Graphic shows key changes between NAFTA and USMCA trade pact.
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BUSINESS

USMCA trade deal factbox

By Duncan Mil

July 3, 2020 - The U.S.-Mexico-Canada trade agreement (USMCA) has replaced the 26-year-old North American Free Trade Agreement (NAFTA), ending President Trump’s threat to break apart the three-nation free trade zone.

The pact was launched on July 1 amid rising trade tensions between the United States and Canada, with Trump threatening to slap 10 per cent tariffs on imports of Canadian aluminium. There is also widespread concern about Mexico’s ability to enforce labour reforms.

One of the most significant changes between NAFTA and USMCA are complicated new regulations on how autos and auto parts qualify for reduced tariffs. North American content in cars built in the region has risen to 75% from 62.5% under NAFTA, with new mandates to use North American steel and aluminium.

Also, 40 per cent of a vehicle’s value must come from “high wage” plants paying workers at least $16 an hour. For Mexico, this would mean a fivefold boost to the average autoworker’s wage of $3.14 an hour. Vehicles that fail to meet the standard will be subject to U.S. tariffs.

The U.S. International Trade Commission (ITC) has estimated that the new auto provisions will lead to a net increase of 28,000 full-time U.S. jobs. Still, additional manufacturing costs will lead to higher prices, thus reducing consumer demand.

On the agricultural front, Canada will provide U.S. dairy farmers access about 3.5 per cent of its $16 billion domestic dairy market. The U.S. will also to get tariff-free access to Canada for 57,000 tonnes of chicken and 120 million eggs.

Under the new trade deal, labour reforms will give Mexican workers the right to vote in independent unions and cast secret ballots. Mexican manufacturers that violate reforms face retroactive penalty tariffs.

The USMCA will grow the U.S. economy by $68.2 billion by the sixth year it is in effect, according to the ITC. Trade between the three USMCA members totalled to more than $1.2 trillion last year.

PUBLISHED: 03/07/2020; STORY: Graphic News; PICTURES: Getty Images
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