By on October 1, 2018

FCA Brampton Assembly Line Challenger & 300 - Image: FCA

Following some furious 11th hour bargaining, Canada reached an agreement with U.S. trade negotiators Sunday night, marking the end of the North American Free Trade Agreement (NAFTA) and the creation of its successor, the U.S.-Mexico-Canada Agreement. USMCA, for short.

While some of the finer details have yet to be released, the trilateral trade deal prevents the nightmare scenario of heavy tariffs levied on vehicles imported from Canada. To keep General Motors, Fiat Chrysler, Ford, Honda, and Toyota plants humming, officials in the Great White North reluctantly offered up some milk and cheese.

Calling it a “great deal for all three countries,” U.S. President Donald Trump tweeted that the USMCA corrects “deficiencies and mistakes in NAFTA, greatly opens markets to our Farmers and Manufacturers, reduces Trade Barriers to the U.S. and will bring all three Great Nations together in competition with the rest of the world.”

Trump came up with the new acronym, which seems tailor-made for song lyrics, after complaining that NAFTA had “bad connotations.” The U.S. and Mexico first reached a deal in late August.

In a joint statement, U.S. Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland called the deal “a new, modernized trade agreement for the 21st Century” that “will give our workers, farmers, ranchers, and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region.”

The U.S.-Mexico deal updated the existing rules of origin, with the required percentage of North American parts rising from 62.5 percent to 75 percent. Some 70 percent of the steel, aluminum, and glass sourced for use in auto manufacturing must now come from within the trading bloc. In the aim of placating U.S. officials worried about a southwards surge of jobs across the Rio Grande, Mexico agreed to a wage of $16 an hour for 40 to 45 percent percent of autoworkers involved in final assembly (the latter figure being for those working on trucks).

As for manufacturers north of the 49th parallel, the new deal remains somewhat murky However, we do know that Canada agreed to a cap on auto exports to the U.S., but nothing that would impact the existing cross-border flow. Media reports place the cap at around 40 percent above current levels. Above that level, only vehicles that fail to meet rules of origin requirements could be subject to unspecified new tariffs.

Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, tweeted that Canada and Mexico “negotiated exemptions from [import tariffs] at production levels that materially outpace* export growth models to the US over the next 5-10 years.”

“The cost of an automobile may increase if manufacturers are required to source more supplies from the US/CAN/MX than from the cheapest global sources,” Volpe wrote. “The benefit is more* investment in Ontario, Kentucky & Chihuahua & less* in places that sell to us but do not buy from us.”

Jerry Diaz, head of the union representing Detroit Three autoworkers in Canada, gave the deal a thumbs up.

“If you combine the moves made with Mexico as it relates to raising the wages of Mexican workers and increase of content of North American labour into a car in order for make it tariff free,” the Unifor president told reporters. “Frankly, the deal we have with the United States, we are, I would argue, in better shape than we have been in the past 25 years.”

It’s now up to governments to make USMCA official.

[Sources: Financial Post, AM 800] [Image: Fiat Chrysler Automobile]

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32 Comments on “NAFTA Is Dead; All Hail the USMCA...”

  • avatar

    Lets see how the fake news media claims this is pro-russia.

    • 0 avatar

      No, this is clearly another win for the Obama administration. Once again President Trump is taking advantage of the fabulous trade conditions created by what history has shown was our greatest leader. /s

  • avatar

    “NAFTA Is Dead; All Hail the USMCA*”

    *Pending Approval by Congress, and the Legislatures of both Mexico & Canada…

    In other words, NAFTA is nowhere near dead.

  • avatar
    Arthur Dailey

    According to preliminary reports:
    1) Canada agreed to allowing an additional 4% milk imports, which negatively impacts Quebec dairy farmers. This may change as Canadian dairy farmers are not allowed to use the same levels of steroids and antibiotics as American dairy farmers. So Health Canada may have the final say and although American dairy in theory has access, it would do so, only if it met, Canadian requirements regarding the above.
    2) Canada agreed to an increase from 8 to 10 years on intellectual property. This currently will primarily impact generic drug production and therefore increase the cost of prescription drugs in Canada.
    3) The USA agreed to retaining the right to an independent tribunal rather than American courts. A key point for Canadian negotiators. This also means that the American duty on steel and aluminium will be ruled on by an independent tribunal.
    4) The USA agreed to not impose tariffs on the importation of vehicles manufactured in Canada. Another key point for Canadian negotiators. With the current exchange rates, it means that the cost of manufacturing in Canada is less than in the USA.
    5) Mexico agreed to a) a large increase in the minimum wage paid to autoworkers and b) to allow autoworkers the right to join independent unions. This is considered a huge ‘win’ for American and Canadian autoworkers. Hence the CAW’s endorsement of this agreement.

    • 0 avatar

      Well said. Of particular note, number two – IP provisions.

      One of Canada’s main weapons in this was the ability to detonate IP protections on drugs and put more of Canada on generics immediately, as well as set a precedent and begin exporting even more to other economies. Instead the government extended these protections which will (further) damage the Canadian consumer and somewhat reward US drug companies.

      Though this is only the beginning of the long and winding road to treaty approval – and I’m sceptical that the MCA will make it through all three country’s legislative bodies – this was likely Canada’s hardest concession. In exchange the white working class attached to Magna and other autoparts suppliers will not detonate, and Mexican auto-workers will be on a more fair playing field with Canadian ones.

    • 0 avatar

      Of note, the dairy provisions would have been something made under TPP had it been ratified by the US, so it’s not a very big win for the US, but it’s still something. The auto exports cap is not ever going to matter, I think. 40% over current seems very unlikely given projections of auto demand.

      Looking at the big picture in relation to the subject matter of this website, it’s hard to see how this is very different from NAFTA. It’s not a ground up re-write, nobody really got what they wanted (with possibly the exception of the Mexico auto workers wages/unionizing thing). If I was being less charitable, I would call it lipstick on a pig, but this is not the complete blow-up total win USA uber alles that Trump wanted. Of course he’ll put his name on it and say it’s the greatest thing since sliced bread, but for boots-on-the-gound, it’s hard to see it as anything other than business as usual.

      And even then, it has to survive all three countries’ legislative branches. Stay tuned…

      • 0 avatar

        If (big IF) this really could push the Mexicans towards wide scale unionization and they really did achieve that $16/hr en masse, that could really level the playing field for the hemorrhaging of jobs from here south of the border. But I’m afraid to say that it’s a pipe dream.

    • 0 avatar

      >Canada agreed to allowing an additional 4% milk imports, which negatively impacts Quebec dairy farmers.

      Canada had agreed to give us access to 3.25% of their dairy market as part of TPP, NAFTA 1.1 now gives us 3.6%. Any new customers are great news for dairy farmers, but it is not really going to solve the dairy farm crisis of too much production chasing too few consumers.

  • avatar

    Of course they came to an agreement. There was always too much money at stake for them not to, all the whining and TDS aside.

  • avatar

    How ever will GM source plastic interior/exterior/engine bay components.

    Not sure even half come from anywhere but China, let alone Mexico.

    ANYTHING plastic that is Chromed at the least is China currently.

    My guess is the 75% will be by weight so they will be just fine…

    If they at least made radio buttons here, maybe they wouldn’t all peel the minute the 3/36k ends.

    Toyota: please start building real cars here again so I’m not tempted by the Colorado/other GM trash. The current Tacoma is such a pile it literally ranked “below average” CR reliability for the first time in history. Seeing one firsthand I believe it.

  • avatar

    Few if any meaningful changes with a new name slapped on it. Pretty much what I expected.

  • avatar

    Someone check Hackett and see if he’s still whining.

  • avatar

    Welcome to the new deal, same as the old deal.

    Noticing a pattern yet?

    • 0 avatar

      That I’m still not sure if The Who were an underrated or overrated band?

      Er, ya. I’m from NYC, grew up in the 70s and 80s. We knew who the shysters were then and well, one way or another, people tell you who they are.

    • 0 avatar

      That is not true. Here are the changes from CNBC:
      Here’s a quick look at key provisions:

      It will require 75 percent of auto components to be built in North America, up from 62.5 percent.
      Forty to 45 percent of auto components will have to be made by laborers making at least $16 an hour.
      In a concession to Mexican and Canadian business, the deal largely exempts passenger vehicles, pickup trucks and auto parts from possible Trump administration tariffs.
      U.S. farmers are getting slightly more access to Canadian dairy markets.

  • avatar
    Matt Foley

    All hail MCA!

    Adam Yauch
    8/5/1964 – 5/4/2012

    Rest in peace.

  • avatar

    IMO this is not good for the USA/CDN auto worker or the consumer. There is no doubt that the move to higher wages in Mexico on 30-40% of content will result in a faster move to automation. Second, say goodbye to cars manufactured in NA for shipment to Asia. Far cheaper to manufacture them in Asia. Most small cars will no longer be made in Mexico because they would be too expensive vs manufacturing it in Asia and paying the import tax. This a huge loss for the consumer because of higher prices and less selection.

  • avatar

    Fantastic job by Mr president. That is what happens when you put a businessman in charge of dealings instead of a community organizaer. Someone that was not afraid to make life hard for neighbors that were taking advantage of America.

    Now Mexican labor will cost a lot more, which means car companies will consider making more vehicles in USA and Canada. Canadians can thank USA later.

    And content increases for north American parts.

    And access to dairy market for USA.

    Great job Mr president. Next are Germans reckoning day with their cars

    • 0 avatar

      See above – there will not be more manufacturing in N America but probably much less, much less by humans anyway, if these changes go through.

      Dairy market moves from 3% to 3.25% – in a country of 35 million people. Whoa, knock me down there, bye.

      I have friends on some of these negotiating teams – there are hundreds of professional negotiators and outside lawyers not to mention hundreds more lobbyists hanging around hotel lobbies. Hence their name. You seem to think that the President has much to do with any of this like he’s near the negotiating table. There’s a whole department called the US Trade Representative which works on this stuff year-round.

      The proposals now make their way to three disinterested national legislatures. Rotsa ruck with that.

      You seem to not understand what just happened.

      • 0 avatar

        The level of ignorance of Trump supporters is astonishing until you realize that Trump never relied on thoughtful citizenry for support… he relied on the ignorance of voters to believe anything he said because of his celebrity. People wanted to believe him, so whatever he said became their truth.

        That he has supporters in 2018 shows how gullible this type of voter is, and how religiously they must continue the charade.

        It’s a sad statement about how easily fooled so many of our neighbors are.

        • 0 avatar

          If you want to wonder how Trump got elected in the first place, well…lumping people together as “stupid” or “ignorant” (or insert colorful metaphor of your choice here) was a big part of it.

          I think the time’s long past to stop labeling people just because of how they pulled the lever in an election.

          • 0 avatar

            I somehow doubt that being polite would have changed the outcome.

          • 0 avatar

            The outcome wasn’t necessarily the problem with the last election. The real problem was the choices. And how did we get there? In large part, it was by labeling each other.

            Clinton did it too, and it figured into her loss.

    • 0 avatar
      Arthur Dailey

      @pmirp1: Well that is certainly a glass is half full assessment. Getting increases in auto worker wages in Mexico was a benefit, as was increased access to unions for their workers (which is probably only a paper benefit), otherwise the President engaged in a lot of bluster and time wasting insults and badgering that interfered with the work of the professionals and resulted in precious little in other changes.

      Canada got most of what it wanted, exemptions from tariffs on autos and the retention of an independent tribunal to settle disputes. Yet never once did the Canadian team resort to insults, threats or buffoonery.

      And as @MLHM stated this may lead to increased in auto pricing, as well as increased prescription costs.

  • avatar

    ziprage: +1, that’s it exactly.

  • avatar

    It’ll be an upward bump. Hell, I’ll take it. But it won’t prove to be some kind of magic boon to manufacturing, as much as Trump would love to make it so.

    But, hey, I’ll give credit where it’s due. I just wish the guy wouldn’t act like such a raging a-hole in situations like this.

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