President Trump Signs USMCA, the Updated NAFTA
Feb 10, 2020
On January 29, President Trump signed the United States-Mexico-Canada Agreement (USMCA), a trade deal that revises the North American Free Trade Agreement (NAFTA) of 1994. Although USMCA retains most of NAFTA’s chapters, the most notable changes are seen in the agricultural, automotive, and manufacturing industries as well as digital trade. U.S.-based manufacturers depend on Canada or Mexico as their first- or second-largest foreign purchaser. Therefore, the USMCA’s removal of implemented and threatened tariffs supports the more than 2 million American manufacturing jobs that rely on North American trade. As part of the agreement, the tariffs placed on Mexican and Canadian steel and aluminum have been lifted.
Under USMCA rules, it is required that 75 percent of vehicle parts be produced in North America by 2023. Engineers are now also tasked with designing and producing more high-valued components, including battery and storage technologies. Engineering these components in North America could have a major impact on advancing the next generation of electric and self-driving vehicles.
Overall, the USMCA is intended to continue powering the service economy in which engineering plays a major role. Services related to accounting, architecture, banking, insurance, and software, for instance, will grow further. Between 1993-2017, U.S. service exports to Canada and Mexico tripled. Other changes affect issues related to energy and the environment, government procurement, intellectual property rights, and labor. Unlike NAFTA, the USMCA will also include rules on currency misalignment, digital trade, and state-owned enterprises.
The USMCA’s chapter on Technical Barriers to Trade (TBT) includes an article on international standards, guides, and recommendations based fundamentally on the World Trade Organization’s TBT Committee Decision on International Standards. It underscores that no party shall apply any additional principles or criteria—including “domicile” or “organizational structure”—to recognize a standard as international. All parties are required to cooperate to ensure technical regulations do not create unnecessary obstacles to international trade. The chapter also includes an article on Conformity Assessment (CA), which provides national treatment for CA bodies located in the territory of another party and addresses accreditation bodies that accredit CA bodies.
The USMCA also includes stronger rules for enforcement, specifically related to workers’ rights and labor issues. These include ensuring that Mexican factories are inspected and support new Mexican labor laws that allow unionization. Mexico has three years to align its labor laws and factories to USMCA standards. It also prohibits trading with partners where a $16/hour wage for factory workers is not in effect.
The USMCA does include a sunset clause, requiring a trilateral joint review and agreement after six years. After 16 years, there would be need for authorization of an updated USMCA agreement.
You can find the full text of the USMCA at: https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between.