Economy /

In a rare feat, Democratic congressmen and the Trump Administration have agreed on an updated trade agreement between the US, Mexico, and Canada. US President Donald Trump targeted both neighbouring states as part of his sales pitch to negotiate fair deals for the American people. From the onset, Trump laid down tariffs targeting aluminium and steel imports, a move that caused an immediate ripple effect across the American manufacturing industry. Mexico City and Ottawa responded in another trade dispute that has become a hallmark of the Trump administration. 

The US-Mexico-Canada Agreement was originally negotiated in 2018, but changes were made this year that required each nation to sign once again. The deal calls for 75 per cent of North American automobiles to be manufactured in one of the three states. Furthermore, 40 per cent of those vehicles will eventually be required to come from factories which employ workers at a minimum rate of $16 per hour. 

Working Together

With Democrats controlling the House of Representatives, the White House was forced to strategize with them in order to get a workable deal that could pass both houses of Congress. 

“We had an election and the Democrats won the House,” said Robert Lighthizer, US trade representative said. “It was always my plan and I was criticized for this, as you know, it was always my plan that this should be a Trump trade policy. And a Trump trade policy is going to get a lot of Democratic support.”

Democrats forced the issue of unions by having Mexican factories inspected and allowing workers there to unionize. The new agreement lays out benchmarks for the Mexican government to achieve to support the rights of workers.

The stipulation that Mexican factories must be inspected is already a point of contention with the Mexican government.

“This provision, the result of political decisions by Congress and the Administration in the United States, was not, for obvious reasons, consulted with Mexico,” Jesus Seade, Mexican deputy foreign minister wrote to Lighthizer. “And, of course, we disagree. Unlike the rest of the provisions that are clearly within the internal scope of the United States, the provision referred to does have effects with respect to our country and therefore, should have been consulted.”

The Democrats lost one of the key points they were pushing for, weaker pharmaceutical patent protection. The USMCA gives biologic companies a ten-year period when they can basically monopolize a drug. While the US had a 12-year term, Canada had an eight-year term after which time generic versions of drugs could enter the marketplace. The extended period will negatively affect Canadian healthcare patients especially as biologics are becoming more prominent in the industry. 

Changes

The agreement will replace the North American Free Trade Agreement which has been in effect since Jan. 1, 1994. The deal was considered one of the most successful trade agreements as the North American economy increased to a GDP of $20 trillion. However, there were complaints with the deal, most notably in its dispute resolution process. NAFTA called for the creation of panels to solve problems arising when a corporation alleges a government is infringing on the agreement and hindering its ability to do business. The mechanism was seldom used, however, as states could simply not appoint members to those panels. 

Under the USMCA framework, companies will be limited to the situations under which they can request arbitration. In general, the agreement provides weaker protections for businesses by barring investors in the US and Mexico from protesting indirect expropriation and discrimination. 

The USMCA introduces digital protections which could not have been foreseen in 1994. No nation may make a law forcing companies to store data on in-country servers, such as what China did by forcing Apple to keep servers within its borders. Companies also cannot be sued for content users post to their platforms, a point which Democrats conceded. 

Finally, US farmers will be allowed to market dairy, poultry, and eggs in Canada in exchange for the US allowing Canadian dairy, peanuts, and peanut products. 

Both Democrats and the Trump administration have praised the new deal, each claiming it a win for their side, which should be a sign that it is a solid agreement. US auto manufacturers are also pleased by it.

“The USMCA allows the US auto industry to remain globally competitive by ensuring vehicles and auto parts are able to move freely across country lines,” said Matt Blunt, president of the American Automotive Policy Council.