Feb 6, 20207 min read

USMCA: Free Trade in North America

NAFTA… USMCA… what do these acronyms mean and how does it impact Canadians?

Chris

Feb 6, 2020

The United States-Mexico-Canada Agreement (USMCA) formerly known as the North American Free Trade Agreement (NAFTA) refers to the trade agreement governing the three countries occupying North America: Canada, the US, and Mexico. This trade agreement has a direct impact on the economies of all three participating countries. The purpose of the agreement is to establish beneficial export relationships with our neighbouring countries, the terms of which are negotiated by governments of the United States, Mexico, and Canada.

After negotiating the terms of an agreement, the leaders of those countries must have the agreement ratified (voted on and passed) by their governmental bodies at the federal level. Mexico and the US have ratified the new USMCA deal, leaving Canada as the last to officially sign off. Despite the hardships President Trump faces with his opposition party, a deal was able to be completed. In Canada, however, we can expect the NDP and Bloc to draw out the process further due to concerns about labour protections and omission of Canadian aluminum.

While the name of this trade agreement has changed, it is still often referred to in the media as “NAFTA” or “the new NAFTA” either out of habit or in protest of US President Trump for changing the name (a practice that is common in government when provisions are made to a formal document like this one). Prior to NAFTA which was the first to include Mexico into the agreement, we had the CUSFTA, or Canada-United States Free Trade Agreement. I have to agree that at first “USMCA” reminded me too much of that infamous song by The Village People. But like most things, change is most uncomfortable until you get used to it.

The former, NAFTA was put into place January 1, 1994 after being completed in December 1992 under US President Clinton. NAFTA became the world’s largest free trade agreement and has a current cumulative gross domestic product of $20 trillion between the three members. This agreement is unique in that two developed nations have a working agreement with an emerging market nation.

President Trump’s animosity for NAFTA stemmed from US disadvantages in industries like dairy/agriculture and automotive. Agreements such as this one require review to address concerns regarding a change in present economic situations compared to when the deal was originally put into place. This is a reason why “sunset clauses” are present (something NAFTA didn’t include) to allow exploration into whether provisions should be made to suit the economic realities of the present time.

There were environmental groups concerned that the former anti-pollution elements present in NAFTA were not sufficient to protect the environment. This is a concern that comes up in many facets of policy and it seems that no contentions applied are ever sufficient, beyond a complete and thorough reversal on industrial evolution. There are policies within the USMCA for environmental practices, including a $600 million fund to aid in any environmental clean up (like an oil spill) caused by one country, inflicted on another.

The USMCA includes over thirty sections addressing areas of market access for goods, customs and trade facilitation, and competition policy. It addresses each of the industries impacted by the agreement, including agriculture, textiles, telecommunications, and small and medium-sized businesses. For the purposes of this article, the focus will be on the largest changes and the ones with more likely influence on Canadians: labour relations, intellectual property, and imported products subjected to duty tax from e-commerce retail, as well as the automotive and agriculture industries (particularly dairy, eggs, and poultry).

The US (and by assumption Canada as well) have been losing business operations to lower-wage countries for years. No one is shocked or appalled at the number of North American companies that produce products in other countries, we just expect it. There has also been an increasing problem with theft of intellectual property particularly over the last two decades with the reliance and usage of the internet.

Provisions to this free-trade agreement employ regulations on automotive trade that ensures that “duty-free” status will only apply to automobiles whose contents are seventy percent North American made steel, aluminum, and glass and that the core parts are entirely sourced from North American countries. This is an increase from sixty-two and a half percent encouraging more materials to be produced and purchased from the countries benefiting from this agreement.

It’s not just the cars themselves but also who is making them. In terms of Automotive rules of origin, the labour value content requirement states that a “significant percentage” of the value of the vehicle, or forty percent for passenger vehicles, forty-five percent for light trucks, must be produced by workers in a production plant with an average hourly wage equivalent to $16USD per hour, which promotes Canadian assembly plants over Mexico for this type of production.

Intellectual property, like labour relations, needs to be protected in order to secure not only jobs but innovation within the nation and the trade-agreement area. The multi-country trade deal aims to apply harsher punishments for intellectual property theft such as pirated movies and satellite/cable TV signal theft. This is an issue not exclusive to North America and has been an ongoing issue with other countries where mass production of pirated or “knock off” products and technology are imitated and sold back into North America at a fraction of the price of the authentic product.

Rebel News recently reported that an Edmonton-based company that owns Super Channel opened litigation against Staples Canada and other retail companies for their participation in selling piracy devices made in China, a testament to the popularity and normalcy of using devices and services that steal intellectual property.

In addition, copyright laws for property ownership after an artist’s death has been increased from fifty years in Canada, to seventy years, to align with the US (still lower than Mexico’s copyright laws), and pharmaceutical companies can maintain patents for ten years, up from eight, to increase the drive for innovation despite the challengers debating this may affect cost of drugs in Canada.

Another big change to the agreement has been a thorn in Canada’s side for years but we lack an elected leader willing to challenge the dairy “cartel”, as it is often referred, in the same way that Trump has pushed back on our Milkman. Dairy was a “dealbreaker” for Trump if they couldn’t get this revised.

https://www.theglobeandmail.com/politics/article-nafta-usmca-trade-deal-explainer-canada-us/

NAFTA had eliminated tariffs on most agriculture and hadn’t addressed dairy at all. Protected by a management supply system, American dairy farmers were unable to compete in Canada, an objective by Canadian dairy to prevent foreign competition. However, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership let ten countries own three and one-quarter percent of Canada’s dairy market. The USMCA keeps the status quo on tariffs but opens up three and a half percent of the Canadian market to US dairy, egg, and poultry products, in return allowing more Canadian dairy, peanuts, and peanut products into US markets, as well as limited amounts of sugar.

Canadians are disadvantaged by their own dairy farmers due to this management supply system which will be something we will explore in future articles. It is my understanding that the Canadian dairy “cartel” consists of a small group at the top, leaving hard-working family-type farms to struggle to compete as well.

Ever notice that when you purchase products from American retailers online, you pay a duty? A duty is a tax to the state (i.e. Canada) imposed on products purchased abroad. The minimum amount subjected to paying duty has been increased for Canadians up to $150, from $20, meaning purchases under $150 will not have a duty applied. Something Canadian consumers should thank President Trump for. Moreover, items under $40 will be exempt from sales tax. Americans who buy Canadian (or Mexican) goods will see their limit decrease from $800US to $100US.

Further provisions to the trade agreement added chapters previously absent on trade impacts like currency manipulation, conflicts with other trade agreements, and prohibiting Canada and Mexico from forcing US companies to store data on in-country servers. All in all, while headlines suggest Canada was getting the short end of the stick, it is suggested that Canada might have been the ones with some advantage positions (like with dairy). It is in Canada’s best interest that our strongest ally, and only trading partner we share a border with, continue to want to work with us and buy our exports. Now, if only we can arrange a better price on our oil…

We should respect our trading partners to the south, starting with how our leadership addresses the US President, especially to the media. Canada has meddled itself into the political drama affairs of the US Democratic Party and their loathing for their rightfully elected President. This is something we should not condone our leader for participating in, whether you like Trump or not, as it makes us look petty and unfriendly.

On the Government of Canada’s website, the USMCA is referred to as “CUSMA” in an attempt to put Canada first, I suppose. There is even a suggested hashtag #CUSMA to help it trend, but it just adds to Canadians’ confusion on this complicated matter.

Canadians are discombobulated with headline after headline talking about ‘NAFTA’ without getting a simple and honest answer about what this means for Canada. It's a shame that our tax-funded state broadcaster does not have the audience or the content to properly inform Canadians how these agreements affect our economy. If the Government of Canada really wanted to put Canada first, we’d change a lot about our own policies, starting with the price of dairy and the blockade of our ethical oil production which impacts us at home, and this we have the ability to rectify all on our own.

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