Until recently, Canada appeared to be on the brink of exclusion from a new NAFTA deal.
But after a good deal of haggling, the U.S., Mexico and Canada finally hammered out a revised trade deal that could replace NAFTA.
“It’s not NAFTA redone, it’s a brand-new deal,” President Trump said.
The new one will be referred to as USMCA, or the United States-Mexico-Canada Agreement.
All parties are expected to sign the agreement into law by the end of November 2018. Then, it’ll be up to Congress to approve the deal, which could happen by 2019.
The agreement sets new rules for auto production. It reduces barriers for American dairy farmers to sell cheese, milk and other products to Canada. And it retains a tribunal for resolving trade disputes that the United States had sought to eliminate.
And so far, it looks like a good win for the U.S.
Under the original NAFTA agreement, Canada could limit how much milk, cheese and other dairy products could flow from the U.S. However, under the new deal, Canada will increase market access for U.S. dairy, poultry and eggs.
In return, the U.S. will allow more Canadian dairy, peanut products and a limited amount of sugar to cross the northern border.
Auto Manufacturing Benefits
Under NAFTA, automakers were required to produce 62.5 percent of a vehicle in North America to qualify for zero tariffs. Starting in 2020, to qualify for zero tariffs, a car or truck must have 75 percent of its components manufactured in Canada, Mexico or the United States.
Plus, according to The Washington Post:
“There’s also a new rule that a significant percentage of the work done on the car must be completed by workers earning at least $16 an hour, or about three times what the typical Mexican autoworker makes. Starting in 2020, cars and trucks should have at least 30 percent of the work on the vehicle done by workers earning $16 an hour. That gradually moves up to 40 percent for cars by 2023.”
Chapter 19 Will Remain in Place
Chapter 19 allows Canada, Mexico and the United States to challenge one another’s anti-dumping and countervailing duties in front of a panel of representatives from each country.
While the U.S. had removed Chapter 19 in its agreement with Mexico, now it will stay put as a concession to Canada.
We’ll also see more intellectual property protections for biotech, financial services, and domain names. In addition, U.S. drug companies will now be able to sell pharmaceuticals in Canada for ten years before facing any generic competition.
On the face of it, NAFTA.2 looks to be a good deal.
Now we wait for all parties to sign, and for Congress to give its stamp of approval.
Stay tuned to The Cheap Investor for more on this story.