Marking the beginning of a historic new chapter for North American trade, the United States-Mexico-Canada Agreement (USMCA) has officially replaced NAFTA (North American Free Trade Agreement) and entered into force on July 1, 2020.
Renegotiating the 25-year-old NAFTA was a signature goal of the Trump administration. After nearly 2 years of negotiations, the three countries – the US, Mexico and Canada – signed the new agreement in November 2018; then another year of congressional debate followed before bipartisan majorities gave approval to the deal in January.
North America’s Economic Integration
The USMCA largely preserves the duty-free trade and economic integration of North America that began in 1994 with NAFTA. The new trilateral agreement contains a range of fresh provisions, including new rules covering intellectual property, digital trade and measures governing energy trade.
USMCA’s Sunset Clause
The USMCA is a revision and replacement for the twenty-five-year-old North American Free Trade Agreement (NAFTA), a regional trade agreement that has generated billions of dollars’ worth of goods and services traded among the three nations. The new deal assures that duty-free and quota-free trade within North America will continue for at least sixteen years.
As the agreement contains a 16-year sunset clause — which means the agreement’s terms would expire after 16 years. In addition, the deal is also subject to a review every 6 years, at which point Canada, the US, and Mexico, can decide to extend the USMCA. In other words, the parties have to hold a joint review every 6 years in order to evaluate how the agreement is working and, hopefully, agree on needed updates as well as adjustments.
The USMCA mostly follows NAFTA with the addition of new laws on intellectual property protection, the Internet, investment, state-owned enterprises, and currency.
‘Historic breakthrough for American agriculture’
“I made a solemn promise to the American people that I would end the job-killing failure called [NAFTA] and replace it with a better deal for our workers, farmers, ranchers, and businesses,” US President Donald Trump said.
"I made a solemn promise to the American people that I would end the job-killing failure called [NAFTA] and replace it with a better deal for our workers, farmers, ranchers, and businesses." — President @realDonaldTrump
— The White House 45 Archived (@WhiteHouse45) July 1, 2020
“The USMCA is the largest, fairest, and most balanced trade agreement ever negotiated and contains innovative provisions to help grow the economy and support American jobs. It is a tremendous victory for our manufacturers and autoworkers, meaning more cars and trucks will be produced in the United States,” the US President said.
“The USMCA is also a historic breakthrough for American agriculture. Canada will provide greater access for American dairy products, poultry, and eggs, and finally give fair treatment to American-grown wheat. In addition, the USMCA includes groundbreaking provisions to address digital trade, services, small business, and more, which will protect America’s competitive edge in technology and innovation,” he added.
‘Improved access to markets’
“USMCA helps all of America’s diverse agricultural industries. This new and improved deal secures greater access to markets and lowers barriers for our agricultural products,” Sonny Perdue, U.S. Secretary of Agriculture, said.
#USMCA helps all of America’s diverse agricultural industries. This new and improved deal secures greater access to markets and lowers barriers for our agricultural products. pic.twitter.com/RGUeTTxl5Q
— Sonny Perdue (@SonnyPerdue) July 1, 2020
‘Milestone in the American History’
US Trade Representative Robert Lighthizer termed the day as a “milestone in the history of American trade policy.”
US states’ governors, including Mike Dunleavy, Kim Reynolds, Jim Justice and Doug Burgum, also took to the micro-blogging site and congratulated Mr Trump for the landmark deal.
— Governor Mike Dunleavy (@GovDunleavy) July 1, 2020
#USMCA is a historic agreement for Iowa families, farmers and small business owners. Grateful to @POTUS and his administration for their unwavering commitment to getting this agreement done. pic.twitter.com/uCa2YuiOIT
— Gov. Kim Reynolds (@IAGovernor) July 1, 2020
Proud of @realDonaldTrump's work on the United States-Mexico-Canada Agreement!
— Governor Jim Justice (@WVGovernor) July 1, 2020
The #USMCA goes into effect today, which is terrific for farmers, business owners, innovators & more. This is a new era of trade & strengthened relationships w/ ND’s largest trading partners. Thanks to @POTUS, Sens. Hoeven & Cramer and Rep. Armstrong for their work on this deal. pic.twitter.com/sAcwHQagXu
— Gov. Doug Burgum (@DougBurgum) July 1, 2020
Key Provisions of USMCA for farmers:
Better Market access for US exporters
According to the available data, Canada and Mexico are the top export markets for US agriculture, totalling a combined $40 billion in 2018. Nearly 30% of all U.S. farm and food exports went to its North American neighbours last year.
The new deal will make a good trade relationship even better, ensuring preferential market access for U.S. agri-exporters and strengthening commitments to fair and science-based trade rules.
For the first time, the agreement specifically addresses agricultural biotechnology – including new technologies such as gene editing – in order to support innovation and reduce trade-distorting policies. Improves the transparency and functioning of approval processes for biotech crops.
The agreement institutes a more rigorous process for establishing geographical indications (GIs) and lays out additional factors to be considered in determining whether a term is a common name.
Safeguarding Human, Animal, and Plant health
The parties agree to strengthen disciplines for strong measures to protect the animal, human, and plant health while improving the flow of trade.
America’s dairy farmers will have new market opportunities in Canada for a wide variety of dairy products. Canada also agrees to eliminate the unfair milk pricing program that allowed its farmers to undersell U.S. producers. Specific to dairy trade with Canada, the agreement made gains for U.S. milk products, cheese, and poultry.
U.S. poultry producers would have new access to Canada for chicken and eggs and expanded access for turkey. The landmark agreement also increases market access for US farmers with new export opportunities.
Canada, under the deal, decided to terminate its discriminatory wheat grading system, enabling US farmers along the border to be more competitive.
Wine & Distilled Spirits
The three countries – the US, Mexico & Canada – agreed to avoid technical barriers to trade through non-discrimination and transparency with regard to sale, distribution, labelling, and certification of wine as well as distilled spirits.
The agreement updates origin rules for processed fruits to assure that preferences benefit U.S. producers.
Long-standing non-tariff barriers addressed
Addresses longstanding non-tariff barriers to the ability of U.S. producers to export wheat and wine to Canada.
Boost to Agricultural Exports
In a press briefing, White House press secretary Kayleigh McEnany said agricultural exports are expected to increase by $2.2 billion under the new agreement.
Prevents Trade Barriers
The new trilateral deal helps in reducing trade barriers disguised as food safety and animal/plant health measures by such measures to be based on sound science.
Strong Environment Obligations
Provides the strongest labour and environment obligations in any U.S. trade agreement and makes them fully subject to the enforcement and dispute settlement
North America’s Economic Growth
“A new trade agreement between the U.S., Mexico and Canada would add $68.2 billion to the U.S. economy and create 176,000 new jobs,” according to a study from the International Trade Commission.
According to experts, the agreement will mutually benefit North American businesses, workers, ranchers, growers, and shippers. Its implementation is likely to improve trade by introducing more balance as well as reciprocity, improving the regional economy in a comprehensive manner by strengthening and modernizing North American agriculture and food trade.