Modernizing the North American Free Trade Agreement (NAFTA) was never going to be easy. But on Sunday night, just before the midnight deadline approached, the United States, Canada and Mexico celebrated what at one point seemed impossible: keeping the North American commercial relationship a strong, trilateral one.
It will be in the hands of the next Congress to decide on the agreement’s ratification. In doing so, this must be a moment to judge the agreement on its merits rather than let partisan politics make the determination in advance. After all, the livelihoods of 14 million U.S. workers depend on trade with Canada and Mexico.
No trade agreement is ever perfect. But the important inclusion of Canada in the accord goes a long way toward alleviating the correct concerns that a bilateral deal would have undermined the North American marketplace.
Canada and Mexico, together, are two of the United States’ strongest allies and the new United States-Mexico-Canada Agreement (USMCA) — like NAFTA before it — is a critical foundation for broader cooperation on issues critical to U.S. interests.
The USMCA updates the nearly 25-year-old NAFTA in a number of important ways that address longstanding concerns. The most significant change is in the auto sector. To qualify for zero tariffs, USMCA eventually raises the threshold of content that must be produced in North America by 20 percent.
At the new standard of 75 percent of content “Made in North America,” the agreement seeks to create more jobs and more investment in auto plants among the three countries.
Those cars must increasingly be produced in higher-wage factories. By 2023, 40 percent of the parts of a car will be manufactured by workers who make at least $16 per hour.
This is a provision that was long pushed by the United States given the administration’s concern that lower-wage factories in Mexico had an advantage over U.S. firms. At first, Mexico resisted, given the natural wage differences between the two countries.
But President-elect López Obrador welcomed the wage stipulation as he sees it as facilitating his desire to increase wages and combat poverty across Mexico.
Beyond cars, USMCA opens up Canada’s long-protected dairy market to more imports of U.S. milk, cheese and other dairy products.
Still, the Canadian government’s determination is that the dairy opening is not sizable enough that it will displace Canadian dairy producers — a critical calculation with upcoming elections in dairy-producing provinces.
And although it gets less attention, USMCA updates the existing pact to put in place stronger intellectual property protections and to provide new measures that safeguard the trade of digital products.
But the most fundamental aspects of the NAFTA deal are those that did not change. The rules-based North American trading relationship remains intact. This is a big win for North America and for the future of the world trading system.
President TrumpDonald TrumpGraham says he hopes that Trump runs again Trump says Stacey Abrams 'might be better than existing governor' Kemp Executive privilege fight poses hurdles for Trump MORE has long been critical of the global rules of the game. Now, in the first major trade agreement rewrite under his presidency, the United States has agreed to keep the dispute settlement mechanism formerly known as Chapter 19, state-to-state dispute settlement (Chapter 20 in NAFTA), and investor-state dispute settlement (previously Chapter 11) for key sectors in the U.S.-Mexico relationship.
Chapter 11 will be phased out for other industries and will be entirely eliminated between the United States and Canada.
Still, agreeing to the USMCA is a win far beyond commerce. NAFTA tied together North America in a way that makes the United States more secure. The creation of a North American identity has opened the door for broad-based cooperation on issues ranging from intelligence sharing to border management to counter narcotics.
A decision on ratification of the new agreement will be in the hands of the next Congress. No trade vote is ever an easy one. It will be important for members to fully appreciate how North American trade is fundamental to just about every state in the country. From small towns to big cities, exports to Canada and Mexico are the foundation of local economies.
Important questions do remain: How will USMCA affect the global competitiveness of North American products? What will be the impact of the new provisions on U.S. consumers? These and other questions must be addressed.
Although imperfect, the new trade deal eases the anxiety that has gripped North American businesses for the last year. A decision on its ratification will further calm businesses and U.S. workers and hopefully chart a new course for North American cooperation.
Jason Marczak is director of the Atlantic Council’s Adrienne Arsht Latin America Center. He is on Twitter at @jmarczak.