The North American Free Trade Agreement (NAFTA) has been the longstanding agreement between the United States, Canada, and Mexico, facilitating trade between the three countries. However, in 2018, the United States, under the leadership of President Donald Trump, announced its intention to withdraw from NAFTA, citing concerns over job losses and trade imbalances with its northern and southern neighbors.
After months of negotiations, the United States, Canada, and Mexico reached a new trade agreement called the United States-Mexico-Canada Agreement (USMCA), which went into effect on July 1, 2020. The USMCA modernizes NAFTA in several ways, including the inclusion of new provisions on digital trade, labor standards, and environmental protections.
One of the key changes under the USMCA is the requirement that a minimum percentage of an automobile`s content must be manufactured in North America in order to qualify for tariff-free treatment. Under NAFTA, this threshold was set at 62.5%, but the USMCA raises it to 75%. This is intended to boost manufacturing in the United States, Canada, and Mexico and reduce the reliance on goods made in other countries.
In addition to the increased content requirements, the USMCA also includes new labor provisions aimed at improving working conditions for North American workers. The agreement requires that 40-45% of automobile content be made by workers earning at least $16 per hour, which is intended to discourage companies from moving production to countries with lower labor costs.
Environmental protections are also a key element of the USMCA, with the inclusion of provisions aimed at reducing marine litter, promoting sustainable fisheries, and improving air quality. The agreement also sets out procedures for addressing environmental disputes between the three countries and includes a commitment to work towards the conservation and sustainable management of wildlife.
Overall, the USMCA represents a modernization of NAFTA that seeks to address some of the concerns raised about the original agreement while promoting economic growth and environmental sustainability in North America. With the agreement now in effect, businesses and consumers in all three countries will need to adjust to the new rules and regulations governing trade in the region.