13 facts you need to know about the United States-Mexico-Canada Agreement (USMCA)

October 18, 2018

After more than a year of negotiating, Canada, the U.S. and Mexico reached a deal on September 30, 2018 to replace the North American Free Trade Agreement (NAFTA). The new agreement is called the United States-Mexico-Canada Agreement (USMCA).

The USMCA includes key gains for Canadian workers, but also some areas of concern.

First, the good news.

1. The USMCA eliminates the chapter 11 Investor-State Dispute Settlement (ISDS) provisions that existed in NAFTA.

  • The old NAFTA provisions allowed foreign investors and corporations to sue Canadian governments if they believed they were unjustifiably harmed by a government’s policies. Canada was sued more times than any other country in North America and forced to pay over $300 million in penalties and fees.
  • In effect, chapter 11 prioritized the rights of foreign investors and corporations over the rights of sovereign governments. This undermined the ability of governments to introduce laws and programs to protect the public interest.

2. The USMCA represents progress on labour rights.

  • NAFTA included a side agreement on labour standards that was essentially useless. It was unenforceable and didn’t require countries to raise their labour standards or meet existing international labour standards.

  • The USMCA brings labour provisions into the main agreement, as a stand-alone labour chapter, and therefore will be enforceable through the state-to-state dispute settlement process in chapter 31.

  • The USMCA labour chapter requires the three countries to uphold fundamental labour rights contained in the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work.

  • The USMCA labour chapter includes clear language that commits each country to implement policies that protect workers against wage and employment discrimination on the basis of sex, including with regard to pregnancy, sexual harassment, sexual orientation, gender identity and caregiving responsibilities.

  • The USMCA includes provisions for countries to take measures to prohibit the importation of goods produced by forced labour; to address violence against workers exercising their labour rights; and to ensure that migrant workers are protected under labour laws.

  • Another important new addition to the USMCA is the Annex on Worker Representation in Collective Bargaining in Mexico. This Annex commits Mexico to specific legislative actions to provide for the recognition of the right to collective bargaining. Currently, many workers in Mexico are covered by “protection contracts” between a company and a company-approved union. This relationship undermines labour rights, wages and working conditions in Mexico. The new Annex to the labour chapter in the USMCA provides grounds for optimism that we’ll see more independent and democratic unions in Mexico.

3. The USMCA achieves positive gains for Canada’s auto sector.

  • Under NAFTA, the total North American content requirement for vehicles was 62.5%. The USMCA increases the North American requirement to 75% by 2023.

  • When the agreement is fully phased in, 40% of the material and manufacturing costs of an automobile and 45% of a truck will have to originate in facilities where direct production workers have an average hourly base wage of at least US$16 per hour.

  • U.S. President Trump threatened to impose 25% tariffs on vehicles and auto parts made in Canada and shipped to the U.S. However, the USMCA includes a side agreement that exempts up to 2.6 million Canadian vehicles, and US$32 billion in Canadian auto parts, if the U.S. imposes Section 232 tariffs – that is well above what Canada currently and historically ships to the U.S.The USMCA includes a new requirement that 70% of all steel and aluminum used in the production of an automobile must originate in North America.

4. The USMCA represents significant progress for Canada’s energy sector.

  • The Energy chapter in NAFTA contained a provision that is referred to as the “proportionality clause” (this clause applied to Canada and the U.S. but not Mexico).

  • The NAFTA energy proportionality clause required Canada to export a fixed share of our energy production to the U.S, even in times of energy shortages.

  • The NAFTA proportionality clause meant that Canada could not reduce U.S. access to our oil, natural gas, coal and electricity without a corresponding reduction in our own access to these products.

  • The NAFTA proportionality clause has been eliminated in the USMCA and the separate Energy chapter from NAFTA has been removed.

5. The USMCA protects Canada’s culture and cultural industries.

  • The USCMA incorporates and strengthens the general cultural exception that was in NAFTA, including expanding the exception to include digital industries (chapter 32).

6. The USMCA breaks new ground for Indigenous peoples and their rights.

  • The most important provision in the USMCA for Indigenous peoples is the very clear general exception for Indigenous Rights (chapter 32) which states: “Nothing in this Agreement shall preclude a Party from adopting or maintaining a measure it deems necessary to fulfill its legal obligations to Indigenous peoples.”

  • NAFTA only included a weak and partial exception for Indigenous rights. The new exception in USMCA is stronger and applies to the entire agreement.

  • The general exception in USMCA means that nothing in the agreement prevents North American governments from fulfilling their legal, social, economic, cultural and moral obligations to Indigenous peoples.

  • There are also references to Indigenous peoples in several places, including the text that deals with corporate social responsibility, the environment chapter, the chapter on small and medium-sized businesses, and the textiles chapter, which includes a provision for duty-free treatment of Indigenous handicraft goods.

Here’s the bad news.

7. The USMCA fails to eliminate tariffs on Canadian steel, aluminum and forestry products.

  • In November 2017, the U.S. imposed tariffs on Canada’s softwood lumber exports.

  • In June 2018, the U.S. imposed tariffs on Canada’s steel and aluminum exports.

  • The U.S. has also launched an investigation into uranium imports with the possibility of imposing tariffs on Canadian uranium exports (Canada is the second-largest producer of uranium in the world and a major supplier to the U.S. market).

  • These illegal, unfair and unjustified tariffs pose a serious threat to Canadian jobs and communities.

  • It’s very disappointing that the elimination of these tariffs was not part of the USMCA. The labour movement continues to call on the Canadian government to redouble its efforts to eliminate these tariffs.

8. The USMCA makes concessions in Canada’s supply-managed agricultural industries.

  • The USMCA opens Canada’s market to more U.S. dairy, eggs and poultry products.

  • In terms of dairy products, this includes products that contain bovine growth hormone (BGH), a genetically modified hormone that is injected in cows to make them produce more milk. BGH has been banned in Canada due to its link to serious health concerns.

  • The concessions in USMCA will compound the pressures on Canadian producers resulting from market access granted under other trade deals such as CETA with the Europe Union and CPTPP.

  • The Canadian government has committed to providing compensation for agricultural producers and workers, but it has yet to indicate what form this will take, and who will benefit.

9. The USMCA extends data and patent protections for pharmaceuticals.

  • Under the USMCA, Canada agrees to extend data protection for biologic drugs from the current eight years to at least 10 years (data refers to the safety and efficacy information that brand-name drug companies generate through the clinical trials they conduct to get drugs approved).

  • The USMCA also includes provisions for “patent term extension” that could add several years onto the length of a patent to compensate for the time between when the patent is filed and when the drug is eventually marketed (currently, patents on pharmaceuticals in Canada already run for 20 years).

  • These two issues are a step backward because they will further delay the entry of generic medicines and this, in turn, will keep drug prices higher and unaffordable for millions of Canadians while increasing costs for our health care system.

  • Now, more than ever, Canada needs to implement a universal, single-payer prescription drug plan to reduce drug prices and ensure access to life-saving medicines for everyone who needs it.

10. The USMCA does not address climate change.

  • There are some progressive steps in the USMCA especially when compared to NAFTA.

  • NAFTA included a weak and unenforceable side agreement on the environment. The USMCA includes the environment in the main agreement as a stand-alone chapter and the environmental provisions will be enforceable through the state-to-state dispute settlement process in the agreement.

  • The elimination of NAFTA chapter 11 investor-state dispute settlement recourse for investors to sue Canada is an important step to protect our environment. Not only was environmental regulation a common target for foreign investor lawsuits against Canada, but the threat of being sued also exerted a ‘chilling’ effect that dissuaded governments from strengthening environmental regulations in the public interest.

  • The Environment chapter in USMCA includes new commitments to address environmental challenges such as air quality, endangered species, ozone-depleting substances, conservation of biological diversity, marine pollution, Illegal wildlife trade, illegal fishing and the depletion of fishing stocks.

  • But, there are some major disappointments in USMCA in terms of the environment. Most significantly, the environment chapter doesn’t mention climate change at all, and there are no references to the Paris Agreement or other important multilateral environmental agreements.

  • The USMCA doesn’t contain an exemption for climate change adaptation and mitigation policies needed to make a rapid and just transition to a low-carbon economy.

11. The USMCA gives the U.S. influence over future Canadian trade deals.

  • The USMCA contains an unusual provision that requires each country to notify the other countries three months ahead of time if it intends to negotiate a free trade agreement with a ‘non-market’ country.

  • At least 30 days before signing the new agreement, that country must also provide the other USMCA countries with the full text of the agreement.

  • Another USMCA country can then terminate the USMCA within six months’ notice, and replace it with a bilateral trade agreement.

  • China is the most important country classified as a ‘non-market economy’ under the World Trade Organization and in trade remedy laws.

  • This new clause in the USMCA is widely understood as the U.S. exerting influence over Canadian and Mexican trade policy vis-a-vis China.

12. The USMCA raises Canada’s duty-free and tax-free limits for online shopping but this provision doesn’t apply to Canada Post deliveries.

  • The USMCA raises Canada’s threshold for duty-free and tax-free imports purchased online (this is known as the de minimis threshold).

  • The duty-free limit will rise from $20 to $150. The tax-free limit will rise from $20 to $40.

  • However, these higher duty-free and tax-free limits only apply to parcels delivered by private couriers, such as FedEx and UPS, and not those delivered by Canada Post. This could undermine Canada Post’s competitiveness in the parcel delivery business.

13. The USMCA still must be signed, ratified and implemented by each country, and many provisions will be phased in over the years to come.

  • As per Article 34.5, the USMCA will come into force on the first day of the third month following the final party completing its implementation procedures.

  • It is anticipated that this will happen some time in mid-2019.

  • In the meantime, the Canadian Labour Congress will continue analyzing the agreement to learn more about its impact on Canadian workers and industries.