The current trade agreement between the United States and Canada, formally known as the United States-Mexico-Canada Agreement (USMCA), replaced the previous trade agreement, the North American Free Trade Agreement (NAFTA) on July 1, 2020. This agreement has significant implications for businesses and consumers in both countries.
One of the main changes in the USMCA is the increase in the minimum percentage of auto parts that must be produced in North America to qualify for tariff-free trade. Under NAFTA, the requirement was 62.5%. However, under the USMCA, the requirement has been increased to 75% of a vehicle`s components.
This increase incentivizes the production of more auto parts in North America, which could potentially boost the local economies of both countries. Additionally, the USMCA also requires that 40-45% of the value of a vehicle be made by workers earning at least $16 per hour. This provision aims to prevent companies from outsourcing jobs to countries with lower labor costs, which could benefit workers in both the United States and Canada.
The USMCA also includes provisions related to digital trade, intellectual property, and the protection of labor rights and the environment. For example, the agreement prohibits tariffs on digital products such as e-books and music, and it establishes new protections for the intellectual property of pharmaceutical companies.
Another major change under the USMCA is the elimination of a dispute resolution system known as Chapter 11, which allowed foreign investors to sue governments for unfair treatment. This change is supported by many critics of NAFTA, who argued that it gave too much power to corporations.
Overall, the USMCA is designed to modernize and improve the previous trade agreement between the United States and Canada. While there are still debates about certain provisions, the agreement is expected to benefit consumers, workers, and businesses in both countries. As both countries continue to navigate the challenges of a post-pandemic world, the USMCA may play a key role in maintaining a strong and stable economic relationship between the United States and Canada.