National flags representing Canada, Mexico, and the U.S. are set up ahead of trade negotiations in Mexico City on Sept. 5, 2017.Marco Ugarte/The Associated Press
The U.S.-Mexico-Canada trade agreement (USMCA) that was passed by the U.S. Senate today modernizes the 26-year-old North American Free Trade Agreement that has been blamed for hollowing out the U.S. manufacturing sector.
The bill is expected to be quickly signed by U.S. President Donald Trump this week, but the trade deal still needs to be approved by Canada’s Parliament before it goes into effect.
The new agreement makes mostly modest changes, and will leave more than $1.2 trillion in North American trade flows largely unchanged. While the deal has been forecast to create 176,000 U.S. jobs over 15 years, it is not expected to bring lost factory jobs back to the United States from Mexico in coming years.
The bill passed on Thursday is identical to the bill voted in by the House of Representatives on Dec. 19, after swift approval by multiple Senate committees in recent days.
Here are some of the key changes to the pact:
AUTOS
One of the biggest changes requires increased North American content in cars and trucks built in the region, to 75 per cent from 62.5 per cent under NAFTA, with new mandates to use North American steel and aluminum.
And 40-45 per cent of a vehicle’s value must come from “high wage” areas paying workers at least $16 an hour, namely the United States and Canada, a provision aimed at slowing the industry’s migration to low-wage Mexico. Vehicles that fail to meet the standard will be subject to U.S. tariffs.
The rules put some foreign-brand automakers in the United States at a disadvantage, by forcing them to invest in new U.S. or Canadian plants for high-value components such as engines and transmissions.
DAIRY, CHICKEN AND EGGS
Canada will provide U.S. dairy farmers access to about 3.5 per cent of its $16 billion annual domestic dairy market. In exchange, the United States backed off efforts to force Canada to scrap its long-standing “supply management” system, which maintains high dairy tariffs.
The United States will be able to increase exports of some milk products like skim milk and milk proteins to Canada.
The United States also gets tariff-free access to Canada for 57,000 tonnes of chicken by year six of the deal, and access for 10 million dozen U.S. eggs and egg equivalents.
LABOUR RIGHTS
To encourage Mexican workers to unionize and to drive up wages, the deal allows the United States and Canada to convene panels of international labour experts to hear complaints if Mexican factories are denying them the freedom to organize and collectively bargain.
If such violations are found and remedial actions are not taken, it allows the complaining country to rescind tariff-free access for the offending facility’s products, among other penalties.
COPYRIGHT, DIGITAL TRADE, E-COMMERCE
Copyright protection will extend for 70 years past an author’s death, in line with current U.S. law. In Canada, copyright generally extends for 50 years past death.
Customs and other charges on digital products such as music, games, videos, and e-books, will be prohibited, and countries prohibited from requiring localized computer facilities to store data.
The deal protects internet platforms from liability related to third-party information that they publish.
Mexico’s and Canada’s thresholds for imports subject to duty collection and customs declaration will double to $100 and $30.25, respectively. The increases will benefit online retailers shipping across the region’s borders and small businesses importing small orders.
DISPUTE SETTLEMENT
The deal will phase out much of the old investor-state dispute settlement (ISDS) protections, which gave North American firms operating in a neighbouring country the option to challenge local government decisions at an international tribunal.
Under the new deal, the ISDS tribunal would only be an option for firms disputing the Mexican government over a small number of issues, such as state expropriation of assets or discrimination against foreign entities, and firms operating in a handful of industries.
PHARMACEUTICALS
The deal aims to hold down drug prices by limiting some patent protections for pharmaceuticals. Eliminated from the original text is a required 10-year data exclusivity period for biotech medicines, which U.S. Democrats feared would prolong higher prices for some of the priciest drugs.
The deal also removes a provision that would require parties to confirm patents for new uses of known drugs, combatting a process called “patent evergreening” that blocks generic competition.
ENVIRONMENT
The deal does not include any provisions to limit climate change, disappointing environmental groups.
But the changes require each of the three countries to adhere to the 1987 Montreal Protocol to eliminate ozone-depleting substances.
The text also requires compliance with international agreements on endangered species, wetlands, Antarctic marine life, whaling and tuna fisheries.