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USMCA: What are the changes in the new trade deal?
MEXICO CITY, Dec 11, 2019 (BSS/AFP) – A year after signing a new regional
free trade pact, the United States, Mexico and Canada have agreed to key
changes to the deal that can win approval from the US Congress.
After months of tense negotiations, the agreement with House Democrats
opens the way for the United States-Mexico-Canada Agreement to succeed the
1994 North American Free Trade Agreement (NAFTA), marking a victory for
President Donald Trump.
Although Mexico’s congress already approved the deal, the revised accord
now goes for ratification by the legislatures of the three countries. Here a
summary of the key elements:
– Enforcing labor standards –
US labor leaders have long railed against NAFTA, blaming it for a loss of
manufacturing jobs, and Democratic House Speaker Nancy Pelosi vowed not to
allow a new trade agreement to pass Congress unless it contained guarantees
that labor provisions in Mexico will be enforced.
After months of negotiation, Pelosi said that with the changes the trade
pact will be “infinitely better than what was initially proposed by the
administration.”
Powerful AFL-CIO labor federation President Richard Trumka also endorsed
the changes, saying that “for the first time, there truly will be enforceable
labor standards,” including a process allowing for inspections of factories.
The new provisions will monitor Mexico’s implementation of labor reforms,
setting key benchmarks for compliance, and “facilities-based enforcement” of
obligations for all goods and services, with penalties for goods that fail to
meet standards.
This will require “verification of compliance by independent labor
experts,” which reportedly was a compromise after Mexico balked at factory
inspections.
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– Environmental rules –
US House Democrats also insisted on including strong environmental
standards in the trade pact, and added new mechanisms to monitor violations.
As with labor standards, the deal creates the position of environment
attaches in Mexico City to monitor laws and regulations.
– Prescription drugs –
Another of the tweaks to the revised deal takes aim at the high cost of
drugs.
The changes remove a provisions requiring the three countries to provide
at least 10 years of exclusivity for biologic drugs, which allow generics to
enter the market more quickly, reducing prices.
The industry, represented by the PhRMA association, was not happy.
“The announcement made today puts politics over patients,” PhRMA president
and CEO Stephen Ubl said in a statement. And he warned that eliminating “the
biologics provision in the USMCA removes vital protections for innovators
while doing nothing to help US patients afford their medicines.”
– Economic impact –
Since taking effect, NAFTA has boosted regional trade, helped stabilize
the Mexican economy, and reshaped manufacturing into a seamless tri-national
chain.
While critics, including Trump, blame NAFTA for the loss of US
manufacturing jobs, many more jobs were lost to technology.
And NAFTA provided a big boost to GDP which outweighed the jobs lost due
to the trade deal, research shows.
An analysis by the US International Trade Commission estimates that within
six years the USMCA should raise US real GDP by 0.35 percent and US
employment by 176,000 jobs.
– Increased trade –
The USITC estimates the new pact will increase both US imports from Canada
and Mexico and exports to those countries by about the same amounts.
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In 2017, Canada and Mexico were the two largest export markets for the
United States and two of the top three import sources. The United States
exported $282 billion in goods to Canada and imported $314 billion while
exporting $243 billion to Mexico and importing $299 billion.
By comparison, the United States exported only $130 billion in goods to
China, its third-largest export market.
– Autos: higher pay, local content –
Auto manufacturing is a key part of regional trade, and the USMCA will
require that 75 percent of auto content be made in the region, increased from
62.5 percent, and that 40-45 percent be made by workers earning at least $16
an hour.
– Settling disputes –
At Canada’s insistence, the United States agreed the dispute settlement
system — formerly known as Chapter 19 — should remain in the deal.
However, the agreement does make some changes to the more controversial
“Investor-State Dispute Settlement” powers, which critics said had allowed
powerful companies and wealthy investors to invalidate local laws and court
decisions through unaccountable arbitration.
– Digital trade –
When NAFTA took effect in 1994, e-commerce hardly existed in its current
form and modernizing its provisions was a key premise of the talks. The new
agreement prohibits customs duties for digitally distributed goods like
software and games, e-books, music and movies, and limits local governments’
powers to force companies to disclose propriety source code.
– The no-China-deals clause –
Tucked in the agreement is a provision that appears designed to stop
either Canada or Mexico from seeking a better deal with Beijing. If any
signatory seeks to enter into a free-trade agreement with a “non-market-
economy” — read China — the other parties will then be allowed to cancel
the three-country deal and replace it with a bilateral agreement.
– An alternative ‘sunset clause’ –
The new trade pact will remain in force for 16 years, but will be reviewed
every six years. If the parties decide to renew the agreement, it will be in
effect for another 16 years. But if there is a problem, officials would have
10 years to negotiate to resolve their differences before the treaty would
expire.
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