Published by liftdivision
Posted on April 1, 2022
The North American Free Trade Agreement, or NAFTA, has been a significant economic agreement between the United States, Canada, and Mexico for over 25 years. In September 2018, however, a new trade deal was announced, known as the United States-Mexico-Canada Agreement (USMCA). But what is this new agreement, and how does it differ from NAFTA?
Firstly, it`s important to note that USMCA is not a complete replacement for NAFTA. Instead, it builds on the foundations set by the earlier agreement while also introducing new provisions to modernize and improve the trade relationships between the three countries.
One of the most significant changes in the USMCA is the introduction of new rules for automotive manufacturing. Under NAFTA, a car could be considered “North American” if it contained 62.5% North American-made parts. In the USMCA, this has been increased to 75%, meaning that manufacturers will need to use more domestic parts to qualify for tariff-free trade. In addition, a new requirement has been introduced that 40-45% of the labor used to manufacture a car must be done by workers earning at least $16 per hour. This is intended to encourage the use of higher-paying manufacturing jobs within the three countries.
Another significant change is the restructuring of dispute resolution mechanisms. Under NAFTA, disputes were handled by an ad-hoc panel of experts. However, under the USMCA, disputes will be handled by a standing panel of judges appointed by each country. This change is intended to provide more stability and transparency to the process of resolving disputes between the three nations.
Other changes include new protections for intellectual property, new rules for dairy and agricultural trade, and the modernization of several provisions related to e-commerce and digital trade.
While the USMCA still needs to be ratified by all three countries before it can take effect, it is generally seen as a positive step forward for North American trade relations. By modernizing and updating NAFTA, the new agreement is intended to better reflect the needs and realities of the 21st-century economy while also promoting freer and fairer trade between the United States, Canada, and Mexico.