- The U.S.-Mexico-Canada Agreement (USMCA) updates and replaces the old North American Free Trade Agreement (NAFTA), which Trump had threatened to cancel.
- The rewrite will result in freer markets, fairer trade and robust economic growth in the region.
About North American Free Trade Agreement (NAFTA)
- The North American Free Trade Agreement is an agreement signed by Canada, Mexico, and the United States, creating a trilateral trade bloc in North America.
- The agreement came into force on January 1, 1994.
- It superseded the 1988 Canada–United States Free Trade Agreement between the U.S. and Canada
- The treaty made NAFTA the world’s largest free trade agreement with gross domestic product of its three members is more than $20 trillion.
- NAFTA is the first time two developed nations signed a trade agreement with an emerging market country.
- The three signatories agreed to remove trade barriers between them.
- By eliminating tariffs, NAFTA increases investment opportunities.
The New Pact
- On September 30, 2018, the United States, Mexico, and Canada renegotiated the North American Free Trade Agreement.
- The new deal is called the United States-Mexico-Canada Agreement.
- It must be ratified by each country’s legislature
- The new deal changes NAFTA in following areas:
- The most important is that auto companies must manufacture at least 75 percent of the car’s components in the USMCA’s trade zone.
- Canada will now open its dairy market further to U.S. producers, and in return U.S left unchanged the dispute settlement provisions.
- Alongside changes to the dairy market in Canada, it includes stronger protections for workers, tough new environmental rules, and updates the trade relationship to cover the digital economy and provides “groundbreaking” intellectual property protections.
- In addition, it adds provisions to prevent “manipulation” of the trade rules, including covering currency values, and controls over outside countries trying to take advantage of the duty-free market.
Pros and Cons of NAFTA
- S. grocery prices would be higher without tariff-free imports from Mexico.
- Imported oil from both Canada and Mexico has prevented higher gas prices.
- NAFTA has also increased trade and economic growth for all three countries.
- It sent many U.S. manufacturing jobs to lower-cost Mexico.
- Workers who kept jobs in those industries had to accept lower wages.
- Mexico’s workers suffered exploitation in its maquiladora programs.
Functions of NAFTA
- NAFTA grants the most-favored-nation status to all co-signers.
- That means countries must give all parties equal treatment.
- That includes foreign direct investment.
- They cannot give better treatment to domestic investors than foreign ones.
- They can’t offer a better deal to investors from non-NAFTA countries.
- Governments must also offer federal contracts to businesses in all three NAFTA countries.
- NAFTA eliminates tariffs on imports and exports between the three countries.
- Tariffs are taxes used to make foreign goods more expensive.
- NAFTA created specific rules to regulate trade in farm products, automobiles and clothing.
- These also apply to some services, such as telecommunications and finance.
- Exporters must get Certificates of Origin to waive tariffs.
- That means the export must originate in the United States, Canada or Mexico.
- A product made in Peru but shipped from Mexico will still pay a duty when it enters the United States or Canada.
- NAFTA establishes procedures to resolve trade disputes.
- All NAFTA countries must respect patents, trademarks, and copyrights. At the same time, the agreement ensures that these intellectual property rights don’t interfere with trade.
- The agreement allows business travelers easy access throughout all three countries.
- NAFTA has two other agreements that update the original. The North American Agreement on Environmental Cooperation supports the enforcement of environmental laws. The North American Agreement on Labor Cooperation protects working conditions.