New Nafta Mexico

NEW NAFTA WORK

1- PRESENTATION OLD AND NEW NAFTA WITH OBJECTIVES & CHANGEMENTS :

NAFTA is a treaty that came into effect on January 1, 1994, and establishes a free trade area between the United States, Canada and Mexico.

The mains objectives of the Convention :

• Exporters must obtain a certificate of origin indicating that the product was manufactured or grown in the United States, Canada or Mexico.
• These three countries have the status of "most favoured nation". This means that all companies and products are treated equally by governments, regardless of their country of origin, in order to ensure fair competition conditions in the free trade area;
• Government policies and environmental and labour laws are respected. This also includes all patents, trademarks and copyrights and ensures that they are respected in the countries. There are also specific rules to prevent any commercial dispute.

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However, in 2018 it was being renegotiated. NAFTA has been replaced by: the United States-Mexico-Canada Agreement, or USMCA. The objective is a fairly broad renegotiation of the fundamental principles and certain provisions of NAFTA.

The main motivation of the United States is the trade balance with Mexico, which has gone from a surplus of $1.6 billion for the United States to a deficit of $64 billion under the treaty.

The most significant changes to this treaty renegotiation were as follows:

• Country of origin rules:

Automobiles must have 75% of their components manufactured in Mexico, the United States or Canada to qualify for zero duty (compared to 62.5% under NAFTA).

• Labour provisions:

Between 40% and 45% of automotive parts must be manufactured by workers earning at least $16 per hour by 2023.

• The right to trade union representation in Mexico:

Which will extend labour protection to migrant workers and protect women against discrimination.

• Possible sanctions between countries themselves: in the event of violations of labour law.
• Access to the Canadian dairy market:

The United States has ensured that Canada opens its dairy market to American producers.

• Intellectual property and digital commerce: 

The agreement extends the term of copyright to 70 years beyond the author's lifetime (instead of 50).

Also, the prohibition of rights to things like music and e-books, and the protection of Internet companies so that they are not responsible for the content produced by their users.

• Extension of pharmaceutical product protection against generic competition.
• However, no tariff protection under Article 232:

It has been used by the American President to impose tariffs on steel and aluminum in Canada, Mexico and the European Union.

• Sunset clause: The agreement adds a 16-year sunset clause - meaning that the terms of the agreement expire, or "sunset", after a specified period of time.

2. MEXICO,CANADA, USA :

MEXICO  

The hope was that free trade would bring a stronger and more stable economic growth to Mexico, creating new jobs and opportunities for its growing workforce and discouraging illegal immigration from Mexico. The country Mexico was seen as both a promising new market for exports and a less expensive investment location that could improve the competitiveness of American and Canadian companies. In addition, Mexican President Carlos Salinas de Gortiari saw it as an opportunity to modernize the Mexican economy so that it "exports goods and not people".

 However, Mexico's experience under NAFTA has suffered from a gap between the promises of some of its supporters. Naturally, it was proposed to them because this pact would lead to rapid growth, higher wages and reduced emigration. Despite that there has been no significant growth has been recorded since the beginning of the Pact, since between 1993 and 2013, the Mexican economy grew at an average rate of only 1.3% per year. In addition, poverty remains at the same level as in 1994.

Moreover, even though there was an implementation of this pact, the Mexican unemployment rate has also increased. There may be a link between the signing of the pact that brought competition for small farmers and illegal migration to the United States. It has reportedly doubled since 1994.

The implementation of the agreement would have led to a so-called "two-speed" evolution of the Mexican economy. As NAFTA has encouraged the growth of foreign investment and high-tech manufacturing, this has led to higher wages in the North (more industrial sectors) than in the more agricultural South.

Canada

Positive Aspects for Canadians:

1. Online Shopping Access:
   Due to new USMCA Canadians now will be able to purchase online goods that are worth up to $150 CAD without paying for duties as before with the old NAFTA they only had a $20 limit in online shopping.
2. Increase in Local News and Canadian Media Entertainment: 
   USMCA has removed what Stephen Harper (the former Prime Minister of Canada)  policy of requiring TV broadcasters in Canada to air the U.S Super Bowl TV ads in Canada. As a result of this, it has help promote Canadian local news and entertainment. As well as, it helped use the cost that was used to promote the super bowl to use it more for “Canadian-made entertainment” to preserve and support Canada’s media business.
3. Auto Canada’s Industry:
   USMCA exempt Canada from U.S auto tariffs imposed in the future which protects Canada from the threat of Trump to set auto imports tariffs to 25%. Also, now 40% of the content of a car and 45% of a truck must be sourced from auto industrial plants that pay workers on average $20 CAD. This is beneficial for Canada as now they can export “2.6 million vehicles” to the U.S market without incurring tariffs. Also there is no limit on the number of trucks that Canada can export to the U.S. The number of parts exported are only limited to 34.5 billion for Canada as a opposed to before with the NAFTA where it was 15.8 billion. All of these factors will help protect Canada’s auto industry as this was a concerns that many Canadian had.

Negative Aspects for Canadians:

1. Negative Effect on Canadian Dairy Farmers:
   Canada has already a small  dairy market and supply management in dairy which will now be even more further at risk  as the imposed tariffs have increased even further on importing limits. Canada will have to remove its “Class 7” pricing on dairy which had made it cheaper for processors to buy domestic supplies of “ultra-filtered milk”. They will now have to abide by the U.S pricing for specific dairy products. This might cause Canadian consumers pay unwanted higher prices of Canadian cheese. Another thing is that Canada had imported “$368i n dairy products from the U.S., while C$149 million crossed the border in the opposite direction, creating a deficit of about C$322 million”
2. Drawbacks of Online Shopping to Canadian Retailers:
   Even though this is looks beneficial for Canadians to have more of a access to online shopping this has its drawbacks to Canadian retailers. Instead of Canadians shopping locally and giving back to the country they will favour to shop online from U.S retailers. The result of this can affect jobs of Canadians and affect local businesses to close which would reduce the tax revenue for the government. Another downfall is, it can impact young adults who are trying to find and build their  job experience through retail.
3. Negative Effect on Steel and Aluminium in Canada:
   Canada is said to be one of the largest exporter of steel to the United States while China comes in as 11th. It also one of the largest providers of steel and aluminium to the U.S. The U.S has imposed on tariffs on Canada’s steel and aluminium and the USMCA does not remove these tariffs. This tariff is going to affect majorly the production of steel and aluminium in Canada which will pose a threat to Canadian workers.

United States

Positive aspects:

1. Reinvigorate the US auto industry and expand overseas markets for the US auto industry.
   For any car sold in North America, 75% of the parts must be produced in the US or Mexico, up from the previous 62.5%. Starting in 2020, 30% of vehicle production must be completed by workers with an average wage of $16 per hour. This is about three times that of ordinary Mexican car workers. This could lead to car manufacturing flowing from Mexico to the United States
2.  Increase employment
   The USMCA agreement exempts tariffs, making it more difficult for global automakers to produce cars cheaply in Mexico, as the new agreement will impose stricter regulations on the origin of the automotive industry and high-paying labor requirements. The United States is trying to nurture industry-related technical personnel to boost the US auto industry while ensuring that manufacturing production returns to the United States and increase employment opportunities in the United States.
3. Opportunities for US farmers to enter the Canadian dairy market will increase
   Canada has made a compromise on dairy products and agreed to open up the 3.5% dairy market to US dairy farmers. The US market can account for about $70 million. The key point is that the United States and Canada have long protected dairy farmers from international competition, and the degree of protection far exceeds that of other agricultural sectors, and now US milk producers can enjoy some benefits.
4. Extending Pharmaceutical Data
   The new agreement will improve the standards advocated by Canada in terms of extending the bio-pharmaceutical data protection period and copyright, which will help protect the US pharmaceutical industry and intellectual property rights.

Negative aspects:

1. The United States agrees to retain the original procedures to resolve other trade disputes. According to Chapter 19 of the current agreement, the special teams of the two countries heard complaints about violations of subsidies and dumping, and then issued binding resolutions. The United States often loses in such cases. Therefore, the United States originally hoped to be designated as prosecutors, judges and jurors in trade remedies such as anti-dumping and countervailing, but the United States made concessions.
2. Extension to the 16-year sunset clause. The United States had hoped to renew the new agreement every five years. Such an approach will undoubtedly undermine the value of the agreement, as the uncertainty of the agreement will have a serious impact on business expectations. The United States made concessions, but it also signed a less stringent clause: a renewal of the US-Mega agreement must be made every 16 years. As the dominant party, the United States definitely wants to introduce a short-term sunset clause, because the United States will have more flexibility. The extended sunset clause may weaken the dominance of the United States.
3. The United States exempted Canada and Mexico from automobile tariffs, causing intangible tariff losses.

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