Should the U.S.-Mexico-Canada Agreement Replace NAFTA? (H.R. 5430)

What is H.R. 5430?

(Updated January 18, 2022)

This bill would implement the United States-Mexico-Canada Agreement (USMCA) and replace the North American Free Trade Act (NAFTA) in governing trade between the three nations. The USMCA would reduce tariffs between the three countries, expand market access, protect intellectual property protections, promote manufacturing, and increase opportunities for small businesses. A breakdown of its various provisions can be found below.

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 autos, auto parts, and other industrial products such as chemicals, steel-intensive products, glass, and optical fiber would be 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 the right to collective bargaining for workers.

• 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.

ENVIRONMENT 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.

Argument in favor

The USMCA will provide a much-needed modernization of the trading relationship between the U.S., Mexico, and Canada. This bipartisan trade agreement will create jobs in the U.S., strengthen American manufacturing & intellectual property, open markets to U.S. exporters, and contains strong enforcement mechanisms to protect labor and environmental interests.

Argument opposed

While it may be bipartisan, the USMCA doesn’t do enough to open markets in Mexico & Canada to U.S. exporters or contain strong enough protections for the environment and workers. It should include stringent provisions to bind the U.S., Mexico, and Canada to reducing carbon emissions and fighting climate change. The USMCA won’t be an improvement on NAFTA.

Impact

Consumers & businesses in the U.S., Mexico, and Canada; and those countries’ governments.

Cost of H.R. 5430

The CBO estimates that enacting this bill decrease budget deficits by $3.044 trillion over the 2020-2029 period due to increased tax receipts.

Additional Info

In-Depth: House Ways & Means Committee Chairman Richard Neal (D-MA) offered the following statement when his committee held a hearing on the USMCA:

“The implementing bill before us is the result of many months of negotiations between the House Democrats and Ambassador Lighthizer, and I’m very proud of the outcome we’ve reached… When we assumed the majority this year, we were asked to consider a renegotiated NAFTA that had structural flaws in a number of key areas: enforcement, labor rights, environment, and access to medicines… The improvements to the USMCA that we negotiated finally make the agreement enforceable by preventing a country from being able to block the formation of a dispute settlement panel… Over the 25 years of the NAFTA, there have been 39 petitions filed documenting the exploitation of workers, and zero enforcement actions to remedy those violations. In close partnership with our labor unions and with the robust support of the Ways & Means Committee Democrats, we negotiated improvements to the rules and to our monitoring regime, and we established a new enforcement mechanism… On monitoring, for the first time we have created a proactive monitoring regime for the labor obligations in a trade agreement. The implementing bill establishes an Interagency Labor Committee that will actively monitor Mexico’s compliance and report to Congress… The USMCA will now include the highest environmental standards of any trade agreement and will include a new customs verification agreement to enhancement enforcement… With the dedication of the Working Group Members appointed by the Speaker, we also secured important changes in the USMCA that preserve Congress’s ability to change U.S. law to address the crisis we face with respect to high prescription drug prices. These changes set a new standard for U.S. trade agreements and demonstrate that trade agreements can achieve broad bipartisan support if they empower workers, protect patients’ access to affordable healthcare, and improve our shared environment. I’m proud to support this agreement and the implementing bill before us.”

House Ways & Means Committee Ranking Member Kevin Brady (R-TX) added:

“It goes without question, USMCA is a sorely needed modernization of NAFTA. It has been over 25 years since we updated our trading relationship with Mexico and Canada, and a lot has changed since then. We didn’t have Google in 1994. We didn’t receive news on our smartphones. Netflix didn’t exist. USMCA brings our trading rules into the 21st Century and will be a force multiplier for America’s already strong economy. President Trump and Ambassador Lighthizer have fought hard and delivered on their promise for a pro-growth and modern trade pact. And because of their leadership, we now have a trade deal that will deliver historic wins for our economy. And that’s because this is a trade deal that is all about growth. USMCA will set the stage for billions more in economic activity. It creates, for the first time, rules for competing in the digital economy. With a brand-new digital chapter, American innovators will be empowered to sell goods and services globally, allowing for a stronger American economy. And it pries open Canada’s market for U.S. farmers and ranchers to sell American dairy, wheat, chicken, eggs, and turkey. Our services providers will be able to lock in access to Mexican and Canadian customers. And the agreement is enforceable, allowing us to challenge violations and stopping countries from blocking those challenges, holding Mexico and Canada accountable for these new rules. For America, this means more jobs. It means more customers. And it gives America’s innovators the tools they need to succeed here in America as we compete with countries like China. Independent experts predict this new agreement to spur over $68 billion in new economic activity. More than 176,000 American jobs are set to be created, including 76,000 new auto-sector jobs. And best of all for the American people, USMCA is a truly bipartisan agreement, not a trade deal filled with radical leftist ideas.”

President Donald Trump sent a letter to Congress expressing his support for the USMCA:

“I am pleased to transmit legislation and supporting documents to implement the United States-Mexico-Canada Agreement (the “Agreement”). The Agreement is an important part of my Administration’s efforts to rebalance trade in North America and to modernize our trade relationship with Mexico and Canada. The Agreement will create significant new opportunities for American workers, farmers, ranchers, and businesses by opening markets in Canada and Mexico and eliminating barriers to United States goods, services, and investment. Approving this Agreement is in our national interest. I look forward to the Congress expeditiously approving the legislation.”

U.S. Trade Representative Robert Lighthizer released a statement which read:

“Thanks to President Trump’s leadership, we have reached an historic agreement on the USMCA. After working with Republicans, Democrats, and many other stakeholders for the past two years we have created a deal that will benefit American workers, farmers, and ranchers for years to come. This will be the model for American trade deals going forward.”

The House Ways & Means Committee advanced this bill by unanimous consent.

Media:

• House Ways & Means Committee Democrats

• House Ways & Means Committee Republicans

• White House Letter (In Favor)

• U.S. Trade Representative Fact Sheets

• CBO Cost Estimate

• Countable