The changes, although significant in some cases, will not substantially modify trade flows between the three countries.

The new Free Trade Agreement between the United States, Canada and Mexico is now ready for implementation, following ratification by the congresses of the three countries. The revision of the previous treaty, which came into force in 1994, was demanded by Donald Trump on his arrival at the White House, alleging the trade deficit generated for the US in relation to Canada and especially Mexico. Although some significant corrections have been introduced, following the main US approaches, it does not appear that the revised agreement will substantially modify trade flows between the three countries.

▲ Presidents Peña Nieto, Trump and Trudeau sign free trade agreement in November 2019 [US Gov.]

article / Marcelina Kropiwnicka

On January 1, 1994, the North American Free Trade Agreement (NAFTA) entered into force. More than twenty years later and under the administration of President Donald Trump, the three partner countries opened a review process of the agreement, now called the Free Trade Agreement between the United States, Canada and Mexico (to which each country has given a different acronym: the Mexicans call it T-MEC or TMEC, the Americans USMCA and the Canadians CUSMA).

The text of the TMEC (its Spanish acronym) finally ratified by the three countries is generally consistent with the old NAFTA. However, there are particular distinctions. Thus, it includes stricter rules of origin in the automotive and textile sectors, an updated labor value content requirement in the automotive sector, increased U.S. access to Canadian supply-managed markets, novel provisions related to financial services, and a specification on the establishment of free trade agreements with non-market economies. The overall goal is to encourage production in North America.

News negotiated in 2017-2018

The three parties started the negotiation in the summer of 2017 and after a little over a year they closed an agreement, signed by the presidents of the three countries in November 2018. The main novelties introduced until then were as follows:

1) The agreement revises the regional value content (RVC) percentage for the automotive industry. Under NAFTA, at least 62.5% of an automobile must be made with parts from North America. The TMEC raises the percentage to 75% with the intention of strengthening the countries' manufacturing capacity and increasing the work force in the automotive industry.

2) Along the same lines, to support employment in North America, the agreement contains new trade rules of origin to boost higher wages by mandating that 40-45% of auto manufacturing be done by workers earning at least $16 per hour on average by 2023; that's about three times the pay a Mexican worker normally receives today.

3) Aside from the automotive industry, the dairy market will be opened to ensure greater access for U.S. dairy products , a core topic demanded by Washington. Currently, Canada has a system of domestic quotas that were put in place to protect its farmers from foreign skill ; however, under the new TMEC agreement , changes will allow the U.S. to export up to 3.6% of Canada's dairymarket , anincrease of 2.6% over the original NAFTA provision. Another core topic achievement for Trump was the negotiation of Canada's elimination of what are known as itsmilk classes 6 and 7.

4) Another new aspect is the sunset clause. NAFTA had an automatic sunset clause or a predetermined termination date for the agreement, which meant that any of the three parties could withdraw from the agreement upon six months notice of withdrawal; if this did not occur, the agreement remained indefinite. However, the TMEC provides for a duration of 16 years, with the option to meet, negotiate and review the document after six years, as well as the possibility of renewing the agreement after 16 years.

5) The three countries' pact also includes a chapter on work that anchors labor obligations in the core of the agreement , making its execution more demanding.

Reforms in Mexico

Precisely to make that last point more credible, U.S. and Canadian negotiators demanded that Mexico make changes to its labor laws to speed up the process of approval and ratification of the TMEC by lawmakers in Washington and Ottawa. U.S. House leaders had doubted Mexico's ability to specifically comply with the agreement's labor rights points. One of President Trump's main objectives in the renegotiation was to assure U.S. workers that unequal skill status would be overcome.

Mexican President Andres Manuel Lopez Obrador sent a letter to the US congress guaranteeing the implementation of a four-year plan to ensure the achievement of adequate labor rights. Lopez Obrador committed to an outlay of $900 million over the next four years to change the labor justice system and ensure that disputes between workers and employers are resolved in a timely manner. Mexico has also invested in the construction of a Federal Center for Labor Conciliation and Registration, where labor disputes will be addressed prior to their hearing in court.

Obrador showed his commitment to labor reforms by assuring at least a 2% increase inMexico'sminimum wage. Most B that the requirement of direct voting for union leaders will change the functioning of workers' organizations. With direct elections, decisions on collective bargaining agreements will be more transparent. Mexico's plan to improve the labor environment will begin in 2020.

What's new in 2019 to facilitate ratification

Faced with demands raised in the U.S. congress , particularly by the Democratic majority, to ratify the treaty, negotiators proceeded with two major revisions to NAFTA. One of them aimed primarily at revising a large number of provisions relating to intellectual property, pharmaceuticals and the digital economy:

6) The chapter dedicated to intellectual property rights seeks to respond to U.S. concerns to boost innovation, generate economic growth and support work. For the first time, according to the U.S. Trade Representative, the additions include: strict rules against circumvention of technological protection measures for music, movies and digital books; strong protections for pharmaceutical and agricultural innovation; broad protections against trade secret theft; and official document authority for officials to stop suspected counterfeit or pirated goods.

7) A new chapter on digital trade has also been included that contains stricter controls than any other international agreement , consolidating the foundation for the expansion of trade and investment in areas where the US has a competitive advantage.

8) The final draft eliminates a 10-year guarantee of intellectual property protection for biological drugs, which are some of the most expensive drugs on the market. It also removes granting an additional three years of IP exclusivity for drugs for which a new use is found.

A second group of late-breaking changes reference letter to greater environmental and labor protections:

9) Environment covers 30 pages, outlining obligations to combat trafficking in wildlife, timber and fish; strengthen law enforcement to stop such trafficking; and address critical environmental issues such as air quality and marine debris. New obligations include: protecting various marine species, implementing appropriate methods for environmental impact assessments, and complying with the obligations of seven multilateral environmental agreements. In particular, Mexico agreement to improve surveillance to stop illegal fishing, and the three countries agree to stop subsidize fishing for overfished species. To increase environmental accountability, Democrats in the U.S. House of Representatives urged the creation of an interagency oversight committee. However, the treaty does not address climate change issues.

10) To ensure that Mexico delivers on its labor promises, House Democrats forced the creation of an interagency committee to monitor the implementation of Mexico's labor reform and compliance with labor obligations. Despite the new and unique 'LVC' requirement, a labor value content rule, it will still be difficult to impose a minimum wage on Mexican automakers. However, U.S. Democrats hope that the condition will force automakers to buy more supplies from Canada or the U.S. or cause automakers' wages in Mexico to increase.

The agreement finally ratified will replace the one that has been in force for 25 years. Overall, the move from NAFTA to the TMEC should not have a drastic effect on the three countries. It is a progressive agreement that will entail slight changes: certain industries will be affected, such as the automotive and dairy industries, but in a small proportion. In the long term, given the changes introduced, wages should increase in Mexico, which will decrease Mexican migration to the US. Businesses will be affected in the long term, but with backup plans and new redesigns, the transition process should hopefully be smooth and mutually beneficial.