Trump's new major trade deal looks a lot like NAFTA. Here are key differences between them.
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President Trump signed the USMCA into law Wednesday after a contentious renegotiation process that lasted over two years.
The deal comes as he attempts to fight off Democratic-led impeachment proceedings and campaign for reelection.
The new trade deal bears a lot of similarities to NAFTA, but there are major differences as well.
Some of the key differences: increased dairy-market access for the US, a new sunset clause, and tougher auto rules.
President Trump signed the United States-Mexico-Canada Agreement (USMCA) into law on Wednesday, fulfilling a campaign pledge to renegotiate a major trade deal that stretched on for over two years.
"Today we're finally ending the NAFTA nightmare," Trump said, referring to the North American Free Trade Agreement, and called it "a colossal victory."
That deal regulated international business around North America for over a quarter-century. Now the USMCA updates the previous trade deal to include tougher protections for workers and new rules governing the digital economy, currency, and intellectual property rights.
It was held up in the US as Democrats, particularly progressives, demanded stricter labor and environmental protections and stronger enforcement provisions. They were able to lock in those additional rules as negotiations progressed.
The three leaders — President Donald Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto — signed the agreement in late 2018 but final revisions must also be approved by each country's legislature and leadership before it takes effect.
Mexico ratified the agreement last June and Canada still has to do so.
Trump and other US officials have long called NAFTA dead, saying the USMCA is a wholesale overhaul of the agreement. Despite Trump's declaration, the 2,082-page USMCA still maintains large swaths of the original deal and is more of an update than a wholesale overhaul. But there are some key differences.
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.
Other notable changes include 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 US' original demand for a sunset clause that 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 US and Canada, while certain industries, such as energy, will be able to bring cases against Mexico. But the administration removed a rule that empowered member countries to block a case from moving forward against it.
Dairy access: The US will be able to export the equivalent of 3.6% of Canada's dairy market, up from the existing level of about 1%. This is slightly above the 3.25% market access Canada would have given the US as part of the Trans-Pacific Partnership, which Trump pulled the US out of last year. In addition, Canada will get rid of the "Class 7" pricing system that was seen as disadvantaging US farmers.
Access for other agricultural goods: Canada will give the US more access to its chicken, turkey, and egg markets, and British Columbia will allow the sale of US wines at its state-owned liquor stores. Mexico agreed to allow imports of certain US cheeses.
Auto rules: Members must produce 75% of a car for it to pass through the countries duty-free, up from 62.5%. Additionally, 40% of each car must be produced by workers making $16 an hour or more to avoid duties.
Tariff side deals: The US 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 US 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 US, 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 US.
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 US goods to 40 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.
Reduced protection for pharmaceutical companies: The Trump administration rolled back some protections for an expensive class of drug called biologics in a big win for Democrats. The deal tossed out a provision shielding the drugs for ten years from cheaper alternatives produced in either Canada or Mexico.
Added protections for workers: In another win for Democrats, employees trying to unionize now have access to the deal's normal dispute resolution procedures. The deal also created an independent panel capable of investigating factories charged with violating labor rights and preventing their shipments from crossing a border. And it set up an interagency committee able to monitor Mexican labor reforms that's expected to increase unionization and legal enforcement of worker rights.
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