What you need to know about “NAFTA 2.0”

Now that NAFTA negotiations are complete, it is time to review what every Canadian business needs to know about the updated trade agreement, known formally as the USMCA (United States-Mexico-Canada Agreement), but is more generally called “NAFTA 2.0”.

1. Status quo.  Nothing changes until the governments of the three participating countries (Mexico, United States and Canada) approve the update.  Canada and Mexico are expected to give a thumbs up, but U.S. approval rests on the results of the upcoming mid-term election (November 6, 2018), which will determine whether the U.S. Congress is controlled by the pro-Trump Republicans or the anti-Trump Democrats, who may oppose the deal because they want to reverse anything done by the U.S. President.
2. Key points of interest:
   • Facilitating trade in goods:
     • The original NAFTA eliminated virtually all tariffs between Canada, the U.S. and Mexico, with very few exceptions.  The USMCA maintains these benefits and ensures that the vast majority of USMCA trade will continue to be duty-free.  Additionally, a new Customs Administration and Trade Facilitation Chapter, standardizes and modernizes customs procedures throughout North America to facilitate the free-flow of goods.
   • Automotive country of origin rules:
     • To qualify for zero tariffs, automobiles must have 75 percent (previously 62.5 percent) of their components manufactured in Mexico, the U.S. or Canada, including 70% North American steel and aluminum.  
     • Labour provisions:  By 2023, an increased percentage of automobile parts (40 to 45 percent) has to be made by workers who earn at least $16 an hour.  
   • Agriculture:
     • Canada has agreed to give U.S. farmers more access to the Canadian market, a key issue for Trump, in the form of tariff rate quotas for dairy, poultry and egg products.
     • New market access in the form of tariff rate quotas for refined sugar and sugar-containing products.
     • A modernized Committee on Agriculture Trade, which will provide a forum for Parties to address issues and trade barriers.
     • Obligations for agricultural biotechnology that will increase innovation, transparency and predictability.
   • Dispute settlement:
     • Preserving the use of binational panels to resolve disputes on countervailing and anti-dumping duty matters, which is critically important to preserving market access outcomes and defending Canada’s interests in trade remedy cases.
     • Preserving the state-to-state dispute settlement process of the original agreement, and to improve elements of this process with respect to transparency and expediency.
3. The web.  The digital economy, which did not exist when the first agreement was done, is covered with new provisions on products such as digitally recorded music and e-books.  There are also new protections for internet companies.
4. Tariffs.  The trade loophole that Trump used to impose steel and aluminum tariffs on Canada and Mexico remains, but a side agreement prohibits him from imposing auto tariffs, a key demand by Canada and Mexico.  The Deputy Commerce Minister of Mexico has warned Mexico will not ratify the deal as long as the steel and aluminum tariffs are in place.
5. Duration.  The new deal has to be extended every six years by all three countries and expires in 16  years

For more information, contact Brian Rowe, Director – Customs Compliance & Regulatory Affairs.