Trump has just advanced Nafta. This is what is in the New Deal



There is a lot to be done in the new trade agreement that the United States, Mexico and Canada have concluded on Sunday with deadlines, starting with a name change: if the new deal is adopted by all three countries, the North American Free Trade Agreement will give way to the agreement between the United States and Mexico-Canada or USMCA

It is a cosmetic change for an otherwise consistent set of revisions.

"It's not Nafta, it's a brand new deal," President Trump said Monday at the White House.

The text of the pact, which was released at the end of Sunday, contains important adjustments in several important areas of the trade relations of the countries. The agreement sets new rules for the production of cars, intended to stimulate the production of cars and trucks in countries that pay higher wages. It reduces barriers for American dairy farmers to sell cheese, milk and other products to Canada. It retains a tribunal for resolving trade disputes that the United States wished to lift.

It guarantees Canadian and Mexican manufacturers extensive access to a number of major American markets, such as automobiles and light trucks, but still leaves questions about their ability to avoid tariffs for steel and aluminum exports to the United States.

These are highlights from the text of the agreement and from the 12 "side letters" that the neighboring countries have submitted.

Nafta required car manufacturers to produce 62.5 percent of a vehicle's content in North America to qualify for zero rates. The new agreement increases this threshold to 75 percent over time. This is intended to force car manufacturers to purchase fewer parts for an "Assembled in America" ​​(or Canada) car from Germany, Japan, South Korea or China.

For the first time, the new agreement also stipulates that an escalating percentage of parts for every tariff-free vehicle – with a top percentage of 40 per cent in 2023 – must come from a so-called "high wage factory". The agreement says that those factories have to pay a minimum of $ 16 per hour in average salaries for production workers. That's about three times the average wage in a Mexican factory at the moment, and government officials are hoping that the facility forces car manufacturers to move suppliers from Mexico to Canada or the United States.

There are risks for that change. Automotive analysts have warned that the provision may be harmful effect for Americans, by increasing the costs for American car buyers and encouraging car manufacturers to move production to low-wage countries outside the United States, like China.

Conversely, the final determination, as written, can prove to be relatively ineffective in the shift of production – because it is not indexed to inflation. An average wage of $ 16 per hour will be less restrictive in 2023 dollars than it is now.

Perhaps the biggest bottleneck in recent months' talks was Canada's protection of its dairy market, including limits on imported dairy products from the United States and government support that gives Canadian products an advantage over international markets against American.

"Dairy was a deal breaker," Mr. Trump on Monday.

The new agreement provides the victories of the United States on both fronts. It gradually opens the Canadian market for more exported US dairy products, including "liquid milk, cream, butter, skimmed milk powder, cheese and other dairy products." Canada agreed to eliminate a program that helps Canadian sellers of certain dairy products at home and abroad.

Among the small but important items in the new agreement is a measure to encourage Mexico to make it easier for employees to form and join trade unions, steps to give US financial services companies better access to Canadian and Mexican markets, and provision to protect the intellectual property of US pharmaceutical companies that sell prescription drugs in Canada.

The latter provision will provide longer protection for US biologics, against biosimilar competitors, and it will likely increase the profits of those drug makers when they sell in Canada.


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