Recently, it was announced that the US, Mexico and Canada have finalized the United States-Mexico-Canada Agreement (USMCA). This new North American trade deal is intended to replace the North American Free Trade Agreement (NAFTA), the 1994 pact that governs free trade policies between the three nations.
The key changes to the agreement update the 25-year old deal with new provisions and mandates particularly for the automotive industry, labor practices, environmental protection, agriculture trade, digital trade and intellectual property rules.
Automotive
The new trade agreement will require vehicles to have a higher proportion of North-American made parts (75% up from 62.5%) to remain tariff-free when moving around the three participating countries. It is also mandated that a minimum of 30% of the work on the vehicle to be done by workers earning at least $16 an hour, and will gradually move up to 40% for cars by 2023.
Labor laws and environmental protections
USMCA includes enforceable labor standards to ensure employers fulfill their obligations and commitments. This comprises processes for factory and facility inspections to monitor whether the standards are met and blocking of products from manufacturers that are accused of labor violations.
Stronger commitment to environmental protection is also reflected in the deal where rules are strengthened on wildlife protection and sustainable practices, especially with respect to protecting whales, fish and other marine wildlife from pollution and overfishing.
Agriculture
Concessions between the participating countries were made to allow additional market access to agricultural and agri-food products. For example, dairy farmers are granted more market access, allowing more Canadian exports of dairy, peanut products, as well as a limited amount of sugar and sugar-containing products. In return, Canada will open its market to US dairy, poultry and egg products.
Intellectual property and digital trade
The deal increased protection and enforcement of intellectual property (IP) rights by establishing more comprehensive rules for protecting patents and trademarks, including for biotech, financial services and even domain names.
One of the significant additions that will be in effect with the modernized agreement includes critical provisions for digital trade. USMCA, unlike the current NAFTA, includes rules mandating the free flow of data among the three countries such as prohibition of forced data localization.
Biologics
In the most recent version of the agreement, the provision for at least 10 years of exclusivity for biologics was removed. Currently, the US provides 12 years of biologic exclusivity, whereas Canada provides eight years and Mexico five years. With the removal of the exclusivity clause, alternative formulations or generic versions of the biologic drug could be approved without waiting for expiration of the exclusivity period.
Although the USMCA still awaits ratification from all three nations, reports indicate that the path to getting there is close to its end. Once the agreement enters into effect, the current policies or set of new standards within the three member countries are expected to be altered. The updated trade agreement is set to drive robust economic growth and job creation in North America. In Canada, a sizable amount (40%) of exports of merchandise and services account for the nation’s total production. As with the major trade policies that preceded it, the USMCA will shape economic development in Canada for the years to come.
Authored by Rebecca Galicha, Technical Writer at NorthBridge Consultants.