The US House of Representatives has voted in favour of a new trade deal for North America, delivering a hard-fought victory to President Donald Trump. The new US-Mexico-Canada Agreement, or USMCA, was signed a year ago by Trump and the leaders of Canada and Mexico to replace the 25-year-old NAFTA, which Trump campaigned against in 2016 and lambasted as terrible for American workers.

US-Mexico-Canada Agreement

* It is a signed but not ratified free trade agreement between Canada, Mexico and the US.

* The agreement is the result of a 2017-18 renegotiation of the North American Free Trade Agreement (NAFTA) by its member states, which informally agreed to the terms on September 30, 2018, and formally on October 1, 2018.

* The USMCA was signed by Trump, then Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau on November 30, 2018, at a side event of the G20 summit in Buenos Aires.

* Negotiations focused largely on auto exports, steel and aluminum tariffs, and the dairy, egg and poultry markets. One provision “prevents any party from passing laws that restrict the cross-border flow of data”.

* Compared to NAFTA, USMCA increases environmental and labour regulations, and incentivises more domestic production of cars and trucks. The agreement also provides updated intellectual property protections, gives the US more access to Canada’s dairy market, imposes a quota for Canadian and Mexican automotive production, and increases the duty-free limit for Canadians who buy US goods online from $20 to $150.

* The agreement puts in a 16-year “sunset” clause - meaning the terms of the agreement expire after a set period of time. The deal is also subject to a review every six years, at which point the US, Mexico and Canada can decide to extend the USMCA.

Background and nomenclature

* The USMCA is based on NAFTA, which came into effect on January 1, 1994. The new agreement was the result of more than a year of negotiations, including possible tariffs by the US against Canada in addition to the possibility of separate bilateral deals instead.

* During the 2016 US presidential election, Trump’s campaign included the promise to renegotiate NAFTA, or cancel it if renegotiations were to fail.

* Upon election, Trump proceeded to make a number of changes affecting trade relations with other countries. Withdrawing from the Paris Agreement, ceasing to be part of negotiations for the Trans-Pacific Partnership, and increasing tariffs on China were some of the steps he implemented, reinforcing that he was serious about seeking changes to NAFTA.

* Much of the debate surrounding the virtues and faults of the USMCA is similar to that surrounding all free trade agreements, for instance, the nature of FTAs as public goods, potential infringements of national sovereignty, and the role of business, labour, environmental, and consumer interests in shaping the language of trade deals.

* The agreement is referred to differently by each signatory - in the US, it is called the US-Mexico-Canada Agreement (USMCA); in Canada, it is known as the Canada-US-Mexico Agreement (CUSMA) in English and the Accord Canada-États-Unis-Mexique (ACEUM) in French; and in Mexico, it is called the Tratado entre México, Estados Unidos y Canadá (T-MEC).

* The agreement is sometimes referred to as “New NAFTA” in reference to the previous trilateral agreement it is meant to supersede, the North American Free Trade Agreement.

North American Free Trade Agreement

NAFTA is an agreement signed by Canada, Mexico and the US, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994, and superseded the 1988 Canada-US Free Trade Agreement. NAFTA is one of the largest trade blocs in the world measured by gross domestic product.

The impetus for a North American free trade zone began with US President Ronald Reagan, who made the idea part of his 1980 presidential campaign. After the signing of the Canada-US Free Trade Agreement in 1988, the administrations of US President George H. W. Bush, Mexican President Carlos Salinas de Gortari and Canadian Prime Minister Brian Mulroney agreed to negotiate what became NAFTA. Each submitted the agreement for ratification in their respective capitals in December 1992, but NAFTA faced significant opposition in both the US and Canada. All three countries ratified NAFTA in 1993 after the addition of two side agreements, the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC).

The passage of NAFTA resulted in the elimination or reduction of barriers to trade and investment between the US, Canada and Mexico. The effects of the agreement regarding issues such as employment, environment and economic growth have been the subject of political disputes.

What was the purpose of NAFTA?

In 1993, the EU created a “single market” - one territory without any internal borders or other regulatory obstacles to the free movement of goods and services. This allowed every country and business in the EU to have access to more than 500 million consumers.

NAFTA, which was approved that same year, was designed to have a similar effect, providing a way to allow the exchange of goods and services to flow more freely across national borders without artificial restrictions.

NAFTA provided for the progressive elimination of all tariffs on any goods qualifying as North American. The deal also sought to protect intellectual property, establish dispute-resolution mechanisms and, through corollary agreements, implement labour and environmental safeguards.

Why is NAFTA controversial?

Most economic analyses indicate that NAFTA has been beneficial to the North American economies and the average citizen, but has harmed a small minority of workers in industries exposed to trade competition.

Economists hold that withdrawing from NAFTA or renegotiating in a way that re-establishes trade barriers would adversely affect the US economy and cost jobs. However, Mexico would be much more severely affected by job loss and reduction of economic growth in both the short and long term.

After Trump took office in January 2017, he sought to replace NAFTA with a new deal, beginning negotiations with Canada and Mexico. In September 2018, the countries reached an agreement to replace NAFTA with the USMCA. NAFTA will remain in force, pending the ratification of the USMCA.

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