Goodbye NAFTA, say hello to the USMCA

Canada, the U.S. and Mexico recently agreed to an updated trade deal

Conservative leader Andrew Scheer has been particularly outspoken about the new deal, which he says limits Canada’s ability to export goods, while not gaining anything significant in return. (Andrew Scheer/Flickr)

It has been 13 months of negotiating between Canada, the U.S. and Mexico, but the three countries have finally reached an agreement to update the North American Free Trade Agreement (NAFTA).

U.S. President Donald Trump announced the rebranding of the trade deal, aptly named the United States–Mexico–Canada Agreement (USMCA), on Oct. 1, where he said he’d formally sign the deal by the end of the November. At which point it will then need to be approved by Congress.

While NAFTA hasn’t been necessarily scrapped, as Trump threatened last September, the 1994 trade deal has been significantly modified.

The deal, which has been praised by both Trump and Prime Minister Justin Trudeau, is set to affect Canadians in a number of ways and not all of them are necessarily good.

American tariffs on both Canadian aluminum and steel will remain in force, despite Canadian industry leaders insisting they be lifted as part of the final deal. The U.S.’s 25 per cent tariff on steel and ten per cent tariff on aluminum originally came into effect back in June under the rarely used national security provision of section 232 in the 1962 Trade Expansion Act.

At the time, Trump tweeted that these tariffs would be lifted if a deal was reached.

“Without tariffs, we wouldn’t be talking about a deal — just for those babies out there that talk about tariffs,” said Trump when he announced the USMCA.

The new deal also gives U.S. dairy producers more access to the Canadian dairy market, to the tune of 3.6 per cent. While this initially doesn’t seem like much, an earlier trade deal signed with the European Union gave foreign producers access to about 2.25 per cent of our market. Additionally, the Trans-Pacific Partnership opened up another 3.25 per cent of the market.

Though Canadian dairy farmers have decried that the deal to open up the market was simply a means to satisfy the U.S. president, Canada’s dairy industry has long come under scrutiny for its protectionist supply management system. Under supply management, provincial dairy marketing boards have a role in establishing local prices and the federal government helps monitor national production and demand.

Though the addition of competition in the Canadian dairy market may mean more options for the average consumer, when the exchange rate is factored in, prices will likely be not too different.

Under the USMCA, Canadians may also see the price of prescription drugs increase, as the deal will extend the minimum “data protection” period for biologics (used to treat a large range of diseases, including many cancers, arthritis and multiple sclerosis) to ten years, up from eight.

This realistically means that U.S. pharmaceutical companies will be able to sell their product for ten years before facing generic competition from Canadian companies. This comes at a time when Canada has some of the highest prices on pharmaceuticals in the world, according to the Canadian Medical Association Journal.

Canada will also have to be careful in securing trade deals with non-USMCA countries, namely China. Under section 31.1 of the deal, Canada will have to give three months’ notice before starting free trade talks with a “non-market country.”

However, not all of the deal is doom and gloom.

Both Canada and Mexico have largely avoided Trump’s incoming auto tariffs. However, starting in 2020, to qualify for zero tariffs, a car or truck must have 75 per cent of its components manufactured in Canada, Mexico or the United States, this is up from the initial 62.5 per cent.

Another victory for Canada is the keeping of NAFTA’s Chapter 19, something Trump wanted scrapped. Chapter 19 allows the three countries to challenge one another’s anti-dumping (AD) and countervailing (CVD) duties in front of a panel of representatives from each country. AD and CVD have been used to challenge the U.S. on its softwood lumber restrictions.

Finally, Chapter 11 has been mostly removed. The chapter previously gave investors and companies a special way to fight government decisions, especially if there was a change of government.

Despite Trudeau’s faith in the new deal and its fairness, saying that it would help “expand the middle class,” not everyone is on board with the USMCA.

Conservative leader Andrew Scheer recently said that the prime minister “backed down to Donald Trump” on multiple trade issues in the USMCA, while NDP leader Jagmeet Singh claims Trudeau “betrayed” Canada’s dairy sector.

Likewise, heavy industry and Canada’s dairy sector expected more out of the USMCA and blame Trudeau and Chrystia Freeland, Minister of Foreign Affairs, for not doing enough to protect Canadian interests.