Chinese imports.

Trade Mechanisms

One point of contention during negotiation was NAFTA’s Chapter 19, which allows member countries to dispute anti-dumping related policies created by other countries in front of an independent panel. Canada fought hard for the addition of this dispute mechanism, and although opposed by the United States, it is part of the new agreement. Also controversial was Section 232, which allowed the US to block imports from other countries for national security reasons. The re-addition of this provision was opposed by Canada but made its way into the new agreement, albeit the new version protects Canada and Mexico from auto industry tariffs. The new agreement contains a sunset clause, which automatically terminates the agreement after 16 years, barring renegotiations. It also includes a provision that requires a policy review every 6 years, which is reportedly a compromise to the original Trump administration demand of a 5-year sunset clause. The original idea was abandoned after economists warned it cause market uncertainty.

Domestic Politics

Trump’s economic policy platform relied on ideas of protectionism and he had often threatened to end NAFTA. His administration seems to be celebrating the negotiation of the USMCA as a policy victory for American industry and workers. Although the tangible changes to NAFTA are minimal, proving his commitment to “America First” ideals (witnessed in the very name of the new agreement) could be a rallying point for Trump’s future campaigns or even Republicans campaigning in the midterms.

The USMCA still has a ways to go before becoming verifiable law. It must be ratified by the government of each individual country. With the Congressional elections taking place before the ratification vote within the United States, the passage of the law is far from certain.

Leave a Reply

Your email address will not be published. Required fields are marked *