Washington • President Donald Trump signed the revised North American Free Trade Agreement into law Wednesday, fulfilling a campaign promise to rewrite “one of the worst trade deals” in history.
“Today we are finally ending the NAFTA nightmare,” Trump said during a White House signing ceremony, calling the new trade deal a “colossal victory” for farmers, factory workers and other countries.
Much of the new United States-Mexico-Canada Agreement simply updates the 25-year-old NAFTA, with new laws on intellectual property protection, the internet, investment, state-owned enterprises and currency.
But the 2,082-page pact also includes significant changes in several key areas, including provisions designed to incentivize car production in North America and open Canadian markets for American dairy farmers.
It rolls back a special system of arbitration for corporations that has drawn bipartisan condemnation and also includes additional provisions designed to help identify and prevent labor violations, particularly in Mexico. Some of those changes were inserted at the insistence of Democrats, who used their control of the House to secure long-desired policy changes.
Here are highlights from the new USMCA.
Steering more car production to the United States
NAFTA required automakers to produce 62.5% of a vehicle’s content in North America to qualify for zero tariffs. The new agreement raises that threshold, over time, to 75%. That’s meant to force automakers to source fewer parts for an “Assembled in Mexico” car from Germany, Japan, South Korea or China. The pact also requires 70% of a vehicle’s steel and aluminum to originate in North America, with steel being both melted and poured on the continent.
For the first time, the new agreement also mandates that 40% to 45% of the parts for any tariff-free vehicle must come from a so-called high-wage factory. Those factories must pay a minimum of $16 an hour in average salaries for production workers. That’s about triple the average wage in a Mexican factory right now, and administration officials hope the provision will either force automakers to buy more supplies from Canada or the United States — or cause wages in Mexico to rise.
However, critics caution that factories may be able to game the rules by including some high-paid managers in their calculations. And there are risks to the changes.
Automotive analysts have warned that the wage provision could raise costs for U.S. car companies and car buyers, slowing the auto market and weighing on economic growth overall.
The final provision, as written, could also prove relatively ineffective at shifting production because it is not indexed to inflation. An average wage of $16 an hour will be less constraining in 2023 dollars than it is today.
Stronger labor rules in Mexico
USMCA includes expansive changes that, at least on paper, should help level the playing field between workers in the United States, Canada and Mexico.
NAFTA’s original provisions on labor and environment were added as side letters after the original agreement was signed, to win the support of Democrats and ensure the deal’s passage during the Clinton administration. USMCA moves these chapters into the main body of the trade agreement, meaning issues like the right to organize are now subject to the pact’s normal procedures for settling disputes.
The deal also expands those commitments, requiring more protections for workers, blocking imports of goods made with forced labor, and setting up mechanisms to ensure that those rules are enforced.
In response to the concerns of congressional Democrats, it sets up an independent panel that can investigate factories accused of violating labor rights and stop shipments of that factory’s goods at the border. It establishes an interagency committee to monitor Mexico’s labor changes, as well as American attachés who will report to Congress on the progress.
In an annex to the agreement, Mexico also committed to enact sweeping legal changes to combat forced labor and violence against workers, and allow for independent unions and labor courts. The International Trade Commission has estimated that, if the changes are made, they would increase wages for Mexico’s unionized workers and decrease their pay gap with American workers.
Less protection for drug companies
In a major concession to Democrats, the Trump administration agreed to pare back certain protections for an advanced and very expensive class of drugs called biologics. The final agreement removes a provision that had offered the drugs 10 years of protection from cheaper alternatives in both Canada and Mexico.
The agreement expands other protections for intellectual property rights, for example, extending the 50 years of protection for copyrights in NAFTA to 70 years. It also includes new criminal penalties for theft of trade secrets, including cybertheft.
In a major win for tech firms, it gives internet companies like Facebook and YouTube certain protections from lawsuits related to the user content posted on their platforms. It also sets new standards by prohibiting governments from asking tech companies to disclose their source code or put duties on electronic transmissions.
Wins for American cheese (and wine)
The agreement gives American farmers some additional access to foreign markets, particularly in Canada. It does not dismantle Canada’s so-called “supply management system,” which dictates how much Canadian farmers should produce so they can be profitable. But Canada did agree to eliminate a program that helps sellers of certain milk products, at home and abroad, and open its market to U.S. milk, cream, butter, cheese and other products. In return, the United States expanded access to its market for Canadian dairy and sugar.
It also creates a list of cheese names that Mexico and the United States agree can be marketed without restriction in their respective countries, and it forces grocery stores in British Columbia to stop their practice of selling British Columbia-only wines on certain shelves and stock U.S. wines alongside them.
— Ending a Special System of Arbitration for Companies
One of the biggest areas of contention stemmed from the mechanisms that companies and governments could turn to when they believed another party had violated NAFTA.
In a major change, USMCA rolls back a special system of arbitration that allowed companies to sue governments for unfair treatment. The provision was criticized both by the Trump administration, which said that it encouraged outsourcing, as well as by Democrats, who said it gave corporations too much power to challenge environmental and consumer regulations.
The system can no longer be used in disputes between the United States and Canada and is limited to disagreements between Mexico and the United States that involve a narrow range of industries, including petrochemicals, telecommunications, infrastructure and power generation.
Other systems for settling disputes between governments were basically maintained. The Trump administration ultimately gave up on an effort to eliminate the Chapter 19 provision, which gives the three countries a neutral way to challenge each other’s tariffs and other actions. The administration also gave in to Democratic demands for removal of a provision that would have allowed any country to block a case against it from moving forward, if it so wished.
But the USMCA retains a more controversial addition by the Trump administration — a sunset clause that requires the three countries to review, after six years, whether to remain in the agreement. If any country decides not to continue with the pact, USMCA will expire 16 years later.