There’s a lot in the new NAFTA (technically, the US-Mexico-Canada Agreement, or USMCA), some of it good and some of it bad (the new name is terrible, but that’s not particularly important). In this blog post, we offer our thoughts on some of the key provisions, after which we provide an initial overall assessment of the agreement. We break it down into the good, the interesting, the whatever, the worrying, the bad, and the ugly.
– Canadian agriculture: In terms of liberalization in the USMCA, the most important component is the liberalization of Canadian agriculture imports, such as dairy products, eggs, wheat, poultry, and wine. Dairy market access was a key concern for the United States, which has long complained about Canada’s strict supply management and quota system. The Office of the United States Trade Representative (USTR) has noted the opening of Canada’s dairy market as a key achievement, because it gives the U.S. additional access to what was agreed in the Trans Pacific Partnership Agreement (TPP). In addition, Canada agreed to give up a pricing system for certain types of milk, as well as expanding the U.S. quota for chicken, eggs, and turkey. On wine, the U.S. and Canada agreed in a side letter that the Canadian province of British Columbia (BC) would adjust its measures restricting the sale on non-BC wine in its grocery stores. The United States has agreed to give BC until November 2019 to make this adjustment, before advancing a complaint it already put forward at the World Trade Organization (WTO) on this issue. This is the most positive part of the new agreement. It gives U.S. producers greater access to the Canadian market, and will be good for consumers in Canada.
– de minimis: The de minimis threshold for products that you buy online and can be imported duty free has been raised. The United States allows consumers to purchase goods up to $800 duty free, and has been pushing for Canada and Mexico to raise their limits as well. It did not persuade them to do so in the TPP. In the USMCA, however, Canada raised its de minimis threshold to CAD $150—a significant increase from the previous CAD $20 limit. In addition, sales tax cannot be collected until the value of the product reaches at least CAD $40. This is good for Canadian consumers making online purchases. Additionally, a 2016 study showed that increasing the duty free limit would be cost-saving for Canada. Mexico also increased its de minimis level, from USD $50 to USD $100, with tax free diminimis on USD $50. USTR has noted that this will be especially helpful for small businesses.
– Investment protection/ISDS: These provisions have been significantly scaled back. We see this as a positive, and it will be interesting to see how it plays politically with left wing critics of existing investment provisions, and with the business groups who want these provisions included.
– Regulatory issues: One notable addition was an expansive chapter on Good Regulatory Practices, which builds upon the TPP Regulatory Coherence chapter, the Canada-EU Comprehensive and Economic Trade Agreement (CETA), and bilateral initiatives that have been in place between the U.S. and Canada, as well as with Mexico, since 2011. The key items in this chapter are provisions on increasing transparency in the regulatory process, providing a clear rationale for new regulatory actions, as well as encouraging cooperation on minimizing divergence in regulatory outcomes. The general idea is to make regulations less burdensome on trade. It will be interesting to see how this chapter functions in practice, but it appears to be the most comprehensive attempt to address this issue in any trade agreement the United States has signed.