By Ambassador C.J. Mahoney, Deputy U.S. Trade Representative of United States of America.
After 25 years, it is time for the North American Free Trade Agreement (NAFTA) to be replaced with a new, modern, and balanced agreement. Thanks to the leader- ship of President Donald J. Trump, the U.S.-Mexico-Canada Agreement (USMCA) is a complete re-write of NAFTA, with significant upgrades to almost every aspect of the United States’ trade and investment relationships with Canada and Mexico. This state-of-the-art agreement will be the standard by which all future U.S. trade agreements are measured. The USMCA will ensure that North America as a whole remains the world’s economic powerhouse.
Here are the key highlights of the new agreement:
Stronger Support for Manufacturing. The USMCA features innovative rules of origin (ROO) for automobiles and other key products. Rules of origin are critical to trade agreements because they determine which products get the benefit of tariff elimination.
The rules of origin in NAFTA set a regional content threshold of only 62.5 percent for passenger vehicles and trucks, but they contained a major loophole: certain key components, including many electronics and high-tech parts, were “deemed” to be North American content, regardless of their true origin. Over time, these components came to represent a larger and larger share of the total content of an automobile, and manufacturers were able to meet the NAFTA rules of origin with less and less North American content. As a result, vehicles qualify for duty-free treatment under the NAFTA rules even if they contain far less than the 62.5 percent regional content requirement.
Under USMCA, all three countries have agreed to significantly improved rules of origin for automobiles that will increase North American content to 75 percent and ensure that the benefits of the USMCA flow to North American producers and workers—not to other countries. The independent International Trade Commission and the Office of the U.S. Trade Representative estimate that the USMCA will stimulate billions of dollars in new auto manufacturing investments and support thousands of additional good-pay-ing manufacturing jobs. In addition, the USMCA eliminates NAFTA’s burdensome “tracing” requirement for cars and trucks—cutting bureaucratic red tape and freeing manufacturers from these onerous and outdated documentation requirements.
Stronger Support for Workers. The USMCA includes a new labor value content requirement that—coupled with stronger labor standards—helps level the playing field for North American workers. One major disappointment of NAFTA is that there has been no convergence in wages between Mexico and the United States, particularly in the automotive sector. Over the years, this wage disparity created incentives for outsourcing. The USMCA fixes these problems by requiring that at least 40 percent of a car and 45 percent of a light truck consist of content manufactured by North American workers making at least $16 per hour.
As part of the USMCA, Mexico agreed to make unprecedented reforms to its system of labor justice—reforms that labor leaders in Mexico and the United States have sought for decades. In May 2019, Mexico finalized historic labor reforms codifying the USMCA’s labor commitments into Mexican law. Implementation and enforcement of these labor reforms will improve wages and labor conditions for workers on both sides of the U.S.-Mexico border.
Stronger Support for Farmers and Ranchers. The USMCA is a big win for America’s farmers and ranchers, since Canada and Mexico are the first and second largest markets for U.S. food and agricultural products. All products that have zero tariffs under the NAFTA, including food and agricultural products, will remain at zero under the USMCA. This means American farmers and ranchers will have the certainty that their products will remain competitive in North America.
In addition, we have secured new access to the Canadian dairy market, and Canada has agreed to stop dumping mil- lions of dollars in subsidized dairy products that squeeze American producers out of third-country markets. The USMCA also creates new market access for U.S. poultry and egg exports to Canada.
The USMCA includes new disciplines in biotechnology, sanitary and phytosanitary standards, geographical indications, and wheat grading—all of which are designed to prevent non-tariff barriers to agricultural products in the region.
Stronger Support for Small Businesses. The USMCA recognizes the fundamental role that small businesses play in keeping the North American economy competitive and dynamic. New customs and trade facilitation rules will lower costs and cut red tape for exporters across all sectors. These new rules will make it easier for small businesses to tap into foreign markets and participate in cross-border trade.
Combined with a new chapter on small and medium-sized enterprises, these provisions will help ensure that small businesses enjoy the USMCA’s benefits and maintain their critical role in growing the North American economy.
Stronger Support for Innovation. Among the USMCA highlights are ambitious, modernizing provisions that will bring our trading relationships into the 21st Century. These include path-breaking rules that will protect our country’s, and the region’s, competitive edge in technology and innovation well into the future.
America’s creative industries will be strengthened by receiving full national treatment for recording artists and requiring enhanced penalties for bootlegging movies. The USMCA’s first-of-its-kind chapter on digital trade eliminates data localization requirements and ensures that data can be transferred across borders to benefit companies operating online, thereby strengthening our efforts to combat the growing tide of digital protectionism worldwide.
Support for a Stronger Future. The USMCA includes a provision that will ensure we never again find ourselves with such an outdated and unbalanced agreement as the current NAFTA. By requiring regular reviews of the agreement, all parties have an incentive to comply with its provisions and achieve balanced trade outcomes that benefit all three countries.
In addition, the USMCA sets a common goal with some of our largest trading partners to confront challenges, not within North America, but from around the world. The first-ever chapter on currency manipulation in a U.S. trade agreement and the strongest commitments ever on state- owned enterprise subsidies mean that the United States, Mexico, and Canada believe that economic success should reflect hard work and innovation—not unfair government support and other market-distorting practices.
The USMCA is a great deal for the United States, Mexico, and Canada. It lays a solid foundation for the future of North American trade that will prove durable over the long-term. In June 2019, Mexico ratified the USMCA by a huge margin, and Canada began its approval process. We have been working constructively with the U.S. Congress to secure approval of the USMCA as soon as possible. With passage of the USMCA, all three countries can have confidence that the North American economy is on the move and will remain the envy of the world.
C.J. Mahoney serves as Deputy United States Trade Representative for Investment, Services, Labor, Environment, Africa, China, and the Western Hemisphere. Ambassador Mahoney was confirmed by the Senate on March 1, 2018.
