FederalTradeWhat’s in the USMCA? An Overview of the New Trade Deal

The USMCA had bipartisan support in both chambers of Congress.
December 23, 2019
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Perhaps the second most-noteworthy of three massive agenda items voted on by the House last week — but one that received the least attention — was the United States-Mexico-Canada Agreement (USMCA). 

Essentially a software update to the North American Free Trade Agreement (NAFTA), the USMCA has been a focus of the Trump administration.

The trade deal generally sets the ground rules for the economic relationship between the three North American countries. It even preserves much of NAFTA, such as the process for challenging one another’s anti-dumping and countervailing duty policies in a joint court, rather than rooted in a specific country.

It also requires the involved party’s currencies to be valued at the “market exchange rate.” This provision was pushed for hard by the Trump administration — effectively prohibiting what is known as “currency manipulation” wherein a nation intentionally devalues its currency in order to gain a trade advantage.

This is something that many policymakers in the U.S. have accused China of doing for years.

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While Canada and Mexico are not widely accused of manipulating their currency, it’s a taste of what’s to come for any trade deal negotiated between this administration and China down the road.

Here are some other key topline provisions of importance for industries in Texas.

Agriculture

Widely touted as one of the marquee “wins” of the deal, American dairy farmers will gain an estimated 3.6 percent increase in market access to Canada. Access for everything from ice cream to milk increased. But the biggest quota increase comes for milk specifically.

In year one, Canada must import 8,333 metric tons (MT) of milk and that increases annually until it reaches 56,905 MT in year 19.

Another agricultural product with some sort of protection is grain. 

As a shipping price protection for its farmers, Canada places a ceiling on the amount of grain that can be exported. However, under the USMCA grain shipped to the United States is exempted from the limit.

For sugar and sugar-related products, Mexico’s sugar duties must not be less than the United States’ “most favored nation” rate for the same product.

Additionally, each country has a provision prohibiting others from selling knock-off liquor products. America’s neighbors are prohibited from selling “bourbon whiskey” or “Tennessee whiskey” that was not made in America. The same goes for Canada with its aptly named “Canadian whiskey” and for Mexico with “tequila and mezcal.”

Energy

There are not many changes to the energy side of the trade deal from NAFTA to USMCA. 

Instead, it locks in trends that were already in motion. For example, the investor protection provision in Chapter 11 is preserved for the energy industry in Mexico. This allows recourse for companies in case the Mexican president attempts to change the rules established by his predecessor.

Another minor provision slightly lowers tariffs on crude oil from Canada. But overall, the energy side of the deal largely preserves business-as-usual.

Labor

A focus of the Trump administration’s criticism of NAFTA was its tacit sanction of outsourcing. For some time, many manufacturing and less-hands on service industry jobs have moved to other countries with lower labor costs.

This sparked a protectionist recoil intended to keep such jobs stateside. Ample blame over outsourcing was placed on NAFTA, fairly or unfairly, which in turn was a key driver for what would become the USMCA.

A handful of provisions are directly tied to this sentiment. One such requirement is that 75 percent of automobiles must be made in North America to qualify as duty-free.

Other labor provisions include a requirement that 30 percent of automobile parts must be made by workers making $16 per hour or more, which will increase to 40 percent by 2023; Mexico will be forced to change its laws to make unionization easier; and safety standards for trucks made in Mexico and shipped across the border were also increased.

Technology

Intellectual property theft has remained a focal point for the Trump administration that was carried into the USMCA.

Given that NAFTA was negotiated around the dawn of the internet, many have pushed for updates. More rigid patent and trademark protections are included, specifically for biotech, domain names, and others.

Overall, the bill mandates the free flow of information and data between the parties — another provision aimed at setting a benchmark for any future deal with China.

A point of contention in this category has been a so-calledbig tech protection” embedded in the agreement from Section 230 of the Communication Decency Act of 1996. It prohibits parties from passing legislation that would hold tech companies liable for what is said on their platforms.

It remains in this version of the bill, but it’s possible the Senate strips the provision. The upper chamber has been the epicenter of pushback on Section 230 with Sen. Ted Cruz (R-TX) joining in too.

The concern provided by Cruz is that such protections could ultimately run afoul of U.S. statute if Section 230 is reformed or repealed in the future.

Intellectual Property

Democrats also successfully removed intellectual property protections for biologic drugs. The original text established a 10-year protection for companies developing new drugs and three years for companies finding a new use for old drugs.

This has caused concern in some circles that without protections for the intellectual property of American products, a precedent will be set that could ultimately harm innovation and product development across a host of largely U.S.-based industries.

The three countries agreed to revisit the USMCA in six years. It has a sunset clause set for 16 years but can be renewed for another 16 years at the end of the first term.

This trade deal has been in the works for quite some time and it has been no easy lift to pass. The overall theme of the USMCA boils down to building on the successes of NAFTA and attempting to fill in holes where they exist. 

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Brad Johnson

Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad watching and quoting Monty Python productions.