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Take a ride in this Mustang to understand the USMCA

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Take a ride in this Mustang to understand the USMCA

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Take a ride in this Mustang to understand free trade | CBC Kids News

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The landmark United States-Mexico-Canada Agreement (USMCA) has come into effect as of July 1st, 2020. Having been ratified by all three nations, the USMCA replaced the former North American Free Trade Agreement (NAFTA), which had gone into effect in 1994.

And, like the old agreement, it ensures the prosperity and cooperation of all three countries.

Many have called the USMCA a new NAFTA, or NAFTA 2.0-and for good reason. The USMCA modernizes much of the work NAFTA set out to do. However, there are also important differences between the old and new deal. This guide walks through the changes between them and the pros and cons of the new agreement, breaking down what to expect moving forward.

USMCA vs NAFTA: Biggest Differences At a Glance

As noted above, the USMCA, is in many ways, a continuation of the original NAFTA. It seeks to promote and protect free trade between the three countries that make up North America. Many of its provisions are simply updates to rules over a quarter-century old.

That said, it does contain some major differences, like:

Building labor protections in Mexico - Labor was and remains cheaper in Mexico than it is in the US. However, the USMCA levels the playing field with additional protections for workers in Mexico:

Violation of labor laws is punishable by the cancellation of shipments

Products of forced labor are barred from importation

Workers can organize and bargain collectively

Reducing protections for drug companies - Under NAFTA, drug companies enjoyed protections for lucrative sub-divisions of the pharmaceutical industry. These protections have been removed, but this loss is balanced with gains elsewhere:

Increasing protections for technology firms - Technology and data companies now enjoy increased protections related to intellectual property and privacy concerns:

Incentivizing North American Manufacturing - USMCA increases NAFTA's efforts to keep production in North America rather than competing nations in Europe and Asia. Due to this, the U.S. backs the push for U.S. business owners to invest in industrial buildings in Mexico for their companies. This aspect of the trade agreement works to open up more market access for all three countries involved in the new trade deal. For example, to qualify for zero tariffs, automakers must:

Produce 75% of a vehicle's content in North America, up from the 62.5% that had been required under NAFTA

Utilize high-wage factories (min. $16 dollar per hour average salary) for at least 40-45% of the parts for a vehicle

Ensure that 70% of the steel and aluminum used in a new vehicle must be melted and poured within North America.

Dismantling a controversial arbitration system - One of the biggest but most obscure changes comes to the Investor-State Dispute System (ISDS), which enabled companies to sue governments over their right to conduct business in a given country:

Some of these regulations offer sharp contrast from existing NAFTA analogs. Others introduce concepts alien to NAFTA. But the spirit of the new agreement is the same as that of the old.

What do these changes look like in practice?

USMCA Pros and Cons

The changes outlined above are composites outlining the most significant of the many smaller-scale updates and revisions that USMCA offers. As with any change, compromise is involved, and benefits in one area are counterbalanced by costs in others.

So, let's review some of the major pros and cons of the new agreement:

USMCA pros - The pros of USMCA involve various boosts to productivity and trade within North America, as well as protections for vulnerable individuals and industries:

Decreased or eliminated tariffs reduce costs of production and trade, which ultimately lowers retail prices for consumers and increases profits for companies.

Increased protections for workers in Mexico mean increased opportunities for workers based in the US as wage gaps decrease. Strict labor laws set in place with the new deal ensure labor rights and fair pay for work, in particular in Mexico.

Restructured protections for healthcare and data markets keep firms competitive while maintaining incentives for growth.

USMCA cons - The cons of USMCA involve reduced protections for certain industries, as well as general costs involved with stronger labor protections:

Overall, the pros of the USMCA come from restructured protections and incentives that will make production in North America more profitable and efficient. Simultaneously, these protections also maintain ethical boundaries and prevent the exploitation of our laborers.

These same protections may entail costs and other frictions, which can amount to cons. But these are a small price to pay for a sustainable manufacturing and trade future in North America.

On balance, the pros of the new agreement outweigh the cons.

With that in mind, the last question is:

Who Benefits from USMCA?

Everyone. We all benefit from rules that match the current free trade agreement.

While NAFTA offered many advantages earlier on in its lifespan, it needed updates to keep up with the times. Benefits are abundant in the new USMCA, for various stakeholders within North America and beyond.

To recap, some of the biggest beneficiaries include:

In short: everyone. While some of the provisions in the USMCA may technically raise production costs in certain industries, the benefits of labor, environmental, and privacy protections far outweigh these costs. This goes for both the short- and long-terms of all three countries. With the implementation of the new agreement, this will change the course of global trade significantly and for the better.

Our modern era calls for modern trade agreements, and USMCA updates the original NAFTA to meet the moment. If you are thinking about manufacturing in Mexico , or you already do and want to learn more about how these changes might impact your business, today!

1. The New York Times. Trump Just Signed the U.S.M.C.A. Here's What's in the New NAFTA . https://www.nytimes.com/2020/01/29/business/economy/usmca-deal.html

2. United States Trade Representative. United States-Mexico-Canada Trade Fact Sheet: Modernizing NAFTA into a 21st Century Trade Agreement . https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/fact-sheets/modernizing

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The landmark United States-Mexico-Canada Agreement (USMCA) has come into effect as of July 1st, 2020. Having been ratified by all three nations, the USMCA replaced the former North American Free Trade Agreement (NAFTA), which had gone into effect in 1994. And, like the old agreement, it ensures the prosperity and cooperation of all three countries.

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Six Key Differences Between the NAFTA and the USMCA

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Six Key Differences Between the NAFTA and the USMCA

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6 key differences between NAFTA and the USMCA deal that replaces it | CNN Politics

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After reaching a deal on the final version of the United States-Mexico-Canada Agreement, President Donald Trump tweeted that it “will be the best and most important trade deal ever made by the USA” – and called its predecessor, the North American Free Trade Agreement, “our Country’s worst Trade Deal.”

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NAFTA is out but the United States-Mexico-Canada-Agreement (USMCA) is in.

But how different is USMCA from NAFTA? Who loses and who wins?

Canadian negotiators and government officials are singing the praises of the new deal, still subject to approval by U.S. Congress. U.S. Trade Representative Robert Lighthizer and Foreign Affairs Minister Chrystia Freeland said the agreement "will result in freer markets, fairer trade and robust economic growth in our region."

They added: "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."

(Graham Hughes/The Canadian Press)

It's understandable that the chief negotiators would try to sell the deal as a win-win-win agreement, but, like any deal resulting from long and at times acrimonious negotiations, it's not quite that simple.

Challenging trade practices

The most significant achievement by Canadian negotiators is their success in preserving Chapter 19 from the original NAFTA. These provisions allow Canada, Mexico and the United States to challenge one another's anti-dumping and countervailing duties in front of a panel of representatives from each country.

This is generally a much easier, less costly and more predictable process than trying to challenge a trade practice in a U.S. court. Canada has successfully used Chapter 19 to challenge the United States on its softwood lumber restrictions.

Auto sector

Canada has also staved off the tariffs Trump threatened to impose on autos and auto parts that could have devastated the Canadian auto industry, which contributes over $50 billion in income and sustains more than 500,000 direct and indirect well-paying jobs in Canada.

The agreement would shield the first 2.6 million Canadian car exports to the U.S. from any tariffs. This is significantly higher than the current 1.8 million cars that Canada on average exports to the U.S. annually.

Under the terms of the agreement starting in 2020, a car will qualify for tariff-free treatment only if 75 per cent of its contents are made in North America, up from 62.5 per cent in the current NAFTA.

In addition, at least initially, 30 per cent of the content must be produced by workers earning at least US$16 an hour. This will ramp up to 40 per cent in 2023. The wage is more than three times what the average Mexican autoworker earns now.

THE CANADIAN PRESS/Geoff Robins

Despite these successes, there are a few negatives to contend with that would affect this key industry. The wage hikes required in Mexico will undoubtedly raise the cost of production of North American cars and render a good part of them non-competitive on world markets, particularly in Asia.

While higher Mexican wages may discourage auto makers in Canada and the U.S. to relocate to Mexico, the new rules could create strong incentives for American and Canadian auto makers to move to Asia.

The dairy industry

The U.S. has repeatedly complained about the unfairness of Canada's protection of its dairy industry as if the Americans don't protect their own farmers. The Canadian supply management system is a far more efficient way to protect farmers' incomes than the farm price support system in place in the United States.

Nonetheless, the U.S. got its way, forcing Canada to yield a larger market share for American dairy farmers. While Canada, under the new terms of the Trans-Pacific Trade Agreement, was willing to grant a 3.2 per cent market share to trade partners, under the USMCA, it yields 3.6 per cent.

Perhaps more significant is Canada's willingness to eliminate the pricing scheme for what is known as Class 7 dairy products allowing U.S. producers to out-compete Canadian farmers.

Read more: How the dairy lobby's cash grab put Canada in Trump's crosshairs

The government has already suggested it will introduce subsidies and farm income protection schemes that Canadian taxpayers will have to pay for.

Drug patents

A serious change is Canada's acceptance of lengthening the patents of pharmaceutical companies to 10 years. This pretty much means that U.S. drug companies will now be able to sell pharmaceuticals in Canada for 10 years before facing generic competition. That's up from the eight years of "market protection" that's currently in place.

Read more: NAFTA negotiations may threaten pharmacare

This means individuals, insurance companies and governments will pay more for pharmaceuticals.

Intellectual property rights

New and more stringent intellectual property rights rules and time limitations for the protection of patents and trademarks, including those for biotech, financial services and even domain names, are included in USMCA.

While many believed that these updates were necessary given that the original agreement was negotiated 25 years ago, Canada will benefit less from these protections than the U.S. given the differences in size of these sectors in both countries.

Labour, environment

The USMCA makes a number of significant upgrades to environmental and labour regulations, especially those in force in Mexico. The agreement 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.

The real issue with these provisions, now as before, is this: Will these new standards be implemented in Mexico? U.S. negotiators tried hard to introduce an automatic sunset clause on the deal but failed to get their way.

As things stand now, the USMCA stipulates that the three nations will automatically review the agreement after six years. If all parties agree it's still working, then the deal will continue for the full 16-year period, with the ability to renew after that for another 16 years.

Trump did not get his wish for the sunset clause, but there will be an automatic review, although it won't happen until long after Trump has vacated the Oval Office.

Better than chaos

So it's incorrect to claim that all North Americans will be better off under the new deal. There will be losers, and there will be winners.

(AP Photo/Pablo Martinez Monsivais)

The new deal, on the whole, is not any better than the old deal, but it's surely better than the uncertainty created by renegotiating NAFTA and the chaotic atmosphere created by Trump during the negotiations.

Judging by the performance of the stock markets in both the U.S. and Canada since the deal was announced, Canadians are less convinced than Americans about the net benefits. The TSX rose by a modest 31 points while the Dow Jones climbed 193 points. The Canadian dollar strengthened, but that's a mixed blessing.

If there's any lesson to be learned after months of tense negotiations, it's this: Canada should never again allow itself to be overly dependent upon one trading partner. Canada must diversify its products and services that liberate Canadians from the stranglehold of geography.

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NAFTA is out but the United States-Mexico-Canada-Agreement (USMCA) is in. But how different is USMCA from NAFTA? Who loses and who wins? Canadian negotiators and government officials are singing the praises of the new deal, still subject to approval by U.S. Congress. U.S.

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What you need to know about NAFTA and the USMCA (picture is not relevant to the story)

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What you need to know about NAFTA and the USMCA (picture is not relevant to the story)

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A big agreement was just made between the United States, Canada and Mexico.

It's complicated-too complicated to explain fully here-but it's good to have an idea about what it is and why it is important.

Back in 1994, the US, Canada and Mexico made a deal to all become "trading partners." That means, each country would partner with the others to make it easy to buy and sell things and services back and forth. That deal was called NAFTA, the North American Free Trade Agreement.

When countries don't have a deal like that, it's sometimes hard for one country to sell things to another country.

It's easier to understand with an example. This is a fictional example-it's not real-to help illustrate how NAFTA works.

Let's say Fakeland (not a real place) makes bicycles and they want to sell them in Canada. (Fakeland isn't part of any agreement.)
Canadians start buying lots of bikes from Fakeland. The people in Canada who make bikes might get upset: "Canadians are buying Fakeland bikes instead of our Canadian bikes!" So the Canadian government, which wants to support the Canadian bike makers, might decide that every Fakeland bike must cost more than any Canadian bike. That would encourage Canadians to buy the lower-priced Canadian bikes. (Assuming the Fakeland and the Canadian bikes are the same except for price.)

When a government increases another country's price like that, it's known as a tariff.

(This is a very simplified example. The agreement covers many, many things and is very long and complicated.)

The NAFTA agreement lets the United States, Canada and Mexico sell things back and forth with fewer tariffs.

Recently, US President Donald Trump said he doesn't like the old NAFTA deal. He wanted to make a new deal that was even better for the United States. He started working with the Mexican government to create a new deal. Canada later joined the discussions.

After many hours of discussion, the three countries came up with a new deal.

It is called the United States-Mexico-Canada Agreement, or USMCA for short.

The new agreement is very much like the old, NAFTA deal. There are a few things that were changed, for some industries like the dairy industry that sells milk and milk products. The agreement also covers things like: how easy it is for someone to work in one of the other countries, and how easy it is for one of the three countries to invest in companies in the other two countries.

The new deal may be better than the NAFTA deal for Indigenous peoples, because it helps to protect more of their rights, according to an article by Perry Bellegarde, the national chief of the Assembly of First Nations, in Macleans magazine.

The new USMCA deal isn't finalized yet. All three countries still have to sign off on it, but it is likely that will happen "toward the end of November," according to Tom Blackwell from the National Post.
The Story Behind the Story: Point of View (2:57)
https://teachingkidsnews.com/wp-content/uploads/2018/10/TeachingKidsNews.com-SBTS-Oct.-9-2018_-USMCA-DEAL.mp3

Related Links
Opinion piece by Perry Bellegarde, in Macleans magazine: By including Indigenous peoples, the USMCA breaks new ground.

VIDEO: Is the USMA a good deal? Financial Post, 7:02, discussion between Tom Blackwell ( National Post) and Larysa Harapyn ( Financial Post).

Overview of the deal by the CBC: Canada, US have reached a NAFTA deal-now called the USMCA

CURRICULUM CONNECTIONS
By Kathleen Tilly

Writing/Discussion Prompt
One of the reasons this story is so complicated is because of "Point-of-View." Depending on who you are, you might see the deal differently. Here are some points-of-view to consider: Canada, US, Mexico, Indigenous peoples, consumers, manufacturers, farmers, investors. But there are lots of other people who are affected when three countries get together and sign a deal.

Who else do you think might have something to say about this deal?

Reading Prompt: Text Features
Often texts use features to help readers better understand new ideas. This article uses an example (a fictional country selling bicycles) to help explain how counties sell goods to one another. How does this example help you to better understand the article?

Identify a variety of text features and explain how they help readers understand texts (OME, Reading: 2.3).

Intermediate
Identify a variety of text features and explain how they help communicate meaning (OME, Reading: 2.3).

Language Feature: Acronyms
Acronyms are short forms of a series of words. They often combine the first letter or letters of each word. For example, NAFTA stands for North American Free Trade Agreement.

Why do you think people create and use acronyms? Can you think of 5 other acronyms that you know or use?

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What You Need To Know About NAFTA and USMCA

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A big agreement was just made between the United States, Canada and Mexico. It's complicated-too complicated to explain fully here-but it's good to have an idea about what it is and why it is important. Back in 1994, the US, Canada and Mexico made a deal to all become "trading partners."

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Chart showing the growth of trade between the U.S. and Mexico

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The Canada-United States-Mexico Agreement (CUSMA) - Government of Canada

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The Canada-United States-Mexico Agreement (CUSMA) - Government of Canada

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Features

Create your MyTCS account today! Get CUSMA market insights, events and more, tailored to your business needs.

Canadian trade commissioners provide expert advice and key contacts for exporters, partners and investors.

Assistance from federal, provincial and territorial governments and agencies, and crown corporations is available to help your company succeed.

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Tatiana Clouthier unpacks Mexico's vision for an integrated and robust trade relationship with Canada and the U.S.

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United States Mexico Canada Agreement - trade.gov

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United States Mexico Canada Agreement - trade.gov

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International Trade Administration | Trade.gov

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The United States, Mexico, and Canada updated the NAFTA to create the new USMCA Free Trade Agreement.

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From NAFTA to the USMCA — A Canadian Perspective

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From NAFTA to the USMCA — A Canadian Perspective

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On July 1, 2020, the United-States-Mexico-Canada Agreement (USMCA) came into force as a replacement for the longstanding North American Free Trade Agreement (NAFTA) between the same three countries. The new treaty is the result of over two years of negotiations between the three trading partners.

NAFTA was not the first agreement liberalizing trade between Canada and United States. The two countries have been parties to a free trade agreement predating NAFTA since 1988. Many of the conditions of the preceding agreement were included in NAFTA.

Related Research
The effects of NAFTA on the Canada-United States trading relationship were significant. U.S. investments, which account for more than half of Canada's FDI stock, grew from $70 billion to $368 billion between 1993 and 2013. In addition, exports from Canada to the U.S. grew from $110 billion to $346 billion, while imports grew by a similar amount.

NAFTA did not, contrary to some predictions, destroy Canadian manufacturing. However, Canadian manufacturing did not make productivity gains to bring it level with its American counterparts: labor productivity in Canada is at around 70 percent of U.S. levels.

Furthermore, Canada has become more heavily dependent on trade with the U.S. The Council on Foreign Relations points out that 75 percent of Canadian exports go to a single trading partner - the United States - while most high-income countries do not typically rely on a single other partner for more than 20 percent of trade.

Canada's Trade Strategy
Since the turn of the century, Canada has been pursuing bilateral and multilateral trade strategies by ratifying treaties with a number of trading blocs and individual countries. This has been largely thanks to mainstream political consensus in the country, as all major parties have generally been supportive of free trade since the late 1990s. As a country with a market size dwarfed by its immediate neighbor, opening itself up to trade was an easy choice to make.

The past five years, in particular, have seen trade agreements with South Korea, the European Union, and 10 Pacific countries come into force. In effect, Canada is part of trade pacts that represent almost $50 trillion in GDP.

As the new treaties have only recently started to come into effect, it is still slightly early to study the specific aspects of liberalized trade with Europe and Japan, for instance. However, it is clear that Canada had successfully pursued this strategy, while its southern neighbor, traditionally at the forefront of international trade, had stepped back from being an enthusiastic supporter of globalization.

Canada began multiple negotiations in the mid- to late-2000s partly in order to diversify away from trade with the United States. This period coincided with strong raw material and energy prices, particularly oil. Canada was positioning itself as a commodities hub with a manufacturing industry capable of serving economies representing over half of the world GDP.

Rise of Uncertainty and "End of Globalization"
At the same time as Canada was opening new trade agreements, many high-income countries began to question globalization, including its own largest trading partner. As emerging powers, mainly China, challenged the post-Cold War order, political support for free trade has diminished in the United States.

To illustrate: neither of the 2016 U.S. presidential candidates supported the Trans-Pacific Partnership - which the United States had negotiated - and were critical of NAFTA.

Canada is part of trade pacts that represent almost $50 trillion in GDP. The current U.S. administration has imposed various sanctions against a large number of industries and trading partners, such as China and the European Union. Canada has also been on the receiving end of such sanctions. In 2018, the Trump administration invoked national security concerns (referred to as Section 232) in order to hit Canadian steel and aluminum with tariffs equal to 25 percent and 10 percent, respectively.

This situation has generated profound economic uncertainty for the Canadian economy and could, in turn, harm long-term trade and investment. It is in this context that the Trump administration sent a 90-day notification to Congress of its intent to open talks with Mexico and Canada to renegotiate NAFTA in May 2017.

Enter the USMCA
Between May 2017 and October 2018, the United States, Mexico, and Canada negotiated a new free trade agreement. As stated, the USMCA came into effect on July 1, 2020.

Canada was the third signatory to the pact and made some concessions to American demands. However, Canada did succeed in maintaining most of the NAFTA status quo, and some of the U.S. changes had originally been previously agreed to as part of the Trans-Pacific Partnership (TPP). Crucially, the new deal appears to have brought some form of stability to trading relations with Canada's largest partner.

The Good: From Canada's point of view, the USMCA is a modernization of NAFTA and not a complete revamping. In particular, the deal now ensures that certificates of origin can be submitted electronically, and the format will not be as strict as before. This should be especially important for exporting SMEs, or those that wish to participate in continent-wide supply-chains, as they will now face less bureaucratic burdens than previously.

Digital trade, which did not exist in 1993, and financial services are now part of the treaty, which will help trade in those industries. However, this would have been covered by the TPP to which Canada, Mexico, and the United States were signatories.

The Canadian automotive industry and certain supply industries will also receive heavier protection from lower-wage competition from Mexico. Content rules now require that 75 percent of a vehicle (up from 52.5 percent) be manufactured within North America in order to be tariff-free. In addition, a minimum wage of $16/hour must be paid to workers in the industry. This will benefit Canadian and U.S. workers in the automotive sector.

Steel and aluminum also received guaranteed minimum content requirements, equal to 70 percent, for North American manufactured vehicles. In addition, the Canadian automotive industry would be exempt from any future tariffs invoked for reasons of national security, as steel and aluminum were facing during negotiations. However, this does not stop individual tariffs on certain goods to be re-imposed for national security reasons. The Trump administration did just that on August 16 by imposing a 10 percent tariff on Canadian aluminum.

The Canadian dairy industry will be easier to access for American producers with an opening of the quota system equal to 3.6 percent of the market. Whether this is good or bad depends on whom you ask: food product manufacturers see it as a gain, while dairy producers see it as another breach in the stability of the quota system.

From Canada's point of view, the fact that the agreement maintains a dispute resolution system (NAFTA Chapter 19), which the Trump administration wanted to eliminate, is viewed as a significant gain for Canada, even though it does not change the status quo. However, the real benefit of the new agreement is lifting the veil of uncertainty. The uncertainty brought on by the renegotiation has been a major question mark over the Canadian economy, and following its signature, BMO Capital Markets expected the Canadian economy to grow faster than its own 2 percent forecast for 2019.

The Bad: The automotive industry, which appears to have gained the most, may in fact regret the amount of protection within its own regional trading bloc. The changes to the treaty are expected to make the wider North American industry more vulnerable to competition from overseas manufacturers. In addition, Canada's strategy of being a trading hub is now limited because of the increase in North American content rules.

On a macro-economic level, the results of the renegotiation are expected to have a slightly negative effect on the GDP of all three trade partners. The CD Howe Institute, a Canadian think tank, estimates that real GDP will be 0.4 percent lower for Canada than under NAFTA. Mexico's GDP will be impacted by 0.79 percent and U.S. GDP will be 0.1 percent lower than under NAFTA. FDI will be expected to be only marginally lower (-0.024 percent) in Canada under the new agreement.

From Canada's point of view, the USMCA is a modernization of NAFTA and not a complete revamping. The implementation of the new treaty will likely serve to erode competitiveness for the entire region versus China, the rest of Asia, and Europe.

The Ugly: Beyond the basic uncertainty generated by the renegotiations of a longstanding treaty, the new pact signals a desire by the U.S. government to pull out from international trade and protect certain industries (automotive) at the expense of productivity and competitiveness. The new treaty has not totally alleviated uncertainty either, as illustrated by the Trump administration's re-imposition of tariffs on Canadian aluminum on August 16.

However, perhaps the worst aspect of the new treaty is that it contains a sunset clause that will terminate the agreement automatically after 16 years (although a renewal mechanism is in place). This moves the clock forward on the next period of uncertainty when the treaty will come up for renewal or relapse. Foreign investors may ignore this aspect of the new pact for the moment, but the next round of negotiations has simply been pushed down the road. The USMCA's predecessor brought stability to the trading relationship and certainty for investors; the new treaty will not be as effective.

In the end, the short-term threat to Canada's economy was averted and most of NAFTA stayed in place.

How Does This Affect Investors to Canada?
It is still early to tell how exactly investors will react to the new treaty; most of the expected results are speculation and based on economic modeling.

The USMCA may encourage further investments in automotive manufacturing in Canada because wage increases in Mexico will make it less competitive. Other sectors, because they were not the focus of negotiations, will neither be harmed nor helped by the new treaty.

USMCA does not change Canada's overall trading or investment strategy: it actually creates an incentive to open trade with as many partners as possible and be as open to foreign investment in order to be integrated into global, rather than just regional, supply chains.

The Canadian government is touting the treaty as a "win" in order to remind investors that the negotiations are over and, even with a sunset clause, there is now medium-term certainty to trade in North America. As Lewis Coughlin, Consul, Head of Office and Senior Trade Commissioner at the Consulate of Canada in Guadalajara noted, "The agreement brings stability and certainty to trade in North America by retaining what worked about NAFTA and updating it."

In the end, Canada can now enjoy several years of stability within North America rather than be concerned with the renegotiation of what had been a generally positive agreement with its closest neighbors.

Marc Beauchamp , Managing Director , Hickey Canada

Marc Beauchamp brings an in-depth knowledge of the corporate mandate process and hands-on experience in working with both the private and public sector relating to investment project strategies. His education from Hautes Études Commerciales (H.E.C.) as well as his area of specialization in FDI at ENAP, the Public Administration University in Montreal, provided him with an excellent background for joining the CAI Global Group in 2005. Beauchamp has been responsible for numerous North American site selection mandates for clients such as Winpak, Rio Tinto Alcan, Norampac, Cascades, to name a few. In addition, he oversees the production of all internal consulting services including the production of private and public sector business plans such as SC Johnson, Camfil Farr, Bridgestone, Cryocath, and the cities of Drummondville, Bromont, Cowansville, and Laval to name a few. Today, as a Partner at CAI and responsible for the consulting team, Mr. Beauchamp is involved in the success of numerous mandates from a wide range of industries and public sector clients.

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north american free trade agreement (nafta)

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bilateral and multilateral trade strategies

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From NAFTA to the USMCA — A Canadian Perspective - Area Development

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Although it is still too early to say how investors to Canada will react to the USMCA, it does provide medium-term certainty to North American trade.

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A mixed bag: USMCA from a Mexican perspective

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A mixed bag: USMCA from a Mexican perspective

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Tax & Accounting Blog Posts by Thomson Reuters

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This is the second installment in a three-part series addressing implications of the United States-Mexico-Canada Agreement (USMCA). It was written by Alejandra Diaz, Senior Analyst in Global Trade Content at Thomson Reuters; and Moises Garcia, Senior Foreign Trade Implementation Specialist at Thomson Reuters. You can read the first installment of this series here.

Many foreign and national companies in Mexico perceive the United States-Mexico-Canada Free Trade Agreement (USMCA) as an obstacle because it contains more restrictions than the North American Free Trade Agreement (NAFTA) that it replaces.

This includes new duties on steel and aluminum, and an increase in the percentage of regional content that must be used in vehicles assembled in North America. In the automotive sector, for example, the minimal amount of Regional Value Content (RVC) included in each vehicle will increase from 62.5% under NAFTA to 75% under USMCA over the next three years. (The RVC goal will be phased in at levels of 66% in 2020; 69% in 2021; 72% in 2022; and 75% in 2023.)

Assembly plants that opened production in Mexico over the past few years - including BMW, Audi, Toyota, and Kia factories - have until 2025 to reach the goal. In addition, companies that do not comply with the RVC goal will be levied a duty of an 2.5%, a provision intended to promote the installation of suppliers in three countries covered by the agreement. Also, quotas totaling 2.6 million Canadian and Mexican vehicles (well above the current 1.8 million) were established in the USMCA.

Another significant change is a labor clause stating that between 40% to 45% of vehicles must be manufactured by workers who earn at least US$16 per hour - a measure designed to avoid the relocation of production to Mexico, where wages are around US$3.50 per hour.

Mexico appears to fare well under USMCA

The effects of these changes can only be projected at this stage, but what can be seen is that, despite U.S. pressure, the Mexican auto industry did not suffer a setback in the USMCA negotiations. Some of the measures to be implemented could help the industry continue growing in the country by attracting companies or generating new local auto suppliers to achieve the regional content goals.

Mexico went through a long period of economic uncertainty during the negotiations to replace NAFTA. The process resulted in investment being driven out because companies were wary regarding their long-term options. When the protracted negotiations were finally concluded, Mexico was the first country to sign and ratify the new agreement, followed a short time later by the U.S. On March 13, the Canadian Parliament ratified the USMCA before taking a three-week break forced by the COVID-19 emergency.

It was initially thought that the agreement would go into effect on June 1 - as it was established that the agreement would take effect on the first day of the third month after it was ratified by the three countries - but the countries failed to send their letters to certify their counterparts' readiness to adopt the new agreement, and the deadline was missed.

Calls for postponement

The Canadian Chamber of Commerce acknowledged its government's effort to modernize the agreement, but argued that it is not the right time to implement it due to the global pandemic, as the crisis has companies focused on maintaining their production capacity and supply chains.

The Canadian dairy industry also made a call to postpone the agreement's implementation until at least August in order to give companies time to prepare for the changes that come with the new deal. In addition, the auto industry made multiple requests to the governments of each country to grant an extension until January 2021.

In the U.S., the Senate Finance Committee, which has jurisdiction over trade, also recently called for a delay "in light of the COVID-19 pandemic." However, Mexico and Canada recently sent their letters confirming that the countries are prepared to implement the USMCA; and the U.S. trade representative recently announced the agreement will go into effect on July 1. So, it seems we are closer than ever.

A differentiator for Mexico

Mexico's president, Andrés Manuel López Obrador, has declared that the USMCA will differentiate Mexico from other countries, and he is hopeful that its implementation will boost the economy.

From Mexico's perspective, the USMCA agreement represents an opportunity to keep doing business with its largest trading partner, the United States, and offers a beacon of hope to reactivate the Mexican economy once the crisis caused by the pandemic is over.

If implementation is hastened and current market and global economic conditions are not taken into account, however, it could have the exact opposite effect - a negative impact on companies' operations and the disruption of efficient supply chains.

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A mixed bag: USMCA from a Mexican perspective

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This is the second installment in a three-part series addressing implications of the United States-Mexico-Canada Agreement (USMCA). It was written by Alejandra Diaz, Senior Analyst in Global Trade Content at Thomson Reuters; and Moises Garcia, Senior Foreign Trade Implementation Specialist at Thomson Reuters. You can read the first installment of this series here.

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Making the Case for Trade with the Americas - U.S. Chamber of Commerce

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Making the Case for Trade with the Americas - U.S. Chamber of Commerce

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Measuring the economic impact of USMCA is unlike anything the ITC has been asked to do regarding other trade agreements because typical ITC reports examine new trade agreements, not changes to existing trade agreements. Read the infographic here.

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Canada Evaluates USMCA, Raises More Questions than Answers

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Canada Evaluates USMCA, Raises More Questions than Answers

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This week, Canada released its own economic impact assessment of the new North American Free Trade Agreement (NAFTA), the United States‐​Mexico‐​Canada Agreement (USMCA), or as it's referred to in Canada, CUSMA. Canada has yet to approve the deal in its parliament, while the United States and Mexico have already completed the ratification process. Canada is likely to approve the deal, and this assessment of its benefits will not make or break the process, but nevertheless warrants a close look, as it has broader implications for how we should think about evaluating the impact of trade agreements in the future.
A Numbers Game
Let's start with the numbers. The economic impact assessment released by Global Affairs Canada (GAC) estimates that implementing USMCA "would secure GDP gains of $6.8 billion (US$5.1 billion), or 0.249%" over a 5 year period (p. 59). However, the report also notes that motor vehicle exports to the United States would decline by US$1.5 billion relative to the existing NAFTA. Why? The report cites the more stringent rules of origin (RoO) requirements of the USMCA as likely to lead to an increase in production costs.

Compare this to the U.S. International Trade Commission's (USITC) report, which estimated gains for the U.S. economy at $68.2 billion, or a 0.35% increase in real GDP, over six years. Now, these figures are not directly comparable since they're looking at the impact on their own respective countries, but the significant gap in reported gains is notable. It is worth pointing out that the USITC report also found a negative impact from the auto RoO.

A recently updated study by Dan Ciuriak, Ali Dadkhah, and Jingliang Xiao for the C.D. Howe Institute, a Canadian think tank, conducted an assessment of the USMCA, looking at the impact on all three economies. They found a negative impact on real GDP across all three NAFTA countries- a decline of ‑0.396% for Canada, ‑0.791% for Mexico, and ‑0.097% for the United States.

What gives? In making these assessments, the reports all rely on certain assumptions that impact the outcomes of their models. But two major issues stand out-what are the factors the studies rely on for their estimates, and what are they comparing the changes in the USMCA to?

As Jeffrey J. Schott from the Peterson Institute for International Economics notes, the USITC's very positive growth figure "is entirely due to USITC estimates that the USMCA will induce more US investment by reducing uncertainty in policies on data, ecommerce, and intellectual property rights." But questions have been raised about what this reduced policy uncertainty will actually produce. It's the first time the USITC has tried to quantify the impact of binding commitments on data flows and data localization in terms of reducing uncertainty for markets.

But if this reduced policy uncertainty is excluded from the model, the USITC estimates that the net impact of USMCA on the economy is actually negative, at ‑0.12%, or approximately a loss of US$22.6 billion. This is due to the new provisions that will actually reduce trade in North America, which my colleague Simon Lester and I have written about earlier. The good thing about this figure is that it actually gives a comparison of NAFTA vs. USMCA, so we have a clear sense of the purported benefits of the "new" deal.

But what does Canada do? The GAC report does not model reduced uncertainty, saying that:

Some provisions under CUSMA could also help reduce policy uncertainty in certain areas such as services, investment and digital trade, and result in a positive impact on businesses; however, modelling such gains is challenging and relies heavily on the assumptions made. Therefore, these types of benefits were not evaluated in this study. Furthermore, many of these obligations have already been implemented by Canada under CETA, and by Canada and Mexico under the CPTPP (p. 47).

This is why the economic gains estimated by the GAC report are more modest, on the whole. Interestingly, however, the reason the topline figure is positive and not negative in the report is that the baseline used is not NAFTA. Instead, the GAC report compares USMCA to no NAFTA at all, plus the continuation of steel and aluminum tariffs on Canada due to U.S. Section 232 measures. The reasoning for this choice is justified as follows: "Canada was presented with two choices: risk the consequences of a U.S. withdrawal from NAFTA or pursue a modernized Agreement." USMCA or bust!

Aside from the fact that there has been an intense debate on the legal hurdles to a unilateral withdrawal from NAFTA by the United States, the economic impact would be significant, complicating U.S. threats to withdraw. Would President Trump really risk such a move? This has always been unclear, and for Canada to base its assessment as if this was a certain outcome should raise more than a few eyebrows.

Furthermore, the right comparison is whether the USMCA improves upon NAFTA, which the GAC report did not calculate. A figure based on this comparison was reported by Ciuriak et al. (noted earlier). The lead author of that study, Dan Ciuriak, has noted that taking the new GAC report's scenario into account, he finds a comparable estimate of gains from his study's model.

Therefore, if one were to assume reasonably similar estimates for NAFTA withdrawal and the impact of Section 232 tariffs on steel and aluminum in the counterfactual put forward in the GAC analysis, and if GAC were to make its own estimate of the marginal impact of the USMCA relative to the status quo (NAFTA in place, plus no Section 232 tariffs), these estimates would be in the general ballpark of the results published by Ciuriak et al. That is to say, if GAC did take the USMCA vs. NAFTA comparison, it would find a negative impact.
What Does this Mean?
The big issue raised with the discussion above is that we need to be sure we are evaluating agreements based on the differences between the new and old rules, or even with other rules that may be better. For example, for Canada and Mexico, it would be more useful to also compare the outcomes of USMCA with the Trans Pacific Partnership (TPP) agreement, from which the United States withdrew. As the excerpt from the GAC report above notes, many of the reductions in uncertainty come not from new provisions in USMCA, but things Canada has already agreed to under its agreement with the European Union, and the TPP. So did the United States get more out of USMCA than it did from TPP? The answer is probably not. In fact, the USITC report admits as much:

the Commission's baseline does not take into account the various market liberalizations and binding commitments that Mexico and Canada have undertaken as signatories of the CPTPP, including commitments applying to data localization and data transfer. Since these are key policies that drive Commission model results in estimates that provide higher weights to the value of policy uncertainty it is unclear whether estimates with higher weights for policy uncertainty would apply to the current (post‐​CPTPP signing) policy context (p.58, emphasis added

In addition, these economic assessments raise an even more fundamental question, not least because Canada was not even planning to release a report until opposition parties called for it. The evaluations are supposed to be objective and offer a clear picture of the costs and benefits. However, the USITC and GAC report both find positive gains, whereas many trade policy experts have consistently urged caution and suggested that the USMCA is actually more of a NAFTA‐​minus deal than NAFTA‐​plus. If the reports simply provide support for government policy, and have to contort themselves to do it, are they really useful assessments?

Another study by Mary E. Burfisher, Frederic Lambert, and Troy D. Matheson from the International Monetary Fund (IMF) found a negligible impact on GDP (0.02% for Canada, ‑0.01% for Mexico, and 0.00% for the United States). They also note that "key provisions in USMCA would lead to diminished economic integration in North America, reducing trade among the three North American partners by more than US$4 billion (0.4 percent) while offering members a combined welfare gain of US$538 million" (p. 23).

This is precisely why it is important to look at independent analysis from scholars and experts in order to build a critical picture of what these government reports contend. It may also be worth asking whether other independent international bodies should have the ability to offer these assessments upon request (and to have their results considered alongside official government reports), such as the World Trade Organization (WTO) or IMF, in order to ensure political neutrality of the findings.

What we do know from existing studies is that the USMCA provides minor improvements to NAFTA, but that these gains could have been achieved had the United States stayed in the TPP. For Canada and Mexico, the benefits just don't add up. Other than avoiding political confrontation with the United States, it is not clear that ratifying USMCA does anything for Canada or Mexico. In fact, it does not even reduce uncertainty, or the possibility for conflict with the United States.

Just this week, the United States Trade Representative signaled his support for U.S. withdrawal from the WTO's Government Procurement Agreement (GPA), which Canada is also part of. In USMCA, Canada agreed to exclude provisions that would guarantee access to the U.S. procurement market, as it believed it could rely on the GPA rules. If the U.S. withdrawal from GPA does occur, this would bring Canada back to the negotiating table to sort out yet another trade conflict with the United States. Add to this the ongoing concerns over the Trump administration's use and abuse of unilateral trade actions, such as Section 232, and all that reduced uncertainty seems like it was a mirage.

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Canada Evaluates USMCA, Raises More Questions than Answers

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This week, Canada released its own economic impact assessment of the new North American Free Trade Agreement (NAFTA), the United States‐​Mexico‐​Canada Agreement (USMCA), or as it's referred to in Canada, CUSMA. Canada has yet to approve the deal in its parliament, while the United States and Mexico have already completed the ratification process.

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United States and Canada Request Consultations Over Mexico's Energy Policies Under USMCA

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United States and Canada Request Consultations Over Mexico's Energy Policies Under USMCA

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On July 20, 2022, the United States requested consultations with Mexico under the Dispute Settlement chapter of the United States-Mexico-Canada Agreement (USMCA), arguing that several of Mexico's energy policies are inconsistent with the USMCA.¹ The measures challenged by the United States affect a wide range of energy resources and technologies, including natural gas, electricity, renewable sources such as wind and solar, and diesel fuel. The United States claims that the measures at issue favor Mexican state-owned enterprises over US companies and US-produced energy, thereby violating Mexico's commitments under the USMCA chapters on Market Access, Investment, and State-Owned Enterprises, while also undermining climate objectives. The Government of Canada has stated that it agrees with the US position and has filed a parallel request for consultations, the text of which is not yet public.

If the parties are unable to resolve the dispute through consultations within 75 days, the complaining parties (the United States and Canada) may request the establishment of a dispute settlement panel to examine the measures at issue and potentially authorize retaliatory actions. This alert provides an overview of the US request for consultations and the next steps in the dispute settlement process.

US Request for Consultations

The US request covers four aspects of Mexican energy policy that allegedly "favor [Mexico's] state-owned electrical utility, Comisión Federal de Electricidad (CFE), and petroleum company, Petróleos Mexicanos (Pemex), and negatively impact U.S. companies operating in Mexico and U.S.-produced energy":

1. The Electric Power Industry Law, as amended (alleged violation of USMCA Market Access and Investment chapters)

The US request challenges a March 2021 amendment to Mexico's Electric Power Industry Law that allegedly "require[s] its grid operator Centro Nacional de Control de Energía (CENACE) to prioritize in various ways electricity produced by CFE over private competitors in dispatching electricity into Mexico's grid." Among other examples, the request cites Article 26 of the amended law, which "requires that CENACE prioritize dispatch of power generated by plants 'owned by State agencies, entities, or enterprises;'" and Article 4(V), which "'guarantee[s], in the first instance' electricity contracts of a type that only CFE can hold or enter into[.]"

The United States alleges that this measure appears to be inconsistent with provisions of the USMCA's Market Access and Investment Chapters. Specifically, the request alleges violations of Article 2.3 of the USMCA (because Mexico "has failed to accord national treatment to U.S. goods"), as well as Article 14.4 of the USMCA (because Mexico "has failed to accord to U.S. investors and their investments treatment that is no less favorable than that it accords, in like circumstances, to Mexican investors and their investments."

2. "Inaction, Delays, Denials, and Revocations of Private Companies' Abilities to Operate in Mexico's Energy Sector" (alleged violation of USMCA Chapters on Market Access, Investment, State-Owned Enterprises, and Publication and Administration)

The US request alleges that Mexico "hinders the ability of private companies to operate in Mexico's energy sector," including by "delaying, denying or failing to act on applications for new permits or permit modifications; suspending or revoking existing permits; or otherwise blocking private companies' ability" to:

Operate renewable energy facilities, such as wind and solar installations;

Import and export electricity and fuel;

Store or transload fuel; and

Build or operate retail fuel stations.

The United States claims that these measures appear to be inconsistent with the following provisions of the USMCA chapters on Market Access, Investment, State-Owned Enterprises, and Publication and Administration:

Article 2.3, because the measures provide treatment less favorable than that accorded to like products of national origin;

Article 2.11, because, and to the extent, they prohibit or restrict imports or exports of a good;

Article 14.4, because they favor Mexican investors and their investments over US investors and their investments;

Article 22.5.2, because the relevant administrative body "is not exercising its regulatory discretion in an impartial manner with respect to enterprises that it regulates, including enterprises that are not state-owned enterprises"; and

Article 29.3, because Mexico "is not administering its laws in a consistent, impartial, and reasonable manner."

3. Postponement of Requirement to Supply Ultra-Low Sulfur Diesel for Pemex Only (alleged violation of USMCS Market Access and State-Owned Enterprise Chapters)

The US request challenges a regulation issued by Mexico's Energy Regulatory Commission (Comisión Reguladora de Energía, or CRE) in 2019 that "grant[ed] only Pemex a five-year extension to comply with maximum sulfur content requirements under its applicable automotive diesel fuel standard[.]" The United States alleges that the measure appears inconsistent with provisions of the USMCA's Market Access and State-Owned Enterprises chapters, namely Article 2.3 (because Mexico "has failed to accord national treatment to U.S. goods") and Article 22.5.2 (because CRE "has not exercised its regulatory discretion in an impartial manner with respect to enterprises that it regulates, including enterprises that are not state-owned enterprises[.]")

4. Actions Regarding the Use of Mexico's Natural Gas Transportation Service (alleged violation of USMCA Market Access chapter)

The US request challenges an "official letter" sent by Mexico's Secretary of Energy to CRE and Mexico's National Natural Gas Control Center (Centro Nacional de Control del Gas Natural, or CENAGAS) in June 2022. According to the US request, the letter announced an energy policy and "supply guarantee strategy" that "would incentivize or require current or future users of Mexico's natural gas transportation service to source natural gas from CFE or Pemex and would impose restrictions on the importation of U.S. natural gas." For example, the US cites statements in the letter that "require" CENAGAS to "demand" that users or those interested in using Mexico's natural gas transportation service prove "that they receive the supply of Natural Gas from any of the productive companies of the State or its subsidiaries or affiliates[.]" The letter also "requires" CENAGAS to "demand" that "[a]t those points where CFE, its productive companies, or subsidiaries have reserved capacity in the upstream transportation systems, contracting with them shall be given precedence," according to the US request.

The United States claims that this measure appears to violate provisions of the USMCA's Market Access chapter, namely Article 2.3 (because it provides treatment to imported products that is less favorable than that accorded to like products of national origin), and Article 2.11 (because it is a prohibition or restriction on the importation of a good of the United States destined for Mexico.)

Next steps

The US and Canadian requests begin what could be a lengthy process of consultations and dispute settlement proceedings under Chapter 31 of the USMCA. This process could result in the United States and Canada imposing retaliatory measures, in the event that (1) the dispute proceeds to the panel stage; (2) the panel finds that Mexico's measures are inconsistent with the USMCA; (3) and the parties are unable to agree on a resolution. The next steps in the dispute settlement process are as follows:

In accordance with Article 31.6 of the USMCA, the parties will have 75 days to resolve the matter through bilateral consultations (i.e., until October 3, 2022), unless they agree on a different time period. If they fail to resolve the matter during the applicable timeframe, the complaining Parties (the United States and Canada) will be permitted to request the establishment of a dispute settlement panel to determine whether the measures covered by the request are inconsistent with the terms of the Agreement. The process of arriving at a panel ruling would involve several procedural steps, including a panel composition process,² and the issuance of a panel report within prescribed time frames.³ In total, the issuance of a final panel report would likely occur no earlier than 315 days after the date on which the request for consultations was submitted.

USMCA panel reports must contain (1) "findings of fact"; (2) determinations as to whether the measure at issue is inconsistent with obligations in the Agreement, or a Party has otherwise failed to carry out its obligations in the Agreement; and (3) recommendations, if the disputing Parties have jointly requested them, for the resolution of the dispute.⁴ If the panel finds that Mexico's measures are inconsistent with the USMCA, the parties "shall endeavor to agree on the resolution of the dispute."⁵ If the disputing Parties are unable to agree on a resolution within the 45-day period, the complaining parties would be permitted to suspend the application to the Mexico of benefits "of equivalent effect to the non-conformity" until the disputing Parties agree on a resolution.6 Typically, this involves the imposition of retaliatory tariffs on goods of the responding party.

In the United States, there is strong political support for the Biden Administration's decision to pursue the dispute, both from the business community and Members of Congress. These stakeholders have argued that the Mexican policies at issue not only disadvantage US companies, but also raise concerns about whether Mexico can meet its climate goals under the Paris Agreement. ⁷ The latter issue is of particular concern to the Biden Administration and Democratic Members of Congress.

Whether this dispute is resolved through consultations or a formal panel proceeding, it may have important implications for the North American energy sector, particularly given that the challenged measures affect a wide range of energy resources and technologies from renewables to fossil fuels. Importantly, the USMCA's Rules of Procedure allow a Panel to consider written views submitted by non-governmental entities during the course of the dispute, in addition to hearing the views of the disputing Party governments. ⁸ Companies should examine the implications of this USMCA dispute and consider strategies to protect their commercial interests.

1 The US request for consultations can be viewed here.
2 In disputes involving two Parties, Panels will consist of five members (unless the Parties agree to a panel comprised of three members), selected from a pre-determined roster established by the Parties. The USMCA Parties established the Roster of Panelists for Chapter 31 Dispute Settlement Panels on July 2, 2020. See FTC Decision No. 1, Annex IV (July 2, 2020).
3 The Panel must present an initial report to the disputing Parties no later than 150 days after the date of the appointment of the last panelist, except in "exceptional cases," in which the report may be delayed by an additional 30 days. USMCA Art. 31.17(1)-(2). The 30-day deadline may be altered if the disputing Parties agree. See also USMCA Arts. 31.18 and 31.19. The Panel reports must contain (1) "findings of fact"; (2) determinations as to whether the measure at issue is inconsistent with obligations in the Agreement, or a Party has otherwise failed to carry out its obligations in the Agreement; and (3) recommendations, if the disputing Parties have jointly requested them, for the resolution of the dispute. USMCA Art. 31.13.1.
4 USMCA Art. 31.13.1.
5 USMCA Art. 31.18.
6 USMCA Art. 31.19.1.
7 "U.S. Chamber Commends USTR Decision on Mexican Energy Policy," US Chamber of Commerce, July 20, 2022, . See also "Wyden Statement on U.S. Requesting Consultations Over Mexico's Protectionist, Fossil Fuel-Promoting Energy Policies," Senator Ron Wyden (D-OR), July 20, 2022; and "Brady Applauds Enforcement Action Against Mexico Flaunting USMCA Energy Commitments, Harming American Competitiveness," Representative Kevin Brady (R-TX), July 20, 2022, /.
8 Article 20, USMCA Rules of Procedure for Chapter 31

White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities. This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice. © 2022 White & Case LLP

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United States and Canada Request Consultations Over Mexico's Energy Policies Under USMCA | White & Case LLP

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On July 20, 2022, the United States requested consultations with Mexico under the Dispute Settlement chapter of the United States-Mexico-Canada Agreement (USMCA), arguing that several of Mexico's energy policies are inconsistent with the USMCA.1 The measures challenged by the United States affect a wide range of energy resources and technologies, including natural gas, electricity, renewable sources such as wind and solar, and diesel fuel.

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Why USMCA is good for American businesses, families, and consumers - U.S. Chamber of Commerce

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Why USMCA is good for American businesses, families, and consumers - U.S. Chamber of Commerce

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North American trade supports millions of U.S. jobs and significantly drives our nation's export growth. That is why it is so important for lawmakers to preserve and strengthen North American trade ...

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Modernizing NAFTA: The Pros and Cons of USMCA

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Modernizing NAFTA: The Pros and Cons of USMCA

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Welcome to Thomas Insights - every day, we publish the latest news and analysis to keep our readers up to date on what's happening in industry. Sign up here to get the day's top stories delivered straight to your inbox.

After more than a year of intense negotiations, on September 30, 2018, the United States, Mexico, and Canada reached an agreement to modernize the 24-year-old NAFTA agreement. NAFTA 2.0, which has been renamed the United States Mexico Canada Agreement (USMCA), aims to support mutually beneficial trade between the three countries, leading to freer markets, freer trade, and enhanced economic growth.

The update was seen as necessary to address recent emerging issues, such as the rise of e-commerce, intellectual property protection, and the coordination of regulatory frameworks. Other outstanding issues, such as those relating to the automotive and dairy industries, also fueled the development of the USMCA.

How Does the USMCA Differ From NAFTA?

There are a few slight differences between NAFTA and the new USMCA. The Investor-State Dispute System (ISDS) has been removed between the U.S. and Canada but remains enforced in some cases between the U.S. and Mexico. The ISDS is a dispute mechanism that allows private companies to take legal action against governments that infringe on their rights to engage in commerce in that country.

The USMCA has also made several adjustments to trade in specific industries. For example, the U.S. administration held the view that the NAFTA agreement encouraged the outsourcing of automobile production to Mexico, where labor rates are much lower. Under the USMCA, an agreement was reached where a minimum of 40% of an automobile's content must be produced by workers earning no less than $16/hour.

Changes have also been made to the treatment of intellectual property and digital trade. USMCA now extends the terms of copyright from 50 to 70 years beyond the life of the author. The new agreement also includes provisions for the digital economy, including prohibiting duties on digital music and eBooks.

What are the Pros and Cons of the USMCA?

The USMCA consists of several compromises, rather than obvious advantages and disadvantages.

For example, the 40% automobile content clause is expected to divert vehicle production from cheap labor in Mexico. This will, in turn, create more jobs for U.S. autoworkers. Another projected benefit of the automobile wage minimum requirement is that it may force Mexico to pay local workers higher wages to avoid auto tariffs.

However, higher labor costs to produce automobiles can lead to higher vehicle costs, making them too expensive for some international markets, such as China. This may also lead to small cars no longer being sold in North America.

Chapter 19, a dispute mechanism for dumping and countervailing, was a hotly debated topic. The U.S. administration believed that this chapter infringed on U.S. sovereignty, and requested that it be removed. However, an agreement was reached where the Chapter would be maintained in exchange for increased access to highly protected Canadian dairy markets. While this is a benefit to U.S. farmers and Canadian consumers, it may result in a reduced market share for Canadian producers.

Another notable change contained in the USMCA is the increase of the de minimis (duty-free) threshold. This threshold has been increased from $20 to $150 for imports into Canada and $50 to $100 for imports into Mexico. While Canadians do not have to pay duties on imported U.S. goods valued less than $150, Canadian retailers may lose business as a result of the increased de minimis (the same applies to Mexico).

The USMCA, like its predecessor, NAFTA, has had polarizing views and opinions. However, until it fully ratified and enacted, it remains to be seen how this agreement will impact North American markets.
Image Credit: Ronnie Chua / Shutterstock
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Modernizing NAFTA: The Pros and Cons of USMCA

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Welcome to Thomas Insights - every day, we publish the latest news and analysis to keep our readers up to date on what's happening in industry. Sign up here to get the day's top stories delivered straight to your inbox.

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USMCA vs. NAFTA Explained with a toy car - Vox

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USMCA vs. NAFTA Explained with a toy car - Vox

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USMCA vs NAFTA, explained with a toy car

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US Mexico Canada Agreement (USMCA) - DebateUS

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From Wikipedia -- The Agreement between the United States of America, the United Mexican States, and Canada[1] is a signed but not ratified free trade agreement between Canada, Mexico, and the United States. It is referred to differently by each signatory-in the United States, it is called the United States-Mexico-Canada Agreement (USMCA); in Canada, it is officially known as...

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USMCA at Two Years Old: How to measure North American success?

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USMCA at Two Years Old: How to measure North American success?

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July 1st marks the second anniversary of the US-Mexico-Canada trade agreement (USMCA). The first two years look promising, but it is not yet clear if the outcomes will be sufficient to retain public and political support when the agreement is reviewed in 2025-26. Given USMCA's economic importance for jobs and business across the continent, we should be thinking through the best ways to judge the agreement's success and to keep the public well informed.

The trade pact was passed with overwhelming support in the three countries, including from US democrats and republicans. It provides forward-looking paths to address North America's pressing trade challenges, including digital and other transformations in the economy, supply chain resiliency, global competitiveness, plus labor and environmental issues. The US had taken priority themes, such as labor rights, digital trade, and inclusiveness, from USMCA to inform new economic partnerships with the Americas, the Indo-Pacific, and Europe.

USMCA has boosted government-to-government engagement through its committees and senior level exchanges. USMCA is complemented by the reintroduction a North American Leaders' Summits (NALS), the US-Mexico High Level Economic Dialogue and the Roadmap for a Renewed US-Canada Partnership. The three governments recognize that USMCA alone does not provide sufficient support for needed economic collaboration given the breadth of North America's economic interconnection and the tough global competition.

Under USMCA, trade has bounced back from pre-covid levels, averaging a 6% increase across the region from 2019 to 2021. To add perspective, during 2021, a record 75% of Canadian and Mexican imports came from the United States, making both countries the US's largest export markets. Both are also the US's largest trading partners, accounting for more than twice US trade than with China.

Dealing with controversies, USMCA is off to a fast start addressing many more trade-related disputes in two years than its predecessor, the North American Free Trade Agreement (NAFTA). This is clear regarding labor, where USMCA's new Rapid Response Mechanism (RRM) has shown promising initial results in favor of collective bargaining rights in Mexico.

In sum, the agreement is playing a positive role in increasing trade flows, reinvigorating bilateral and trilateral fora in North America, and bolstering channels for investors, exporters, importers, non-governmental groups, and governments to seek to resolve problems and disputes. Nevertheless, there are many irritants to be addressedin the massive commercial relationships that account for over $2 million a minute in trade between three countries. Contentious issues touch on food and agriculture, energy, critical minerals, and autos.

Not surprisingly, the degree of overall progress remains unclear. It is not yet evident if USMCA dispute settlement cases will resolve significant disagreements over rules of origin in the auto industry or equitable market access for dairy products, for example. In addressing concerns with Mexico's energy policies and treatment of investors, the US is so far encouraging private dialogue on specific disputes and "greener" Mexican energy policies, rather than initiating formal USMCA complaints.

Experts point out that despite early successes in encouraging transparent labor union elections, progress on labor democracy and raising wages in Mexico will not demonstrate substantial results for years, and some question how much positive impact USMCA can have on productivity in Mexico, pointing to systemic problems in Mexico's economy.

Additionally, while Mexico has great opportunities to attract new investments, analysts and business stakeholders point to dark clouds given Mexico's practices on agricultural biotechnology, private investment, energy, and the Rule of Law. In addition, key USMCA areas with potential to produce growth are yet to be tested, including expanding digital trade and regulatory cooperation.

How should we measure USMCA's success? In a post-COVID system, increases in trade flows are not enough to gain broad support for trade agreements, much less deliver inclusive and sustainable growth. The pandemic and the invasion of Ukraine underscore the importance of goals that go beyond trade balances, such as decoupling supply chains from non-democratic countries like China and Russia. Promoting workforce development, the role of Small and Medium Enterprises (SMEs), better border management and reducing emissions will also be important criteria to be considered.

While implementation to date shows that USMCA is a credible update of NAFTA, tracking progress across such areas is vital, especially as the agreement will be reviewed in 2025-26. Given the many stakeholders whose business and jobs depend on the certainty in North American trade and those who want to see a more inclusive, competitive, and sustainable North America, we should start now to build agreement on key criteria, for example:

1. Growth metrics

1. How much trade and investment has grown, including digital trade

2. How many jobs are attributable to the USMCA marketplace?

3. Are SMEs taking advantage of USMCA?

4. Have border processing and security improved?

5. Has successful dispute resolution taken place?

6. Is regulatory cooperation promoting USMCA goals?

2. Inclusion indicators

1. What specific gains have been made in the labor sector? On the environment?

2. Are more nontraditional participants from civil society and vulnerable groups included

3. Is there more collaboration on workforce development? What advances have been made to help workers?

4. Are federal authorities adopting "whole of government" approaches and including sub-federal players and USMCA's many stakeholders?

3. Public outreach
Is there substantial transparency on USMCA implementation. Is there serious work underway educating publics about USMCA's key role?

To win hearts, minds, and wallets, the benefits of North American trade need to be made explicit. All three countries are scheduled to have national elections before UMSCA's mandatory review, and trade issues could easily again be subject to polemical debate, as happened over NAFTA in 2016. In the 90s, NAFTA supporters incorrectly anticipated that common rules would deliver economic growth and increased opportunities for industries, reducing initial opposition to the trade pact. Vital lessons from the NAFTA experience include that broad stakeholder support, well informed public debate, and targeted efforts to help industries and groups disadvantaged by technology and trade are all needed. Otherwise, the political debate can deteriorate to undermine the clear benefits of North American commercial collaboration.

To avoid shortfalls like NAFTA's experience, North America needs a transparent and serious discussion about USMCA within which all three governments can adjust what needs correcting in the agreement, and simultaneously work to make the facts and benefits well known. For a good review of USMCA, one needs comprehensive metrics, serious deliberation, and effective "public diplomacy" to help assure that Americans, Canadians and Mexicans are well informed about progress and what is at stake.
Earl Anthony Wayne teaches at American University and is Advisory Board Co-Chair of the Wilson Center's Mexico Institute. He was Ambassador to Mexico and Assistant Secretary of State for Economic and Business Affairs. Diego Marroquín Bitar is a public policy expert from Georgetown University. He specializes in US-Mexico relations, trade, labor mobility, and has been published in academic journals and in U.S., European and Latin American media outlets.

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USMCA at Two: How to measure North American success?

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July 1st marks the second anniversary of the US-Mexico-Canada trade agreement (USMCA). The first two years look promising, but it is not yet clear if the outcomes will be sufficient to retain public and political support when the agreement is reviewed in 2025-26.

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President Trump has threatened new tariffs on all imports from Canada and Mexico. His trade plans threaten the future of the United States’ largest free trade agreement.

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The Primary Differences Between NAFTA and USMCA

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The Primary Differences Between NAFTA and USMCA

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The Primary Differences Between NAFTA and USMCA - TACNA

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The North American manufacturing community has now had over a year to sort out the differences between NAFTA and USMCA. But many are still unsure about exactly how the two free-trade trade agreements differ and what provisions impact them most. While most of the terms remain unchanged between the two trade deals, there are several […]