What is the USMCA?

BACKGROUND

The economic relationship between the U.S. and its two largest trading partners ― Mexico & Canada ― is entering a new era with the implementation of the U.S.-Mexico-Canada Agreement (USMCA) in 2020. The USMCA aims to update and improve upon its predecessor agreement, the North American Free Trade Agreement (NAFTA), which governed trade relations between the three nations from 1994 until recently.

OVERVIEW

The U.S.-Mexico-Canada Agreement (USMCA) was initially negotiated and agreed to by U.S. President Donald Trump, Mexican President Enrique Peña Nieto, and Canadian Prime Minister Justin Trudeau in November 2018. It came about after Trump made the renegotiation of NAFTA a key pillar of his trade agenda, arguing NAFTA disadvantaged American workers, and threatened to withdraw from the trade agreement if a new deal couldn’t be reached. 

While the leaders of the countries in the USMCA reached an agreement in November 2018, the trade deal had to be ratified by each countries’ legislature and negotiations over aspects of the USMCA continued. The Trump administration and congressional Democrats reached a compromise on elements of the USMCA in December 2019, which cleared the way for ratification by Congress. Mexico, which ratified the initial version of the USMCA in June 2019, then ratified the revised agreement a few days later. The ratification process in Canada is ongoing, but is expected to be completed in the spring of 2020.

In Congress, the USMCA passed the House on a bipartisan vote of 385-41 on December 19, 2019, and was approved by the Senate on January 16, 2020, following a similarly bipartisan vote of 89-10. It was then signed into law by President Donald Trump on January 29, 2020. 

At a high-level, the USMCA removes or reduces barriers to trade between the U.S., Mexico, and Canada. For instance, it requires Canada to lift tariffs on U.S. agricultural products and ease subsidies for its own agricultural products. Mexico is required by the USMCA to improve protections for workers, such as recognizing their right to collective bargaining, and will face improved monitoring & enforcement procedures for labor violations. 

Additionally, the USMCA improves standards for manufacturing in North America, standardizes intellectual property standards, streamlines regulations for small & medium businesses operating in the three countries, and establishes a dispute resolution process.

The USMCA builds upon an already strong trading relationship between the U.S., Mexico, and Canada. Census Bureau data shows that Mexico & Canada were America’s largest trading partners in 2019, surpassing even China:

• U.S. trade with Mexico totaled $614.5 billion, including $358.1 billion in imports & $256.5 billion in exports (14.8% of U.S. foreign trade).
• U.S. trade with Canada totaled $612.4 billion, including $319.7 billion in imports & $292.7 billion in exports (14.8% of U.S. foreign trade).
• For comparison, U.S. trade with China totaled $558.9 billion, including $452.2 billion in imports & $106.6 billion in exports (13.5% of U.S. foreign trade).

WHAT ARE THE DETAILS OF THE USMCA?

Here’s a section-by-section breakdown of the USMCA’s key provisions:

AGRICULTURE

• American dairy farmers will have new export opportunities to sell products (such as milk, cream, butter, skim milk powder, cheese, and other dairy products) into Canada, which will also eliminate its tariffs on whey & margarine.
• Canada would provide new access for chicken, eggs, and turkey produced in the U.S. 
• Canada would also eliminate a program that allows dairy products to undercut U.S. dairy sales in Canada & third country markets, and apply export charges to exports of skim milk powder, milk protein concentrates, and infant formula at volumes above an agreed threshold.
• Canada would agree to grade U.S. wheat imports in the same manner it grades Canadian wheat. Grading standards for food & agricultural products between the U.S. & Mexico would be non-discriminatory.
• Mexico would not restrict market access for U.S. cheeses with certain names.
• All other tariffs on agricultural products traded between the U.S. and Mexico would remain at zero.
• The USMCA would cover all biotechnologies, such as gene editing, and the three nations would enhance information exchange & cooperation on agricultural biotechnology trade matters.
• The U.S., Mexico, and Canada would agree to not use export subsidies or World Trade Organization special agricultural safeguards for products exported to each other’s market.
• The U.S., Mexico, and Canada would also agree to non-discrimination commitments regarding the sale & distribution, labeling, and certification of wine & distilled spirits (including continued recognition of Bourbon Whiskey, Tennessee Whiskey, Tequila, Mezcal, and Canadian Whiskey as distinctive products).

MANUFACTURING

• The USMCA would require that 75% of auto content be made in North America. This would preserve & re-shore vehicle & parts production in the U.S. and spur investment by automakers. At least 40-45% of auto content would have to be made by workers earning at least $16 per hour.
• Producers of autos, auto parts, and other industrial products such as chemicals, steel-intensive products, glass, and optical fiber would have to meet stronger rules of origin. North American parts & materials would receive preferential tariff benefits.
• To promote greater use of Made-in-the-USA fibers, yarns, and fabrics, rules allowing for some use of non-NAFTA inputs in textile & apparel trade would be limited.
• Additional manufacturing sectors that would be covered under new provisions in the USMCA include information & communication technology, pharmaceuticals, medical devices, cosmetic products, and chemical substances.

LABOR MONITORING

• Mexico would have to take legislative actions to provide for the effective recognition of workers’ rights to collective bargaining.
• A U.S.-Mexico Rapid Response Mechanism would be established to provide for monitoring & expedited enforcement of labor rights under Mexico’s landmark labor reform while respecting sovereignty & due process.
• An Interagency Labor Committee will actively monitor Mexico’s compliance with labor requirements and report to Congress on them.

INTELLECTUAL PROPERTY

• Full national treatment would be required for copyright & related rights, so U.S. creators will have the same protections domestic creators receive in a foreign market.
• Patentability standards & patent office best practices would ensure that U.S. innovators, including small- and medium-sized businesses and pharmaceutical & agricultural innovators are able to protect inventions through patents.
• A minimum copyright term of life of the author plus 70 years (or 75 years after first publication) would be required.
• Standards would be established to prevent circumvention of technological protection measures that protect digital music, movies, and books.
• Customs duties & other discriminatory measures couldn’t be applied to digital products distributed electronically, such as e-books, videos, music, software, or games.
• Law enforcement would have authority to stop suspected counterfeit or pirated goods at every phase of entering, exiting, and transiting through the territory or any party.
• Civil & criminal penalties would be established for satellite & cable signal theft.
• Broad protections would be established against trade secret theft, including against state-owned enterprises.
• U.S. financial service suppliers would receive the same treatment as local suppliers under most-favored-nation treatment. Market access restrictions would be prohibited.

ENVIRONMENTAL MONITORING & ENFORCEMENT

• Harmful fisheries subsidies that benefit vessels or operators involved in illegal, unreported, and unregulated (IUU) fishing would be prohibited. Customs inspections at ports of entry would be enhanced to ensure strong enforcement against IUU fishing.
• New protections would be established for marine species like whales & sea turtles, while shark-finning would be prohibited.
• New provisions would be established to improve air quality, prevent & reduce marine litter, support sustainable forest management, and ensure appropriate procedures for environmental impact assessments.
• The U.S. & Mexico would participate in a separate Environment Cooperation & Customs Verification Agreement to combat trade in illegally taken wildlife, fish, and timber.

SMALL & MEDIUM ENTERPRISES

• The USMCA would include a first-ever chapter on small- and medium-enterprises (SMEs). It would establish information sharing tools to help SMEs understand the benefits of the USMCA and a SME committee comprised of officials from each country.
• Rules regarding paperwork, duties, and taxes for express shipments between the U.S., Mexico, and Canada would be reduced to lower burdens on small shipments.
• Local presence requirements for cross-border service providers would be eliminated, thus enabling SMEs to avoid the unnecessary burden of opening a foreign office in order to do business.

GENERAL PROVISIONS

• The USMCA couldn’t be used to amend, modify, or invalidate any U.S. federal law or state law.
• The president or other appropriate U.S. government officials would be authorized to make certain proclamations, put forward regulations, or make changes to tariffs in advance of the USMCA taking effect. 
• The USMCA will enter into force at least 30 days after the president submits a written certification to Congress that Mexico & Canada will have taken the necessary steps to implement the USMCA on the date specified by the president.
• Tariffs and duties would be eliminated on goods that originate from USMCA countries unless otherwise specified.
• If a trade dispute between the parties to the USMCA arises, the formation of a dispute settlement panel would be required.

WHAT IS THE “FAST TRACK” FOR TRADE AGREEMENTS?

Trade promotion authority (TPA or fast track authority) allows the president to negotiate trade deals that have to be considered by Congress without amendment and receive votes on the floors of the House and Senate within a 90 day timeframe. The USMCA was approved under fast track authority.

Once a fast track trade agreement is submitted to Congress by the president, an implementation bill is introduced in each chamber on its next day in session and referred to relevant committees. Committees then have 45 days to consider the bill and report it to the full House, after which it’s automatically discharged for a floor vote within the next 15 days.

Because tariffs are taxes that generate revenue to the government, the House generally has to consider a trade implementation bill first to avoid a “blue slip” issue that violates the Constitution’s Origination Clause.

After it’s passed by the House, Senate committees have 15 days to consider the trade bill and report it, otherwise it’d be discharged so that it could get a floor vote within the subsequent 15 days. Only a simple majority is required for such a bill’s passage on the Senate floor.

Fast track authority itself is time-limited and subject to renewal by Congress. It was last extended by the 114th Congress via the Bipartisan Congressional Trade Priorities and Accountability Act, when the Obama administration was pursuing the Trans-Pacific Partnership. It provided fast track authority through July 1, 2018 with a three-year extension available at the president’s request, which the Trump administration took advantage of to keep fast track trade authority available until July 1, 2021.

WHAT DO SUPPORTERS OF THE USMCA SAY?

The USMCA provides a much-needed update of America’s trade relationships with Mexico and Canada. It improves upon NAFTA to further ease barriers to trade between the three countries, and will be a long-term benefit to the economies of each nation.

WHAT DO OPPONENTS OF THE USMCA SAY?

The USMCA doesn’t do enough to ensure protections for workers and the environment. Alternatively, the USMCA doesn’t go far enough in reducing barriers to trade between the U.S., Mexico, and Canada.

RESOURCES

• Countable - USMCA Implementation Act
• Census Bureau - Top Trading Partners

— Eric Revell

(Photo Credit: White House via Flickr / Public Domain)