USMCA largely refreshes the existing deal rather than redoing it
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By Gina Chon
WASHINGTON (Reuters Breakingviews) - NAFTA’s makeover ended up only skin-deep. Late on Sunday, Canada and the United States agreed to update the trilateral trade pact in time for it to be signed by current Mexican president, Enrique Peña Nieto. Despite the brinkmanship the changes build on the same base, preserving the three countries' economic ties.
The North American Free Trade Agreement, which came into force in 1994, has been a target of Donald Trump since he ran to become U.S. president in 2016. He has repeatedly threatened to pull out in favor of bilateral deals. At the end of August, he hailed a pact between America and Mexico that came after shutting Canada out of talks for five weeks. Trump said he would impose auto tariffs if Ottawa didn’t quickly sign on.
But Prime Minister Justin Trudeau's administration stood its ground and talks dragged on through September, until the announcement at the end of the weekend. Though Trump got some of what he wanted, the newly named United States-Mexico-Canada Agreement, or USMCA, largely refreshes the existing deal rather than redoing it.
One fresh provision salvages a U.S. benefit that disappeared when Trump pulled out of the broader Trans-Pacific Partnership. Ottawa will give American farmers similar access to the Canadian dairy market pledged in the TPP. In return, U.S. officials dropped their demand to eliminate trade-dispute panels. There are also new rules for digital trade.
Other changes revise current provisions. Arguably the most significant relates to cars. The level of regional auto content needed to qualify for tariff-free trade goes up from 62.5 percent to 75 percent.
The revised deal makes sense, including for the United States. Canada and Mexico are its top export destinations. The auto industry in particular is heavily intertwined. More than half of the 2 million new passenger vehicles that America exported in 2017 went to North America, with most going to Canada.
There are still hurdles. It’s not clear how the U.S. Congress, which has to approve the deal, will judge it. Democrats, many of whom are NAFTA critics, could win a majority in the House in the November midterm elections. But for now, NAFTA's supporters can safely transfer their backing to the USMCA - and breathe a sigh of relief.
