Washington (CNN) — The renewed trade agreement between the United States, Mexico and Canada takes effect on Wednesday, fulfilling President Donald Trump’s 2016 campaign pledge to replace the North American Free Trade Agreement (NAFTA), which he often refers to as “Worst trade deal ever made.”
The new deal was signed by Trump and his Mexican and Canadian counterparts in 2018 and passed by Congress earlier this year after Democrats added stronger labor rules.
It was promoted by the President as a major political victory before his re-election campaign, but has since been overshadowed by the coronavirus pandemic and other crises.
Much of the T-MEC (also known as the USMCA) simply updates the 25-year agreement it is replacing. It is expected to create 176,000 jobs after six years and increase US GDP by 0.35%, according to a report released last year, long before the pandemic, by the United States International Trade Commission, a federal government agency. In comparison, the country created more than 152,000 jobs in January 2020 alone.
But the deal provides certainty to business groups and farmers who feared Trump would destroy the old NAFTA without having a new deal, a move he threatened multiple times.
The T-MEC contrasts with Trump’s efforts to renegotiate trade terms with China. After more than a year of negotiations, a preliminary agreement signed in January fails to solve major problems related to theft of intellectual property and forced transfers of technology. It leaves tariffs on billions of dollars in goods and it’s unclear whether China will keep its promise to more than double its purchases from American farmers.
Trump opted for bilateral agreements and signed new treaties with South Korea and Japan. In addition, it pulled the United States out of the 12-country Trans-Pacific Partnership, known as the TPP, which was negotiated by the Obama Administration.
These are some of the key changes to the T-MEC:
Boost to car manufacturing
The T-MEC creates a new incentive to build cars and trucks in North America. It requires that 75% of a vehicle’s parts be manufactured in one of the three countries, above the current rule of 62.5%, to remain duty-free when moving between the three signatory countries.
It also requires that more parts of the vehicle be manufactured by workers who earn at least $ 16 an hour, which can boost manufacturing in the United States, where wages are higher than in Mexico.
The International Trade Commission report found that these changes would add 28,000 jobs to the sector over six years, while leading to a small increase in the price of vehicles paid by consumers. However, a report from the Trump administration was more positive, projecting that the deal would create 76,000 auto jobs in five years.
Strengthened labor laws in Mexico
Factory workers blamed NAFTA for sending jobs to Mexico, where wages are lower, and a priority for Democrats was for the T-MEC to strengthen enforcement of labor standards, creating a more level playing field for American workers.
Democrats struck a deal with the Trump administration to strengthen enforcement language in the deal. The changes garnered the support of the AFL-CIO, the largest union federation in the United States.
The agreement provides for an inter-institutional committee that will oversee the implementation of the labor reform in Mexico and the fulfillment of labor obligations. Also, for the first time in any US trade agreement, it allows “rapid response” panels to review whether specific facilities are violating workers’ rights and to collect tariffs or penalties on products manufactured at those facilities.
US dairy producers gain greater market access
The original NAFTA removed tariffs on most agricultural products traded between the three countries. Canada and Mexico are already the two largest export markets for American farmers and ranchers.
The T-MEC will keep those tariffs at zero, while further opening the Canadian market to United States dairy, poultry and eggs. In return, the United States will allow more Canadian dairy, peanut and peanut products, as well as a limited amount of sugar, to cross the border.
NAFTA update in the digital age
The T-MEC includes new benefits for the technology sector, in a chapter on digital commerce that was not part of the original NAFTA. The new provisions are not expected to directly create new jobs, but they could provide a boost to American companies in other ways.
For example, the new trade agreement prohibits Canada and Mexico from forcing US companies to store their data on servers in the country. It also ensures that US companies cannot be sued in Canada and Mexico for much of the content that appears on their platforms.
Environmental protections
The deal provides $ 600 million to address environmental problems in the region, such as Tijuana’s sewage spills that affect San Diego, and makes regulations easier to apply by removing the requirement to demonstrate that a violation affects trade.
While the new enforcement measures pleased most Democrats, they did not go far enough to get environmental groups like the Sierra Club to support the deal.
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