WASHINGTON—The United States, Canada and Mexico came to a last minute agreement last Sunday on a revised trade deal called the United States-Mexico-Canada Agreement or USMCA, reports CNN. President Donald Trump and his Mexican and Canadian counterparts are expected to sign the deal by the end of November. It will then be up to Congress to approve the deal, which is likely to come up for a vote next year.
One key area of change between the nearly 25-year-old NAFTA agreement and the provisional USMCA involves car manufacturing. Specifically, the new deal will require more of a vehicle's parts to be made in North America in order for the car to be free from tariffs. It requires that 75 percent of the parts must be made in Canada, Mexico or the United States, about 12 percentage points higher than under the original NAFTA.
The provision will help keep the production of car parts in the United States and bring back some production that moved abroad. Ford Motor Co. applauded the agreement because it will "support an integrated, globally competitive automotive business in North America
The new trade agreement also aims to support American workers by requiring that 40 to 45 percent of car and truck parts be made by workers earning at least $16 an hour. The goal is to level the playing field between American and Mexican auto workers and to incentivize manufacturers to build more in the United States. One of the main criticisms of NAFTA is that it prompted American car makers to shift production south of the border, where workers earn much less than their US counterparts.
The deal also mandates that 75 percent of a vehicle's parts must be made in North America, up from the current 62.5 percent rule. The Trump administration argues that this will help incentivize billions in new auto sector production in the US. In addition, Mexico has committed to recognize workers' right to collectively bargain, and the three countries agreed to enforce rights recognized by the International Labor Organization.
The United States had wanted to include in the new agreement a clause that would kill NAFTA after five years unless all three countries agreed to renew it. Instead, negotiators stitched into the updated treaty new terms of the deal, agreeing to keep the trade pact for 16 years, unless all three countries agreed to extend it. That means the deadline could be extended far out into the future, if all three countries agreed to either renew or renegotiate the trilateral trade pact. The United States, Canada and Mexico will be required to meet every six years to decide whether to do so.