Introduction
International relation has been a norm which, many states recognize as to be of mutual benefit. Many states engage in free trade agreements so that they can mutually create a supportive economy for inter-business engagement. In 1994 Canada, the USA, and Mexico engaged in a multilateral treaty that became beneficial to the US (Gantz 18). Therefore, USMCA as a trade agreement has helped foster the economic development of Mexico, the United States, and Canada.
Background Information
The agreement between Mexico, Canada, and the United States is generally known as the United States-Mexico-Canada Agreement (USMCA), which is an open trade accord that replaced NAFTA, which was initiated in 1994. The trade treaty USMCA originated after a renegotiation amongst the NAFTA member country, which began in 2017 (Gantz 18). By July 2020, the three states came into agreement and were prepared for the conjugal execution of the deal treaty (Gantz 18). The treaty recorded new adjustments from its successor, and these changes include increased working regulations and environmental working regulations, more entrée to the Canadians milk market, more significant enticements for automobile creation in the US, and an appreciation in the duty-free boundary for citizens from Canada who purchase goods online from the US.
The United States renegotiation of NAFTA was sighted in 2016 when President Donald Trump was campaigning with a promise to the citizens key on renegotiating the treaty. Indeed, upon his ballot vote, President Trump continued to make various changes that further resulted in most countries (Gantz 18). For example, Trump withdrew US Paris Agreement, ceased to be engaged with the Trans-Pacific Partnership negotiations, and significantly led to the increase of levy amid China because various of his reinforcement to seek a change in NAFTA.
Provisions of The Treaty
The provision of USMCA covers a wide range of deals that the three states agreed upon. They include; agricultural produce, labor conditions, homelessness, digital trade, among others (Gantz 18). Furthermore, some of the new prominent contract embrace giving the US dairy farmers more supportive reach to the market in Canada, preservation of the disagreement resolution system, which will be comparable to that of NAFTA’s and guidelines of having a senior fraction of automobiles produced amid the three countries instead of importing from other states.
Consequently, the three states agreed on dairy provision terms. The dairy provision gave the United States tariff-free access to 3.6 percent up to 3.25 percent under the never ratified Trans-Pacific Partnership of the Canadians’ $15.2 billion dairy market (Santos 410). While the Canadian supply management system remained in place, Canada agreed to provide a class 7 pricing provision on specific dairy products. Moreover, the duty-free bound on purchase from $ 20 to $ 150 allows consumers from Canada to have a better duty-free entrée to the United States market (Gantz 18). Thus, the US will benefit from the provision.
The automobile was another provision the three states agreed upon. Automobile laws of source requirements mandated that a definite piece of an automobile’s worth should come from inside the administered areas. This was a record increase by 12.5 percent from that of NAFTA’s 62.5 t 75%. Trump suggested US auto manufacturers make an 85% increase and further proposed that50 percent of the automotive content (Santos 411). This aimed at increasing the employment rate in the United States. Similarly, to facilitate a more significant cross-border deal, the US achieved an accord with Mexico and Mexico to lift its de minimis delivery worth. Canada resolved to lift its de minimis rank starting C$20 to C$40, which will be used for tax (Santos 410). Consequently, Mexico will continually present US$50 tax-free shipment until a comparable point of US$117 (Gantz 18). Thus, the provision will mutually be beneficial to all three parties.
Moreover, there is a prerequisite that the three states will review the agreement after every six years within a sixteen-year sunset clause. The introduction of a sunset clause avails an opportunity for control and shaping o the future UMCA in the hands of other domestic governments (Santos 412). The United States is a dominant consumer market for a long time now. Hence, the sunset clause will force every firm to additional position productions in the United States, further leading to a greater likelihood of increased production costs for the vehicles.
Role of USMCA In the Economic Development of the US
USMCA tenders to a just, open trade accord that centers on impartiality and modernization. Consequently, it will the treaty will make the United States flourish. In the recent trade treaty agreement, NAFTA, various agricultural products which got sold from the United States to the Canadians stood poor market access, an unjust charging plot, and inadequate protective regulations (Santos 410). The new agreement of USMCA provides a new market reach for every agricultural produce in the United States. Furthermore, the agreement provides the US with just improved grading standards and a non-discriminatory pricing plan for products in the future. This will economically make the US gain huge returns in the agricultural sectors.
Technological advancements have been improving in the US for the past 20 years. NAFTA provisions were not flexible to these changes; thus, the agreement was becoming absolute (Santos 410). When USMCA provisions came in, they included science-based trading standards between three states as a basis for phytosanitary and sanitary measures for agricultural products. The predictable $2 billion yearly increase in US agricultural sales overseas to Mexico and Canada and the general boost of $65 billion in the gross domestic product resolves to boost ranchers and farmers.
The USMCA agreement sustains North American production and jointly benefits the trade. Hence, the new trade agreement will avail a much better balanced, reciprocated trade that promises high-paying occupations for US citizens and further leading to the growth of the North American cutbacks. Moreover, Canada, Mexico, and the US have concluded the substantive discussion on new implementable laws of origin and source procedures. These rules of origin include; product-specific rules for auto spares, passenger vehicles, and light trucks. This outlined update will supply more significant motivation to supply products and goods in the US and North America.
The provision of textile incentivizes will boost North American fabrication in the textile and apparel operation. Labonté et al. claim that this will strengthen the custom enforcement and further facilitate more comprehensive discussion and collaboration along with the parties on matters related to the textile and apparel trade (14). The US key achievement in all this is a strengthening supply chain to offer a fresh market opportunity for the apparel and textile sector. Besides, the provision will promote greater use of made-in-the USA fibers, fabrics, and yarns by establishing a textile chapter for North American trade.
Changes of NAFTA to USMCA
The USMCA swapped the earlier North American Free Trade Agreement (NAFTA), which was affected in 1994. There are some distinct ideas the new USMCA added to the Canada, Mexico, and United States agreement. Besides, the USMCA seeks to provide and protect the free trade which is in existence between the three states. Some key changes include; building labor security for Mexico. Labonté et al. claim that labor was to remain cheaper in Mexico than in the United States (14). On the other hand, the USMCA ranks the playing ground with extra protection for Mexican workers. The USMCA agreement incorporates a rule that violation of labor rule is punished by the abandonment of shipment, and workers are also allowed to bargain collectively.
Another change is reducing protection for drug companies. NAFTA regulations supported drug firm protection; drug firms benefited from a shield for lucrative sub-divisions of the pharmaceutical business. Labonté et al. assert that the protections are removed, such as ten-year protection not in favor of generic biologics removed, and consequently, the copyrights are now seventy years up from fifty under NAFTA (8). Similarly, USMCA introduced increased protection for technology firms. Data and technology firms are enjoying boosted securities which relay intellectual property and privacy concern. Hence, governments cannot continue requesting source code from Tech corporations. The other change lies in dismantling a controversial arbitration system. Labonté et al. assert that the major but most vague change goes to Investor-State Dispute System (ISDS), which allows companies to litigate government over their rights to carry out business in a certain state (9). However, no such mechanism now exists between the USA and Canada.
Impact of The Changes
The USMCA change will absorb a variety of boosts to trade and productivity inside North America. Similarly, the changes will protect defenseless individuals and industries. For example, the decrease or elimination of tariffs will reduce trade and production costs, which further lessen retail prices for customers and leads to increased revenues for companies. Similarly, the restructured protection for data and the healthcare market keeps companies competitive while maintaining inducements for development. Moreover, increased protection that has been subjected to Mexican workers will front to an increased chance for workers who are from the United States of America because wage gaps will reduce. Labonté et al. assert that the strict labor laws being imposed will ensure labor rights and equal pay for work, particularly in Mexico, are achieved (10). The biggest beneficiaries in the new changes are the workers, the North American manufacturing firms, and all data and healthcare stakeholders. In April 2019, the international Trade Commission analysis on the likely effects of USMCA estimated that the union would raise the US real GDP by 0.35% and increases the US total employment by 0.12% (Gantz18). Thus, with time it will be evident if those predictions are true or not.
Consequently, there are those who feel that the implemented changes involved lessened protection for specific industries as well as general costs involved with stronger labor protections. For example, drug producers can no longer benefit from monopolistic power over biologics. Higher wage factory regulations may also incorporate modest increment to production cost. Therefore, some industries might feel less protected due to strong labor protections and high labor costs.
Conclusion
In conclusion, the shift from NAFTA to USCMA will not impact the three states dramatically. Overall, USMCA is still consistent with NAFTA; for example, steel and aluminum tariffs are still in place. Only specific industries will be affected and with a small amount. Consequently, the impacts have a backup plan and new redesigns, which mutually prove beneficial to every state involved in the agreement. The USMCA will only last for 16 years. And after each and every six years the countries will come together to discuss any problems which need fixing. The United States, especially the North American manufacturing industry, will culminate in huge benefits from the agreement. The agricultural sector, in particular, will reap huge benefits which will economically be profitable for the US. Therefore, USMCA proves to be a valuable agreement to the US economy.
Works Cited
Gantz, David A. “USMCA Provisions on Intellectual Property, Services, and Digital Trade.” Mexico Center, Rice University’s Baker Institute for Public Policy, vol. 20, no. 3, 2020, pp. 1-18.
Labonté, Ronald et al. “USMCA (NAFTA 2.0): Tightening the Constraints on The Right to Regulate for Public Health”. Globalization and Health, vol. 15, no. 1, 2019, pp. 1-15.
Santos, Álvaro. “Reimagining Trade Agreements for Workers: Lessons from the USMCA.” AJIL Unbound, vol. 113, 2019, pp. 407-412.