U.S. Congress and The White House Reach an Agreement to Approve the USMCA
By: Edward Patton
House Democrats and President Donald Trump struck an agreement to revise a new trade deal with Mexico and Canada, delivering a win for the president on a top legislative priority on December 10, 2019. House Speaker Nancy Pelosi, D-Calif., called the revised trade pact “a victory for America’s workers.”
Congress agreed to the U.S.-Mexico-Canada Agreement (USMCA), sometimes called NAFTA 2.0. The agreement updates the North American Free Trade Agreement, the 1994 pact that governs more than $1.2 trillion worth of trade among the three nations, for the 21st century. The new USMCA will support mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America. The agreement is expected to be formally voted on before the end of the year.
The USMCA provides changes to Intellectual Property and Digital Trade protection. These changes would potentially liberalize financial services markets and facilitate a level playing field for U.S. financial institutions, investors and investments in financial institutions, and cross-border trade in financial services. Labor protection and new trade rules of origin will drive higher wages by requiring that 40-45 percent of cars and trucks be made by workers earning at least USD $16 per hour. The USMCA requires Mexico to change its laws to make it easier for workers to unionize.
The United States, Mexico, and Canada have agreed to stronger rules of origin that exceed those of both NAFTA 1.0 and the Trans-Pacific Partnership (TPP), including automobiles and automobile parts and other industrial products such as chemicals, steel-intensive products, glass, and optical fiber. This deal exceeds NAFTA 1.0 and the TPP by establishing procedures that streamline certification and verification of rules of origin and that promote strong enforcement. This includes new cooperation and enforcement provisions that help to prevent duty evasion before it happens. The new rules will help ensure that only producers using sufficient and significant North American parts and materials receive preferential tariff benefits. For example, in the automotive industry, there are big changes in the rules of origin. The goal of the new deal is to have more car and truck parts made in North America. Soon, to qualify for zero tariffs, a car or truck must have 75 percent of its components manufactured in Canada, Mexico or the United States, a substantial boost from the current 62.5 percent requirement.
Finally, unlike NAFTA, the USMCA has a sunset provision meaning the terms of the agreement expire, or “sunset” after 16 years. The deal is also subject to a review every six years, at which point the U.S., Mexico, and Canada can decide to extend the USMCA.
The White House has yet to release a final copy of the USMCA, so not all of the details are known. This deal was first announced in September 2018 but House Democrats have demanded several changes since then. The latest full version of the text, which was released publicly in May, does not include changes negotiated in recent days. The effective date of the agreement is not known.
