USCMA Free Trade Deal Signed into Law by U.S. President Trump

The United States-Mexico-Canada Agreement (USMCA) was signed into law by U.S. President Donald Trump on Wednesday. After more than a year since the initial handshake between the three countries, ratification by the United States has normalized trade between our connected economies. Manufacturers in Mexico or those with expansion plans are now able to move forward as one of the most successful free trade deals in the world goes into effect.

Mexico approved the USMCA deal last summer and Prime Minister Justin Trudeau and Canadian Parliament is expected to ratify it shortly. With the new USMCA there comes changes and updates to the previous North American Free Trade Agreement (NAFTA) which had a twenty-six-year run promoting trade, duty free cross-border cooperation and economic growth for all of North America.

There are some major updates and differences between NAFTA and USMCA, here are some highlights:

Change in the Auto Industry Rules

Under the previous NAFTA, cars had to have 62.5% regional value content (RVC), meaning for a car to be sold in North America it had to contain 62.5% parts from North America. If it didn’t it would be subject to tariffs. Under the new USMCA the RVC has been increased to 75%.

Additionally, new to the USMCA is a labor value content rule (LVC) dictating that 40-45% of the components of the car need to be made by workers averaging $16 dollars an hour.

While being simply described in headlines as enforcing a dramatic new minimum wage on Mexican auto workers, it is in fact an average wage taken from every employee on the floor including managers, engineers and others high wage earners, not just the assembly line workers.

This may make it easier to meet the $16 dollars an hour average wage while applying some pressure to make Mexican auto workers wages more commiserate with its North American counterparts.

Learn more or download our fact sheet on Mexico’s automotive and auto parts manufacturing industries.

Digital Trade

The USMCA establishes rules for digital trade and digital technologies such as e-books, videos, music, software and games. Much of these technologies didn’t exist and weren’t addressed when NAFTA went into effect in 1994. Other technologies that fall under the USMCA include electronic authentication and electronic signatures, protection against forced disclosure of proprietary computer source codes and algorithms, collaboration in addressing cyber security challenges, promotion of open access to government-generated public data, and consumer privacy and protections against unsolicited communications in the digital marketplace.

Enforcement of Environmental Standards

New to the USMCA are more detailed environmental for the three countries. This includes commitment to enforce environmental laws and be subject to dispute resolution. Additional major provisions are included for protecting coastal and marine environments, air quality improvement, conservation and prevention in the trafficking of wildlife, timber and fish, amongst others.

Further reading: How CPI Helps Manufacturers with EH&S Compliance

Labor Standards

All three countries are required to adopt and maintain core labor standards recognized by the International Labor Organization, including freedom of association and the right to strike. Under the USMCA each country will prohibit the importation of goods produced by forced labor and child labor and that migrant workers are protected under labor laws.

Textiles

Revised rules were added to incentivize use of regional inputs with requirements to source sewing thread, narrow elastic fabrics, pocketing, and coated fabrics from within North America. Updated rules of origin provide flexibility for textiles not generally available in North America and increases the de minimis percentage of non-originating inputs allowed in qualifying goods from 7 to 10 percent.

Agricultural Industry Changes

The USMCA gives U.S. farmers greater access to Canada’s dairy markets and reaffirms support of dairy exports to Mexico, the U.S’s number one destination for dairy products. New protections were granted for common cheese names in Mexico and U.S.-made wine will now be available more readily in Canadian grocery stores where it previously was separated from Canadian wine in the retail displays. New rules to address agricultural biotechnology were added for the first time supporting gene editing and new innovations in agtech.

Intellectual Property

Major changes were made in the USMCA to expand intellectual property (IP) rights. Whereas NAFTA mandated 10 year protection for industrial designs, the USMCA has increased it to 15 years. For agricultural chemicals it was increased from 5 years to 10 years. The USMCA trade deal also mandates a patent term extension for unreasonable patent office and regulatory delays. Additionally, the USMCA agreement requires ex officio authority for customs officials to stop suspected counterfeit goods.