After only 14 months of negotiations--"warp speed" in terms of trade deals according to U.S. Trade Representative Robert Lighthizer--the U.S., Mexico, and Canada have agreed to a new trade agreement set to replace the 24-year-old North American Free Trade Agreement. The new Nafta, henceforth dubbed the United States-Mexico-Canada Agreement (USMCA), makes notable improvements in intellectual property protection and digital trade, and also opens up the Canadian dairy market to U.S. companies, but it also leaves many of its former guiding principles intact.
For instance, the process for appealing trade disputes between countries remains, despite the U.S.'s best efforts to dismantle it. The protocol for issuing visas among the trading bloc is also intact, as is maintaining zero tariffs for the exchange of a wide range of goods, including exports of U.S. agricultural products.
"So Nafta, barely changed, is now the USMCA," tweeted Nobel Prize laureate and economist Paul Krugman. "My original prediction on Trump/NAFTA was that we would end up making some minor changes to the agreement, Trump would declare victory, and we'd move on. That's what seems to have happened."
Even so, the certainty that comes from having a trilateral deal in place--should Congress approve it, of course--is key for businesses hoping to do business internationally. "We commend the negotiators for their commitment to finding a path forward that includes the U.S., Mexico, and Canada," Tom Donohue, the U.S. Chamber president and CEO, said in a statement.
Here's what's in the new Nafta for you:
A voice for small businesses: Chapter 25 of the USMCA promotes the growth of small and medium-size businesses, and establishes the "Committee on SME issues." According to the terms, the committee will assemble within one year after the new agreement is ratified and then once a year afterward. The committee is tasked with promoting an annual "SME Dialogue" and inviting the private sector, academic experts, and nongovernment organizations to provide their views on the implementation and further modernization of the USMCA.
More opportunities for e-commerce companies: In the new trade agreement, Mexico agreed to double its "de minimis shipment value" to $100, which means that any goods entering the country under that amount can do so duty free. In Canada's case, people can import up to 40 Canadian dollars' worth of goods (or $31 U.S.) without paying taxes--higher than the previous limit of 20 Canadian dollars. It also removes custom duties (but not sales taxes) for merchandise worth up to 150 Canadian dollars.
A 16-year sunset clause: As opposed to the current Nafta, the new agreement will expire after 16 years. Countries will convene every six years and vote either to extend the treaty for another 16 years or begin a renegotiation process with plenty of time before the deal expires.
Increased auto industry protections: To be exempt from tariffs, at least 75 percent of an automobile has to be manufactured in the U.S., Canada, or Mexico--up from the previous 62.5 percent requirement. It also states that 30 percent of the vehicle (increasing to 40 by 2023) needs to be manufactured by workers earning at least $16 per hour. Both Mexico and Canada received guarantees from the Trump administration that exempt 2.6 million vehicles imported from these countries from U.S. auto tariffs.
Phasing out conflict resolution tools: The mechanism known as Investor-State Dispute Settlement, which helps resolve investment conflicts between companies and governments, will be phased out in Canada and largely watered down for most investors in Mexico. South of the U.S. border, businesses in telecom, oil and gas, infrastructure, and transportation will keep the ISDS protections as currently stated in Nafta.
Access to Canada's dairy and wine markets: Canada has agreed to get rid of its "Class 7" pricing system, which was introduced last year to make it cheaper to buy certain powdered ingredients--used to make cheese and other dairy products--domestically. Meanwhile, Bloomberg reports that Canada also agreed to give U.S. businesses greater access to its dairy market and consumers, to the tune of 3.59 percent--which is higher than the 3.25 percent it conceded to the countries in the Trans-Pacific Partnership. The agreement also states that Canada will allow U.S. businesses to sell wine in British Columbia.
Intellectual property protections: The new trade treaty extends copyright protection to 70 years after an author's death, up from 50 years previously. It also introduces a 10-year data protection period for biologic drugs, and establishes a "safe harbor" for internet service providers, which would shield them from liability if they take down pirated content when notified.
Open borders for digital commerce: Unlike the existing trade agreement, the new USMCA includes provisions on digital trade. The agreement prevents countries from imposing fees or duties related to the import or export of "digital products transmitted electronically." It also bars signatory countries from forcing a company to use local computing facilities "as a condition for conducting business in that territory."