5 Things You Should Know about USMCA

With Canada finally joining an agreement in place between the United States of America and Mexico, NAFTA has been replaced by USMCA. For the most part the 2 agreements are very similar, however there are some important differences of note that require further exploring. Although the USMCA has yet to be ratified, experts expect ratification to be a formality, and that the agreement should be law by some point next year. Here are 5 items of note that you should know about USMCA.

US Anti-dumping and Canadian retaliatory measures remain

Despite USMCA being referred to as a free trade agreement, there are some duties that will remain in place. Notable amongst them is the anti-dumping measures that President Trump instituted against $16.6 billion worth of Canadian steel and aluminum products. The President instituted these additional duties under the guise of national security and Canada responded with retaliatory tariffs on $16.6 billion of various US goods (based on 2017 figures). That Canada and Mexico did not manage to gain an exemption from these tariffs is an important factor and can be viewed as a failure on their part.

Canadian Supply Management intact

Canada managed to preserve its dairy supply management system, something it insisted on. However, President Trump was insistent on gaining more access to the dairy sector. With Canada ceding more access to its domestic dairy market with the TPP and EU trade agreements, granting more access to the US was inevitable. When news of an agreement finally broke, it was reported that the US had gained an additional 3.5% access to Canada’s dairy market.

Dispute resolution

Another aspect of NAFTA that Canada fought to preserve was the dispute settlement panel, commonly referred to as Chapter 19 of NAFTA. This allowed countries party to the agreement to request creation of an independent panel. This panel would review implementation of any duties that the complainant felt were unfairly instituted. Having this included in the new USMCA agreement is definitely a victory for Canada. However, seeing that the US still has anti-dumping measures in place against Canadian steel and aluminum products, it will be interesting to note how much influence this panel will wield.

Article 32.10

Now that USMCA has been agreed to, Canadian Prime Minister Justin Trudeau announced that Canada was open to more trade with China. This brings us to our next important change in the updated free trade agreement.  Article 32.10 of USMCA requires Canada, the US or Mexico to notify the other two members three months before entering free trade talks with a non-market economy. The largest non-market economy in the world? China. Article 32.10 also gives the other partners a say in the text of any such deal. Critics have claimed that this is an encroachment on Canadian sovereignty, and that it draws Canada in to the trade war happening between the US and China.

Sunset clause

Despite Canada insisting that a termination date on any agreement was not acceptable, a sunset clause was included in the USMCA. Essentially the deal expires after 16 years. The deal is also subject to review by the three countries every 6 years, at which point they can vote to extend the life of the agreement. The argument against the clause was that it would create economic uncertainty. It would be difficult for businesses to make long term investments in countries when there is the potential of drastic changes to trade policy that would upend supply chains.

So after 14 months of negotiations, the North American Free Trade Agreement (NAFTA) has been replaced with the United States-Mexico-Canada Agreement (USMCA). The largest benefit to Canada is that they have secured a free trade deal with the world’s largest economy and their largest trading partner. With any negotiation there has to be give and take, but in the end, maintaining some semblance of a free trade deal was vital.

If you have any questions on how USMCA will affect your imports into Canada, please contact Orbit Brokers.