Dairies and Car Makers Win Big with USMCA

Oct 5, 2018  | 3 min  | Ep4407

After sparring for more than a year, trade negotiators came together early this week to announce the creation of the United States Mexico Canada Agreement or USMCA. The fight was triggered when President Trump announced the U.S. would be dropping out of the quarter-century old North American Free Trade Agreement in 2017.

Almost two months ago, the U.S. reached an agreement with Mexico, which pressured Canada into returning to the negotiating table. A failure to reach a deal by last weekend would have resulted in a bilateral trade agreement between the U.S. and Mexico. The move would have left Canada to endure steep tariffs on their automotive industry, threatening up to 60,000 jobs. 

The new deal contains big wins for agricultural producers. U.S. dairy farmers will now have access to a 3.6 percent share of Canada’s tightly controlled dairy market. The level is higher than the one negotiated in the Trans Pacific Partnership - a deal also abandoned by President Trump. Canadian negotiators have further agreed to scrap a controversial pricing structure which U.S. dairy producers claimed artificially deflated prices for some of their products. 

Cheese makers were soured by the new arrangement. Mexico had leveled retaliatory tariffs on U.S. cheese after President Trump installed duties on steel and aluminum imported from several nations including the nation’s number three trading partner. Cheese producers were hoping the tariffs would be repealed in the new agreement however those duties remain in place.

Officials with automotive producers in both Canada and the U.S. were pleased with the deal. Several new rules will help reduce tariffs in cross-border vehicle production. In the trilateral deal is a requirement that up to 45 percent of all cars manufactured in the three countries be assembled by people earning at least $16 an hour.  Also included is a provision mandating that 75 percent of a vehicle be manufactured within U.S, Canada, or Mexico to qualify for duty-free status. The earlier agreement was set at 62.5 percent. 

Both rules were a move by negotiators to create more manufacturing jobs and boost wages.

The agreement also makes it difficult for China to work its goods into the U.S. through Canadian or Mexican ports. The United States was given the power to oust either of the trading partners if they enter into a deal with China. 

Other nuances in the trilateral trade deal include a 16-year sunset clause and a review of the pact every six years. 

The USMCA still has a way to go before it becomes a reality. The leaders of all three countries must sign the deal, and the U.S. Congress needs time to sign off on it, which is unlikely to happen before 2019.
For Market to Market, I’m John Torpy

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