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Here Are the Key Differences Between NAFTA and the US, Canada, and Mexico's New Trade Pact

Monday, October 01, 2018

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The U.S. and Canada on Sunday sealed the deal on a new trade agreement that, along with an earlier U.S.-Mexico agreement, opens to door to a rewrite of the North American Free Trade Agreement.

The new deal, dubbed the U.S.-Mexico-CanadaAgreement, is expected to be signed by the leaders of the three member countries — U.S. President Donald Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto — in Nov. The deal must also be approved by each country's legislature before it can come into force.

While Peter Navarro, the director of the White House National Trade Council, said the new deal means that "NAFTA is dead," the USMCA still retains large swaths of the original deal.

For instance, Canada scored wins with the preservation of NAFTA's state-to-state dispute-resolution system and cultural provisions that carve out a certain amount of the Canadian media market for domestically produced programming.

But there are also some notable changes in the USMCA from the 25-year-old NAFTA, including increased dairy-market access, new auto rules, and a sunset clause.

Here's a rundown of some of the key changes in the deal:

Review clause: The USMCA includes a 16-year expiration date and a provision that requires a review of the deal every six years, when it can be extended. It's less severe than the U.S.'s original demand for a sunset clause, which would have forced each side to recertify the deal every five years to keep it in effect.

Dispute settlement: NAFTA's dispute-settlement system, which allows member countries to bring grievances against other members over allegations of unfair trading practices, will remain the same, a key win for the Canadians. The investor-state dispute-settlement system, which allows investors to bring grievances against member-country governments, will be phased out for the U.S. and Canada, while certain industries such as energy will be able to bring cases against Mexico.

Dairy access: The U.S. will be able to export the equivalent of 3.6 percent of Canada's dairy market, up from the existing level of about 1 percent. This is slightly above the 3.25 percent market access Canada would have given the U.S. as part of the Trans-Pacific Partnership, which Trump pulled the U.S. out of last year. In addition, Canada will get rid of the "Class 7" pricing system that was seen as disadvantaging U.S. farmers.

Access for other agricultural goods: Canada will give the U.S. more access to its chicken, turkey, and egg markets, and British Columbia will allow the sale of U.S. wines at its state-owned liquor stores. Mexico agreed to allow imports of certain U.S. cheeses.

Auto rules: Members must produce 75 percent of a car for it to pass through the countries duty-free, up from 62.5 percent. Additionally, 40 percent of each car must be produced by workers making $16 an hour or more to avoid duties.

Tariff side deals: The U.S. came to side agreements with Mexico and Canada that would largely protect the two countries from tariffs on imported autos and auto parts. Canada would be allowed to ship 2.6 million cars to the U.S. without tariffs, well above the 1.8 million it sent last year, and send $32.4 billion worth of parts without getting hit by tariffs. Mexico's deal was similar, except the country can send $108 billion worth of parts.

Commitment to not mess with currency levels: While the U.S., Mexico, and Canada do not actively intervene to strengthen or weaken their currencies, the pact to "achieve and maintain a market-determined exchange rate regime" could be a model for future agreements with countries that are more active in currency markets.

Increased protections for intellectual property: The deal increases the copyright period in Canada to 70 years after the creator's death, up from 50 years, bringing the country in line with the U.S. Additionally, exclusivity for biologic drugs before generics can be produced will be increased to 10 years in Canada from eight years, a win for the pharma industry.

Increase in the de minimis levels: The de minimis level is the amount of a good a person can take across the border without being hit with duties. Canada will increase the de minimis level for U.S. goods to 4o Canadian dollars from 20 Canadian dollars; for cross-border shipments like e-commerce, the level will be boosted to 150 Canadian dollars. Mexico will also bump its de minimis level to $50 and duty-free shipments to $117.

Source: Business Insider

Category: Economic Development, Breaking News

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