By Sarah Carabias-Rush, Senior Vice President, Economic Development and International Engagement
The United States-Mexico-Canada Agreement (USMCA) is an updated trade pact that has been proposed to replace the North America Free Trade Agreement (NAFTA). NAFTA is a tri-party accord established in 1994 to smooth trade between the United States, Mexico and Canada. NAFTA eliminated most tariffs on traded goods between the three countries.
Upon election, President Donald Trump appealed to renegotiate NAFTA among other trade agreements. From May 2017 to August 2018, U.S. trade representatives actively negotiated with Mexico and Canada for the equivalent of a NAFTA 2.0. A new trilateral deal called the USMCA was published on the evening of Sept. 30, 2018, just hours before the Oct. 1 deadline.
On June 19, 2019, Mexico’s Senate voted 114-4 to pass the USMCA, making it the first country to ratify the trade agreement. Canada has introduced an implementation bill to its Parliament and will wait for the U.S. Congress to take up its version of an implementation bill. Legislators are in talks with the Trump administration to reach compromises on a few points of contention.
Strong trade relationships are vital to a healthy economy and benefit both businesses and consumers. Businesses in Texas rely heavily on trade with Mexico and Canada. Almost half of Texas exports – $137 billion worth of products in 2018 – are bound for these countries. Texas’ top exports to Mexico and Canada are petroleum and coal products, computer equipment, chemicals, motor vehicle parts, electrical equipment, semiconductors and electric components. Trade with Mexico and Canada also supports more than 950,000 jobs in Texas.
The USMCA would bolster key industries in Texas, from manufacturing and technology companies to agriculture and pharmaceutical companies. Below are some of the USCMA’s provisions and its improvements from NAFTA:
- Higher rules-of-origin requirements for the auto industry – Starting in 2020, 75 percent of auto parts must be made in North America and of that percentage, 40-45 percent must be made by workers earning at least $16 per hour.
- Slightly greater U.S. access to the Canadian dairy market – U.S. dairy farmers will have access to about 3.6 percent of Canada’s $16 billion domestic dairy industry.
- Revised investor-state dispute settlement (ISDS) rules – Chapter 11 ISDS – which allows investors to make legal claims against governments — will be eliminated between the U.S. and Canada and reduced for investors in Mexico.
- Strengthened patent and other intellectual property (IP) protections – Increased copyright terms from 50 years to 70 years after the author’s death and extended patents on biologic medicines from eight to 10 years.
- Enhancements on digital trade rules – Ban on data localization requirements and custom duties on digital media such as e-books, videos and music.
Although Congress is currently in recess, national, state and local business organizations have voiced their support for Congress to pass the USMCA this fall. More information and updates can be found on ustr.gov/usmca.