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Canada Last To Sign Trilateral Trade Pact USMCA

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Canada Last To Sign Trilateral Trade Pact USMCA

Canada Last To Sign Trilateral Trade Pact USMCA
March 19
17:21 2020

Last week, Canada approved the new tri-national trade pact with the United States and Mexico as the Canadian Parliament ratified the U.S.-Mexico-Canada Agreement – USMCA – fulfilling one of U.S. President Trump’s 2018 election campaign promises.

This attempt to rebalance imports and exports between the three American countries has been a long time coming. Vehicles, machinery, and agricultural products are major goods traded between the triad of nations. Canada and Mexico purchase most U.S. exports.

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On September 30, 2018, the U.S., Mexico, and Canada began renegotiating the North American Free Trade Agreement (NAFTA) that went into force on January 1, 1994. While the intention behind NAFTA was to reduce or eliminate barriers to trade and investment between the three nations, economic analysts claimed the deal took U.S. jobs away from American workers as factories closed and relocated to Mexico with its much lower cost of production.

Other criticisms of NAFTA – which Trump called “perhaps the worst trade deal ever made,” included:

  • Suppressing U.S. wages
  • Putting Mexican farmers out of business
  • Exploiting Mexican workers
  • Polluting the Mexican environment
  • Less U.S. access for Mexican trucks

The new Republican Trump administration wanted to lower the trade deficit between the U.S. and Mexico. The trilateral trade negotiations to achieve this rebalancing of economic power began in late September 2018 and lasted two months, until November 30, when the USMCA was formulated.

Mexico ratified the new trade deal in June 2019. But Democrats in the U.S. Congress refused to approve the deal unless it had stronger enforcement of labor provisions, stricter environmental protections, and several other amendments.

On December 19, 2019, the USMCA passed the U.S. House of Representatives with a vote of 385 to 41. By then, speedy ratification in Canada was thwarted after Prime Minister Justin Trudeau’s ruling Liberal Party lost its majority and its ability to get laws passed quickly through the Parliament. Further slowdowns were created by several opposition parties that said the new trade proposal made too many concessions to U.S. interests.

The U.S. Senate approved the USMCA 89 to 10 on January 16, 2020. Two weeks later, on January 29, President Trump signed the agreement into law.

Under USMCA, auto companies must manufacture at least 75 percent of a vehicle’s components within the USMCA’s trade zone to qualify for zero tariffs. Under NAFTA, only 62.5 percent of automobile parts needed to come from an allied country of origin.

Labor provisions state that 40-45 percent of automobile parts must be made by workers paid at least $16 an hour by 2023. Mexico agreed to enact new protectionary labor laws for workers, including migrants and women, that would facilitate establishing unions for Mexican workers.

Dairy was a significant point of contention between Canadian and U.S. trade negotiators. Reluctantly, the Canadians agreed to open up their market to American farmers, allowing increased sales of milk, cheese, and other dairy products from the U.S. Also agreed upon was an end to a pricing system that limited imports of certain milk ingredients.

USMCA also treats intellectual property and digital trade. The accord extends the terms of copyright to 70 years after the death of an author, up from 50. New provisions deal with the digital economy, prohibiting duties on music and ebooks and protecting internet companies against liability for content produced by their users.

The 2020 trilateral trade agreement contains a 16-year sunset clause under which the terms of the agreement expire (“sunset”) after 16 years. Every six years, the agreement is subject to review by its three signatories and may be extended by the neighboring parties to the USMCA.

Trump, who wrote The Art of the Deal, was proud of the “historic news” that the USMCA brought and defended his use of tariffs of a major trade bargaining chip:

“Without tariffs, we wouldn’t be talking about a deal. Just for those babies out there that talk about tariffs (that includes Congress: ‘Please don’t charge tariffs’) – without tariffs, we wouldn’t be standing here.”

USMCA also features a “rapid-response mechanism” that requires an independent, three-person panel of multinational, independent experts to ensure that Mexico follows its new union rules and other unprecedented worker protections.

Now that Canada has signed on to USMCA, the new 3-nation trade accord will go into effect after 90 days.

U.S. Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland issued a joint statement praising the successful conclusion of a torturous journey:

“It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home.”

Time will be the judge of how effective the USMCA is at leveling the economic playing field between its three signing nations. Will the new trade pact pass its first 6-year periodic review in 2026 when the United States, Mexico, and Canada meet again at the economic bargaining table?

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