From NAFTA to USMCA: A whimsical change of name?

With US midterm elections approaching, it seems that the symbolic disappearance of NAFTA is quite a win for the US president, hence, ditching the famous acronym seems to be merely politically motivated and completely uncalled for

From NAFTA to USMCA: A whimsical change of name?
A staff member moves flags - Photo: Chris Wattie/REUTERS
English 09/10/2018 17:47 Mexico City Amrita Bahri Actualizada 18:08
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After a year-long negotiation, on October 1, 2018, the United States, Mexico, and Canada managed to reach a new trilateral agreement which replaces the North American Free Trade Agreement (NAFTA).

The new trilateral deal, or rather a modernized version of NAFTA, will now be known as the US-Mexico-Canada Agreement (USMCA). This deal has been welcomed as a win-win-win by the leaders of each country. However, North Americans are not quite happy about the new acronym—USMCA—which is quite unpronounceable and unappealing.

Why did they change the deal’s name and hence the acronym altogether? A name change is called-for if this deal is not merely an upgrade of the previous NAFTA. So the question is: Is this really a new trade deal? Is it an improvised version of the previous NAFTA we have had for 25 years? An overview of the main differences between NAFTA and USMCA could help us answer this question.

The first difference relates to regional value content requirements. The new deal stipulates that 75% of parts for cars built in North America would be made in North America in order to qualify for duty-free treatment. This figure was 62.5% in the old NAFTA.

The second difference relates to labor value-content requirement. This rule will require that at least 40% of auto content and 45% of heavy truck content are made by workers earning at least USD $16 per hour. Moreover, the members have agreed to improve the working and safety conditions for workers and reduce discrimination against working women.

The third difference relates to the increase in market access for US dairy products. Canada has agreed to give a higher access to American dairy products coming into their market by setting higher import quotas in the new agreement. The USMCA will grant the US a 3.6% portion of Canada's domestic dairy market.

The fourth difference relates to the modernization of the agreement. The three countries have agreed to the inclusion of new provisions on e-commerce and digital trade which clearly did not exist in the old NAFTA. The new agreement raises duty-free shopping limits to USD $100 to enter Mexico and CAD $150 to enter Canada without facing import duties. These figures stood at USD $50 in Mexico and CAD $20 in Canada in the old agreement. This is great news for online shoppers in Mexico and Canada. It is also a very positive development for the shipping firms and e-commerce giants such as Amazon and eBay.

Increased protection for intellectual property and a joint commitment to "achieve and maintain a market-determined exchange rate regime" are other features of this modernization attempt.

The fifth difference is the sunset review clause. The USMCA includes a 16-year expiration date and a provision that requires a review of the agreement every six years. There was no such sunset clause in the old agreement.

The sixth difference relates to the NAFTA's dispute-settlement system. Although Chapter 19 (which allows member countries to bring grievances against other members over allegations of unfair trading practices) remains unchanged in the new agreement, the investor-state dispute-settlement system (which permits investors to file grievances against other governments) will phase-out between the US and Canada and it will be heavily restricted between the US and Mexico.

In a nutshell, there are some substantial changes in the new deal, but perhaps they do not warrant an altogether change of name and acronym for this agreement. Then, why did they change the name? Whose idea was it? Perhaps, President Trump convinced Canada and Mexico for a change of name for his sheer dislike and hatred for NAFTA. Perhaps, the US proposed to change the name to USMCA to deliver a message of change to its people who will soon be voting in the next Congressional elections. Perhaps, the name was changed to help President Trump support his claim that he has been successful to turn the “the worst trade deal maybe ever signed anywhere” into “a wonderful new trade deal” and “the most important trade deal we’ve ever made, by far.”

This statement made by President Trump is quite an exaggeration, as the final deal is not really a new trade agreement but an updated and modernized version of NAFTA. With US midterm elections quickly approaching, it seems that the symbolic disappearance of NAFTA is quite a win for the US president. Hence, ditching the famous acronym of NAFTA seems to be a change which is merely politically motivated and completely uncalled for. 

Dr. Amrita Bahri is Co-Chairholder at the WTO Chair Program for Mexico & Assistant Professor of LawITAM University
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