USMCA Overview

USMCA Overview

Posted on August 5, 2020

The United States-Mexico-Canada Agreement (USMCA) was initiated by all three countries on September 30, 2018 at the G20 Summit. Final ratification of the agreement came to fruition on March 30, 2020 with USMCA passing through each government’s authority and took effect on July 1, 2020. The new agreement will replace the 25-year-old North American Free Trade Agreement (NAFTA).

The updated comprehensive agreement builds off NAFTA and is characterized to have a more modern approach than the 1994 agreement. Included in the USMCA are more provisions on agriculture, intellectual property, automotive construction, environmental and labor standards.  Some of the most highly publicized sectors from this agreement are automotive and labor updates; however, there is much to be said for the updated agriculture and small/medium business changes as well.

Exports to Canada and Mexico are big business for North Dakota - in 2019, they accounted for $5.84 billion in exports combined. For North Dakota, highest exports to Canada and Mexico were mineral fuel/oil, machinery, and cereals, with cereal exports totaling $157 million to Canada and $84 million to Mexico.  As part of the new agreement, US originating wheat will no longer be subject to strict grading guidelines in Canada. New market opportunities and quotas have been created for dairy, poultry and eggs, and food. Remaining unchanged are zero tariffs on food and agricultural products. All tariffs that were at zero under NAFTA will remain at zero under USMCA.

Small and Medium sized Enterprises are also benefitting from the agreement, with a chapter devoted to their advancement, information sharing, and a committee to represent and promote these companies’ interests. The top two export destinations for US small businesses are Canada and Mexico, and with these new provisions, small businesses can anticipate reduced red tape, both at the borders with updated de minimis rates, online publication of laws required for customs clearance, and procedures to correct any errors. An online database for customs information will also be made available for trade communities.

Agricultural updates in the agreement will level the playing field for exports as well.  Canada has opened access to poultry (chicken, turkey and eggs), dairy markets with updated milk regulations, and no tariffs on whey and margarine. Mexico will have less restrictions on US cheeses. All countries agreed to non-discrimination for wine and distilled spirits and transparency commitments with distribution and labeling.   Trade distortion will be reduced to improve transparency, all parities have agreed not to use export subsidies, and Canada and the US have agreed to more regulations to ensure tariff-quotas are fairly administered.

In the manufacturing and the auto industry, it is now required that 75% of car components need to be manufactured in North America to avoid tariffs, which is an increase from 63% under NAFTA. Additionally, 40% of workers manufacturing automobiles must make wages above $16 per hour, on average. With updated labor laws, facilities with workers’ rights complaints must allow for easier accessibility for investigations.   The labor laws overall are believed to bring back some US manufacturing jobs by incentivizing US made goods, US manufacturing from manufacturing companies and automakers and allowing the US workers to compete on the same playing field.

Canada and Mexico are the largest trading partners with the US, and with updated regulations that include labor laws and environmental requirements all countries can be on the same page with the flow of goods under the USMCA.  For more specific information on USMCA, please see the links below.