Since President Trump was inaugurated in 2017, he has been adamant about updating the NAFTA agreement or the North American Free Trade Agreement between Canada, Mexico and the United States. Last month, President Trump, Prime Minister Justin Trudeau of Canada and President Enrique Pena Nieto of Mexico negotiated a new trade agreement. The United States-Mexico-Canada Agreement, or the USMCA, is the trade document that would replace the NAFTA agreement and is proposed to make major changes to trade alliances between the countries.
In automobile production:
This new agreement updates the standing “country of origins rule,” meaning that automobiles must have 75 percent of their product’s components manufactured in Mexico, the US or Canada to qualify for zero tariffs. This is a 12.5 percent increase compared to the rule under NAFTA.
For the industries who manufacture these automobile parts, 40 to 45 percent of the automobile parts need to be produced by workers who earn at least $16 an hour by the year 2030.
Mexico has also agreed to give workers the right to unionize, extend labor protections to migrant workers and instill protections for women workers.
“The rules of origin say this amount of input into a particular product has to be made within this trade agreement, in this case, the USMCA. Ideally, you’d want it to be 100 percent, everything made between these trading zones. But because companies want to go to places where labor is particularly cheaper they outsource to places like Mexico and Canada. The United States wants to keep countries like China out of the market so anything beyond [75 percent within North America] could qualify for tariff free, by outsourcing only 25 percent to other countries like China. So this is a win for protectionism of U.S. industries by keeping [a majority of] production within these three trade countries,” said Ransford Edwards, assistant professor in the department of history and political science.
Yet, there are those who worry that this could affect Americans by raising costs for American car buyers and make automakers move production into countries without these provisions. Canada and Mexico feared the steel and aluminum export tariff set by the Trump administration in May, but a side letter outlines exemptions from any future American tariffs for 2.6 million imported automobiles from each country.
In NAFTA, Chapter 19 created a neutral panel of representatives from the three countries involved that would settle any trade disputes between them. This provision was kept in the USMCA as a form of regulation between the governmental powers.
A provision between the US and Canada that allowed investors to sue for relief from foreign actions was eliminated from the agreement. It was believed that this gave major corporations too much legal power to challenge regulations such as environmental or international laws.
This new trade agreement has a 16-year clause which means that 16 years from it’s signing the terms of this agreement expires. This is dissimilar to NAFTA as that agreement stood in effect for 25 years. The USMCA also adds a review process where all parties must review and update this agreement if need be, every six years which at this time, countries can decide to extend the standing USMCA or eliminate the agreement.
“In the structure of capitalism, things change from time to time and if the economy changes or the structure of the workforce changes then we need to update [trade agreements]. One of the arguments against NAFTA was that it was outdated so that allows us them, legally through the agreement, to make these changes and obey according, in a sense to recalibrate,” said Edwards.
This agreement has been negotiated, but it has not been signed yet. It needs to be ratified by all three governments before any endorsements can be authorized. Mexican Economy Secretary, Ildefonso Guajardo, mentioned that this USMCA could possibly be signed at the G20 Summit at the end of November. All three countries are planning to have this agreement signed and ratified before current Mexican President Enrique Pena Nieto leaves office.