Here’s what’s in the NAFTA deal
President Trump got his wish on a new North American trade deal after almost a year of intense negotiations between the U.S., Canada and Mexico. The new deal has important implications for certain food and pharmaceutical suppliers.
According to the Washington Post, the United States, Canada and Mexico reached an agreement to update the North American Free Trade Agreement, the 1994 pact that governs more than $1.2 trillion worth of trade among the three nations.
The new deal will be known as the United States-Mexico-Canada Agreement, or USMCA. Trump, who had long disdained NAFTA, had suggested that he might call it the “USMC,” in honor of the U.S. Marine Corps, but in the end, USMCA won out, according to the Washington Post.
The goal of the new deal is to have more cars and truck parts made in North America. Starting in 2020, to qualify for zero tariffs, a car or truck must have 75 percent of its components manufactured in Canada, Mexico or the United States, a substantial boost from the current 62.5 percent requirement.
There’s also a new rule that a significant percentage of the work done on the car must be completed by workers earning at least $16 an hour, or about three times what the typical Mexican autoworker makes. Starting in 2020, cars and trucks should have at least 30 percent of the work on the vehicle done by workers earning $16 an hour, according to the Washington Post. That gradually moves up to 40 percent for cars by 2023.
While many economists think these new rules will help some North American workers, they also warn that car prices might rise and some small cars may no longer be made in North America because they would be too expensive under the new requirements, according to the Washington Post. There are also concerns that automakers might not make as many cars in North America to export to China and elsewhere overseas because costs would be higher in the USMCA region than making the vehicles in Asia.
Trump tweeted often about how unfair he thought it was that Canada charged such high tariffs on U.S. dairy products. Canada has a complex milk and dairy system. To ensure Canadian dairy farmers don’t go bankrupt, the Canadian government restricts how much dairy can be produced in the country and how much foreign dairy can enter to keep milk prices high. Trump didn’t like that, and dairy was a major sticking point in the negotiations, according to the Washington Post.
U.S. negotiators say they got a major victory by forcing Canada to eliminate the pricing scheme for what are known as Class 7 dairy products. That means U.S. dairy farmers can probably send a lot more milk protein concentrate, skim milk powder and infant formula to Canada (and those products are relatively easy to transport and store).
The USMCA makes a number of significant upgrades to environmental and labor regulations, especially regarding Mexico. For example, the USMCA stipulates that Mexican trucks that cross the border into the United States must meet higher safety regulations and that Mexican workers must have more ability to organize and form unions, according to the Washington Post. Some of these provisions might be difficult to enforce, but the Trump administration says it is committed to ensuring these happen — a reason U.S. labor unions and some Democrats are cheering the new rules.
U.S. drug companies will also now be able to sell pharmaceuticals in Canada for 10 years before facing generic competition. That’s up for eight years of so-called “market protection” now.
According to the Washington Post, the new deal won’t go into effect right away. Most of the key provisions don’t start until 2020 because leaders from the three countries have to sign it and then Congress and the legislatures in Canada and Mexico have to approve it, a process that is expected to take months.
To read the full Washington Post article, click here.