February 2020

By Daniel P. Erikson and Gabriella Ippolito

After nearly two years of intense trade negotiations, the North American Free Trade Agreement of 1994 has been replaced by the U.S.-Mexico-Canada Agreement that was ratified by the U.S. Congress and signed into law by President Trump in January 2020. President Donald J. Trump placed NAFTA and its discontents at the center of his presidential campaign and has criticized the deal relentlessly throughout his presidency, threatening to unilaterally withdraw while holding out the prospect that his administration would try to negotiate a better alternative. While initially a successful outcome seemed unlikely, the negotiating teams from the three countries succeeded in producing a deal to replace NAFTA.

In 2017 we first described NAFTA as “in the cross-hairs” in September, while in October we wrote that NAFTA was “still on the brink,” and in November we warned of “turbulence ahead.” In May 2018, we asked whether the NAFTA negotiations were in “overtime or sudden death?”, in September assessed whether there was a “deal or no deal”, and in October looked at whether the “’Horrible’” NAFTA [could] become the “Historic” USMCA?” Then in June 2019 we asked  Is the Clock Ticking for the USMCA? The saga should be coming to an end because on January 29, 2020 the President signed an updated NAFTA, which is now called the United States Mexico Canada Agreement (USMCA).

What’s in the deal?

Throughout the summer and fall of 2019 House Democrats negotiated with the office of the US Trade Representative (USTR) to ensure the inclusion of stronger labor provisions in the USMCA. Ultimately, enough changes were made such that the House was able to pass the USMCA in a bi-partisan vote -385 to 41- on December 19. After the Congressional break, the Senate approved the USMCA 89-10 on January 16. 

The USMCA is similar to NAFTA in many ways and the International Trade Commission (ITC) said they thought the change would create an additional 176,000 jobs over six years and have a “moderate” positive impact. However, some updates and changes were made. Some of the more noticeable changes from NAFTA included in the USMCA are: 

  • A requirement that 75% of a vehicle's parts to be made in one of the three countries -- up from the current 62.5% rule and that more of the parts be made by workers earning at least $16 an hour. 
  • The creation of an interagency committee that will monitor Mexico's labor reform implementation and compliance with labor obligations. Mexican workers should now be able to unionize and bargain collectively. It also creates “rapid response panels” to review specific facilities that may be violating workers rights. If they’re found to be violating workers rights the panels can levy fines on products made in those facilities.
  • The creation of a new chapter on digital trade. This chapter prohibits Canada and Mexico from forcing US companies to store their data on in-country servers and ensures that US companies cannot be sued in the other countries for content that appears on their platforms.
  • USMCA extended patent protections and copyright extensions from 50 years to 70 years after the death of the author.
  • The agreement does add a 16-year “sunset clause” which means that the agreement will expire after 16 years unless the countries decide to extend it. 

What are people saying?

  • In the White House ceremony to sign the new deal, President Trump said, “We have replaced a disastrous trade deal . . . This is something we really put our heart into. It’s probably the No. 1 reason that I decided to lead this crazy life that I’m leading right now as opposed to that beautiful simple life of luxury that I left before this happened. But I love doing it.”
  • When she announced the passage, House Speaker Nancy Pelosi said in her announcement that,"there is no question of course that this trade agreement is much better than NAFTA" and that Democratic negotiations made it "infinitely better than what was initially proposed by the administration."
  • After President Trump signed the USMCA, Canadian Deputy Prime Minister Chrystia Freeland called on opposition lawmakers in the Canadian Parliament to put partisanship aside and “pass the legislation without undue delay.”She then said: “Any uncertainty around our trading relationship with the U.S. that remains is now entirely the choice of Canadians. Are we ready to end the uncertainty and to move forward?”
  • Mexico’s chief negotiator Jesus Seadesaid that the “rapid panels,” would be formed after three months and only in response to repeated complaints and that it was better than labor inspectors in Mexican factories. 

What’s next

Mexico has already ratified the deal on its end, and although Canada has yet to do so, the Canadian Parliament did kick off the ratification process on January 27.

The new agreement won’t come into force until 90 days after Canada ratifies the deal.