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An Overview of the North American Free Trade Deal


An Overview of the North American Free Trade Deal

Just ratification from Canada is necessary for the new free trade agreement between the United States, Canada, and Mexico to enter into effect.
Mexico was the first country to ratify the new United States-Mexico-Canada Agreement (USMCA), with a decree published in the nation's Official Gazette on July 29, 2019.

On January 29, 2020, US President Donald Trump signed into law the United States-Mexico-Canada Agreement Implementation Act, completing the US's domestic ratification procedures.

In Canada, a bill was approved at second reading by Canada's House of Commons to ratify the pact – Bill C-4 – on February 3, 2020. It has now been referred to a House committee for approval.

The New North American Free Trade Agreement (NAFTA)

The USMCA, renegotiated at the behest of US President Trump, who threatened to pull the US out of the deal, is intended to further open up the three markets and promote fairer trade.

In particular, USMCA would maintain the tariff-free market access from NAFTA and also introduce a range of new market access and tariff requirements for agricultural products.

USMCA also includes a new Customs Administration and Trade Facilitation chapter, which would standardise and modernise customs procedures throughout North America. It would preserve the use of binational panels to resolve disputes on countervailing and anti-dumping matters.

Other new chapters cover digital trade, corruption, good regulatory practices, and ensuring that small and medium-sized enterprises benefit from the agreement.

USMCA was signed in November 2018, but it was amended on December 10, 2019. The Canadian Government said that the amendments involve improvements in the areas of: state-to-state dispute settlement:

  • labour protection;
  • environmental protection;
  • intellectual property;
  • and automotive rules of origin.

Canada has also secured a commitment from the US to provide at least a 60-day exemption from any future tax measures under Section 232, which authorises the US President to impose tariffs in the case of imports deemed to constitute a national security threat.


Specific USMCA Provisions

The most comprehensive summary of the agreement's provisions has been released by the Office of the US Trade Representative (USTR).

Notable provisions within the IP Chapter, according to the USTR, will require full national treatment for copyright and related rights, to ensure the same protections as for domestic creators. It will also require strong standards against the circumvention of technological protection measures, for works such as digital music, movies, and books. It also includes new enforcement provisions to tackle the trade in counterfeit or pirated goods, including rules governing the digital environment.

Meanwhile, according to the USTR, the new Digital Trade chapter will, among numerous other things, prohibit customs duties and other discriminatory measures from being applied to digital products distributed electronically (e-books, videos, music, software, games, etc.). There will be liberalised rule for the transmission and storage of data and extra safeguards for digital businesses.

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To facilitate greater cross-border trade, the United States reached an agreement with Mexico and Canada to raise their de minimis shipment value levels. Canada will raise its de minimis level for the first time in decades, from CAD20 to CAD40 for taxes. Canada will also provide for duty-free shipments up to CAD150.

Mexico will continue to provide USD50 tax-free de minimis and also provide duty-free shipments up to the equivalent level of USD117.

The USTR said shipment values up to these levels would enter with minimal formal entry procedures, making it easier for more businesses, especially small- and medium-sized ones, to be a part of cross-border trade. Canada will also allow a period of 90 days after entry for the importer to make payment of taxes.

The USTR said: 

"Increasing the de minimis level with key trading partners like Mexico and Canada is a significant outcome for United States SMEs,”

“These SMEs often lack resources to pay customs duties and taxes, and bear the increased compliance costs that low, trade-restrictive de minimis levels place on lower-value shipments, which SMEs often have due to their smaller trade volumes.”

In the area of financial services, the USMCA includes provisions to ensure that financial service suppliers receive the same treatment as local suppliers and those from other countries.

One of President Trump's principal objectives in the renegotiation was to ensure the agreement benefits American workers. The countries have agreed to a labour chapter that brings labour obligations into the core of the agreement and makes them fully enforceable.

The labour chapter requires the parties to adopt and maintain in law and practice labour rights as recognised by the International Labor Organisation. In addition, the chapter includes new provisions to prohibit the importation of goods produced by forced labour, to address violence against workers exercising their labour rights, and to ensure that migrant workers are protected under labour laws.

Notably, the deal contains new trade rules of origin to drive higher wages by requiring that 40-45% of auto content be made by workers earning at least USD16 per hour.

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