Canada concludes an agreement with the United States and Mexico
After over a year of renegotiations between the United States, Canada and Mexico, an agreement was finally reached on September 30, 2018. NAFTA becomes the United States-Mexico-Canada Agreement (USMCA).
It should be recalled that the United States and Mexico had previously concluded an agreement to which they wanted Canada to join. After several days of intensive renegotiations between the United States and Canada, an agreement in principle was reached before the deadline imposed by the United States. In the next few lines, we will present some of the issues in dispute that have been resolved in the new, modernized agreement.
What are the issues in dispute resolved in the USMCA?
Supply Management
On supply management, Canada has agreed to open a gap in its dairy market to American producers, as it did for producers in countries that are signatories to the Transpacific Partnership (TPP) and the Comprehensive Economic and Trade Agreement (CETA). In the case of USMCA, a 3.6% market opening was granted. The Canadian government has also announced that it will offer financial compensation to Canadian dairy producers who suffer losses as a result of this concession.
Chapters 19 and 11
Chapter 19, to which Canada was absolutely committed, has been maintained, but will change its name. Note that this chapter is used to arbitrate countervailing duty and dumping disputes.
As for chapter 11, the signatory parties finally agreed to abolish it. This chapter, which acted as a dispute resolution mechanism, allowed foreign companies to sue a government if they felt they had been wronged.
Rules of origin in the automotive sector and others
The new agreement provides for an increase in North American content in automotive production from 62.5% to 75%. During the renegotiations, the Americans asked that this content be 80%. The USMCA also expects that a portion of automotive production (40-45%) will be manufactured by employees paid more than US$16 per hour.
In addition, 2.6 million vehicles assembled in Canada will be exempt from customs duties annually. Currently, annual automobile production is about $2 million per year.
It should also be noted that the new agreement provides for amendments to the rules of origin in Annex 401 and to the information required to certify several products, not to mention the de minimis rule, which goes from 7% to 10%.
The sunset clause
During the renegotiations, the United States asked to include a clause in the agreement that would allow it to renegotiate NAFTA after 5 years and withdraw from it if necessary. The USMCA provides that the signatory parties must remain in the agreement for a period of 16 years. The agreement still provides for the possibility of being revised after 6 years.
Online purchase
On the Canadian side, the online purchase limit for U.S. products without paying taxes (GST) has been increased from $20 to $40. In addition, the limit for online purchases without paying customs duties has been increased from $20 to $150.
Culture and environment
Other points concerning culture and the environment were concluded. The new agreement will contain a chapter on the environment, unlike the NAFTA treaty signed in 1994. The USMCA will also maintain a chapter on the cultural exception that Canada wanted to defend.
Surcharges on steel and Aluminum
Despite the conclusion of a new agreement, the 25% tariffs on certain steel products and 10% tariffs on certain aluminum products imposed by the United States remain in place. However, the Canadian government has indicated that it will continue discussions with the United States to eliminate these tariffs.
Learn more
To access the published USMCA text, you can visit the Office of the United States Trade Representative website. Unfortunately, the text is not yet available in French. Please also note that our consultation service remains available at consultations@w2c.ca.