NAFTA is out, USMCA is in

The United States and its North American trade partners have finally agreed on concrete parameters of a new trade agreement that will replace the North American Free Trade Agreement (NAFTA). The last-minute deal, called the United States-Mexico-Canada Agreement (USMCA), came after over a year of suspense that has intensified over the last month, after the U.S. reached an agreement with Mexico in August, but remained at a standstill with its northern neighbor.

U.S. President Donald Trump indicated that he was prepared to move forward without Canada’s participation in the agreement, leaving spectators to wonder what cross-border relations – especially surrounding the auto industry – would look like. Now, we have answers:

• The new deal requires 75 percent of a vehicle’s parts to be made in North America to sidestep tariffs (12.5 percentage points higher than NAFTA required) with the intent of returning auto production that moved abroad back into the U.S.
• It also requires that 40 to 45 percent of car and truck parts be made by workers earning at least US$16 per hour, to discourage U.S.-based manufacturers from looking south of the border for cheaper labor.

That an agreement was reached is cause for celebration for those in the business of North American cross-border trade, especially considering Canada was poised to exclude itself from an agreement – Canadian Prime Minister Justin Trudeau even calling it “a good day for Canada.”

Outside of the auto industry, the agreement also covers issues like exchange rate regulations, digital piracy, and the trade of dairy products.

The new agreement is expected to be signed in two months and take effect around Jan. 1, 2020.