Trade news this year has been almost entirely focused on trade restrictions, with tariffs and trade wars dominating the headlines. But recently there was a breakthrough for free trade: a renegotiated NAFTA agreed to by the USA, Mexico, and Canada that would take the place of NAFTA called the United States Mexico Canada Agreement, or USMCA.
The USMCA is not a radical overhaul of the preceding NAFTA, but an agreement that makes some notable changes while keeping the general framework in place. There are new rules that govern country of origin for cars and other automobiles, wage requirements for employees, market access, and changes to copyright laws that affect intellectual property as well as pharmaceuticals.
The first notable change is that in order for an automobile to qualify as “manufactured” in a signatory country 75% of the components must be manufactured in the USA, Mexico, or Canada. Previously, that rule was only 62.5%. Functionally this will either cause automakers to source more products from the continent or affect the amount of autos that are moved over borders as duties begin to add to the total costs.
Wage increases are also part of the agreement, as it requires that up to 45% of the automobile parts that are manufactured within USMCA countries are produced by workers making at least $16 per hour by 2023. Included in the agreement are provisions for increased labor standards and protections in Mexico. These requirements are likely aimed at equalizing some of the labor costs between the three countries, so Mexico can’t simply be the place for cheap labor in the car supply chain.
A major sticking point for months with President Trump had been Canadian reluctance to allow American dairy farmers to sell their products in Canada. USMCA represents a big concession on that point, with much larger amounts of dairy products originating in the USA to be allowed in Canadian markets.
Copyright law in Canada was amended to be more friendly to intellectual property holders. Previously a copyright could be maintained for only 50 years after the death of the original creator, but USMCA extends that to 70 years. The agreement also extends the protection on new drugs in Canada from eight to ten years.
Surprisingly, the final terms of this agreement do not except Canada or Mexico from the “section 232” tariffs that were imposed on worldwide imports of steel and aluminum.
Despite strong lobbying from organizations representing brokers, importers, and exporters, the provisions for duty drawback remain largely the same. The industry had been asking to remove the restrictive rules requiring direct-identification methods be used to claim refunds as well as the need to only claim the lesser-of-the-two duties for any products manufactured then exported. Both of these restrictions remain in place for now, but we continue to push for these to be changed in the final regulations.
The terms of this agreement still must be approved by the combined legislatures of the signatories, which could still take months. With a new President beginning his term on December 1st in Mexico and midterm elections for the United States in November, the landscape can still shift considerably for the final fate of this new trade agreement.
If you’d like to discuss how USMCA would affect your company, please reach out to our VP of Sales Andrew Galloway at (973) 726-5340 or agalloway@jmrodgers.com.
