- Hoping to get the U.S.-Canada-Mexico Agreement back on track, Prime Minister Justin Trudeau heads to Washington on Thursday to talk about ratification with U.S. President Donald Trump, Democratic House Speaker Nancy Pelosi and Republican Senate Majority Leader Mitch McConnell.
- A day earlier, Mexico became the first of the former NAFTA countries to ratify the trilateral trade deal, by a 114-to-4 vote in the nation’s Senate. Mr. Trump thanked President Andres Manuel Lopez Obrador for getting the deal through, tweeting that it was time for the U.S. Congress to do the same.
- Canada wants to time its ratification process along with the United States. But first Mr. Trudeau and Mr. Trump need to convince House Democrats to sign off on it. The Trump administration hopes to made “substantial progress” in talks with Democrats in coming weeks, Mr. Trump’s point man on USMCA, Trade Representative Robert Lighthizer, told a Senate committee hearing earlier this week after months of deadlock within Congress.
What’s the difference?
What’s new: The deal is called the United States-Mexico-Canada Agreement.
Background: After the 2016 election campaign, U.S. President Donald Trump treated “NAFTA” like a dirty word, condemning the 1994 North American free-trade agreement as unfair to U.S. interests. Last August, when his administration announced a separate deal with Mexico, Mr. Trump suggested the “NAFTA" name “has a bad connotation because the United States was hurt very badly by NAFTA for many years.” Instead, he favoured “U.S.-Mexico Free Trade Agreement," and later said if Canada joined on (as it now has), the "c" would be added last. That would have made it the “USMC,” risking some confusion with the United States Marine Corps. When the new trade pact was announced on Sept. 30, 2018, it was the “USMCA” – though if you look on some Canadian government websites, it’s “CUSMA,” putting Canada first.
Dairy and poultry
What’s new: U.S. producers get increased access to Canada’s markets, which are protected by a supply-management system.
Background: Since the 1970s, Canada’s dairy, egg and poultry industries have been sheltered from foreign competition through a system of tariffs, fixed prices and production quotas. NAFTA didn’t give U.S. or Mexican producers favoured access to the dairy market, though other trade agreements have: The recent Comprehensive and Progressive Agreement for Trans-Pacific Partnership, for instance, let 10 countries have 3.25 per cent of the Canadian dairy market. USMCA gives the United States a slightly higher percentage of the market.
Winners and losers: This policy was a win for Mr. Trump, who said that dairy was a “deal breaker” after a year and a half of complaining about Canadian tariffs. It was also a win for American farmers, who got to sell more products into Canada’s tightly controlled supply managed dairy system. But it was a major loss from Canadian producers who will have to face more competition. Canadian farmers warned of financial impact from the deal, saying jobs will be lost. Ottawa’s concessions were also met with dismay by political leaders in Quebec and Ontario, the largest dairy-producing provinces.
What’s new: Seventy-five per cent of North American auto content must come from the NAFTA region, up from 62.5 per cent under the old NAFTA. Forty to 45 per cent of content must be made by workers earning at least US$16 per hour. Canada and Mexico will also be bound by a quota system and new auto-content rules; any auto exports that exceed the quota and fail to meet the new rules will be subject to tariffs. But since Canada’s quota is higher than what it currently produces, it will theoretically be safe from future auto tariffs. Read more about the effect on the auto industry here.
Background: For months, auto manufacturing was the stickiest point of the NAFTA talks. The Trump administration was pushing for 50-per-cent U.S. content in every vehicle, and 85 per cent regional content over all. Mexico balked at demands that auto content be made at factories paying as many as four times what the average Mexican worker makes, fearing that Mexico would lose jobs.
Winners and losers: Mexico had to give up a lot on auto manufacturing to protect a trilateral deal and avert Mr. Trump’s threatened auto tariffs, and new minimum-wage requirements could make Mexico a less desirable destination for big auto companies. But by the day the USMCA was announced, the Mexican expert consensus seemed to be that things could have been much worse, The Globe and Mail’s Stephanie Nolen reports. In Canada, meanwhile, auto-industry leaders were cautiously optimistic about USMCA.
What’s new: Canadians who buy U.S. goods online will be able to buy more duty-free than they currently can. Imports under $150 won’t be subject to customs duties, up from the current $20, and items under $40 will be exempt from sales taxes. Conversely, Americans who buy Canadian or Mexican goods will see their limit decrease from US$800 to US$100. Read more on the online shopping changes here from The Globe’s Marina Strauss.
Background: One of the Trump administration’s earliest formal NAFTA demands was for Canada to increase its de minimis threshold, or the amount consumers can buy without an import tax, to $800. That’s the value of Canadian goods that can be shipped to the U.S. without collecting duties, a discrepancy that has long irritated U.S. e-commerce retailers. Instead, it split the difference by raising the Canadian limit and lowering the U.S. limit.
Winners and losers: Online retailers like eBay had been pressing Canada to raise its de minimis threshold for years, so the new trade deal was a boon for them. But Canadian retail groups were worried that raising the threshold would disadvantage homegrown businesses, which are required to collect GST and provincial sales taxes, and favour foreign businesses in jurisdictions with lower taxes or cheaper prices.
What’s new: In Canada and the U.S., corporations will no longer have the Chapter 11 mechanism to sue governments whose trade practices they think are unfair. Mexico will still have some Chapter 11 powers, but in a more limited form. National governments will still be able to settle trade disputes using Chapter 19′s independent panels.
Background: Imagine a scenario where NAFTA Country A imposes trade duties on Country B that B’s government thinks are unfair. Under NAFTA’s Chapter 19, B could appeal to an independent panel rather than seeking redress in A’s courts, which could presumably be biased in A’s favour. In practice, the United States was often the Country A to Canada’s Country B: American governments would impose duties on products such as softwood lumber that Canada would then challenge successfully.
Winners and losers: Chapter 19′s survival was a win for Prime Minister Justin Trudeau, who identified the clause as a “red line” Canada would not cross, and a loss for the Trump administration, which wanted to get rid of Chapter 19 entirely, arguing that it infringed on U.S. sovereignty.
What’s new: Canada will lengthen patent protections on pharmaceuticals to 10 years. Copyrighted works will enter the public domain in Canada 70 years after the author’s death, up from the previous 50 years. Read more about the impact on the pharma companies here, and the effect on intellectual property here.
Background: Canada has long resisted pressure to lengthen patent protection for drugs. It’s also opposed pressure to increase its copyright terms: Canada long followed the 1886 Berne Convention’s standard of 50 years, but in Mexico it’s 100 years, and in the U.S. it’s 70. The Trans Pacific Partnership trade deal would have standardized the 11 member countries to 70 years, but the Trump administration withdrew from that deal.
Winners and losers: U.S. officials hailed the new drug-patent rules are a significant American victory in an area it has long pushed Canada on. For years, Canada has resisted increasing pharma protections so it can keep drug prices low and help its own generic drug industry.
The ‘non-market country’ clause
What is it: Section 32.10 of the new tentative agreement obliges Canada, the United States and Mexico to give on another three months' notice before starting free-trade talks with a “non-market country." For example, at least 30 days before signing a trade deal with a country, such as China, it would be required to provide the United States with an opportunity to review the full text of the accord and assess its impact on the USMCA. It also allows the other two countries the right to withdraw from the USMCA within six months of a country singing a trade deal with a non-market economy.
Why is this contentious: Canada has been in back-and-forth talks with China about a bilateral free-trade deal, but not yet launched official negotiations. Mr. Trudeau mentioned after the conclusion of negotiations on USMCA that he would like to explore trade talks with China, and while not directly mentioned, the Chinese embassy denounced the provision, calling it a “hegemonic action” that “blatantly interferes” with another country’s sovereignty.
What happens next?
Now that the text of a new deal has been locked down, the legislatures of all three countries have to ratify it. Mexico’s legislature was the first to do so in June, and Canada hopes to ratify in tandem with the United States. But getting U.S. legislators on board has proven difficult since the Democrats took charge of the House of Representatives in last fall’s midterm elections. The Democrats want stronger labour protections in the deal that would deter manufacturers from shifting American jobs to Mexico. Some senators have proposed a side deal between the U.S. and Mexico that would address those concerns.
Analysis and commentary
Compiled by Globe staff
With reports from Adrian Morrow, Robert Fife, Stephanie Nolen and The Canadian Press