The USMCA explained: Winners and losers, what's in and what's out - Macleans.ca

The USMCA explained: Winners and losers, what’s in and what’s out

From online shopping to biologic drugs, we’ve sifted through the details with our eyes peeled for devils

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Rolls of coated steel at Stelco in Hamilton, Ont. before a recent visit by Foreign Minister Chrystia Freeland; the new deal does not remove the U.S.'s 25 per cent duties on Canadian steel (THE CANADIAN PRESS/Peter Power)

Just hours before the midnight deadline on Sept. 30, trade representatives from the U.S. and Canada hammered out a new trade agreement, salvaging a trilateral North American pact and bringing to a close a fraught and frequently stalled 13-month negotiation process. The new framework is officially known as the United States-Mexico-Canada Agreement (USMCA), though to start with, it seemed to be known colloquially as “the new NAFTA”—notwithstanding President Donald Trump’s fervent desire to see that moniker deep-sixed.

“USMCA will give our workers, farmers, ranchers, and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region,” Foreign Affairs Minister Chrystia Freeland and U.S. Trade Representative Robert Lighthizer said in a joint statement. “It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home.”

The agreement has the potential to reach directly into the wallets of each of those citizens. But the document runs to hundreds of pages of highly technical language. Maclean’s has sifted through it all to explain what exactly these three nations agreed to and what it all means.

Autos

What did they agree to? Cars sold under North America’s free trade system must be more North American: the regional content minimum rises to 75 per cent from the current 62.5 per cent. There will be a new requirement that at least 40 per cent of content be made by workers earning US$16 per hour or more. And should Washington ever slap Trump’s oft-threatened tariffs on cars, Canada will still be able to export 2.6 million passenger vehicles south every year, tariff-free. That leaves much room for expansion, as Canada’s plants currently have recently shipped fewer than two million annually.

READ MORE: How NAFTA was saved: The bitter fight and the final breakthrough

What does it mean? This takes the 25-per-cent tariff threat out of Canada’s existential nightmares, and tacitly welcomes more growth in the country’s automotive exports, currently worth around $50 billion. Canadian manufacturers and auto workers alike are hailing the other measures, which discourage imports from overseas and the use of low-cost Mexican labour to undercut assembly lines in Ontario, Michigan and Kentucky.

Dairy

What did they agree to? The United States has long sent more milk, cheese and dairy products north than Canada shipped south, but Canada’s supply management system has tightly limited access. Most of that system remains in place, but the new deal gives American farmers’ tariff-free access to 3.6 per cent of Canada’s dairy market, which will send hundreds of millions of dollars more of more product into this country.

Canada also scrapped a recently developed pricing rule for ingredients like skim milk powder that had let Canadian farmers unload surpluses at cut rates and infuriated counterparts in Wisconsin and abroad. 

What does it mean? Dairy was Trump’s biggest gripe with Canadian trade, and the Dairy Farmers of Canada depicted it as Trudeau’s biggest concession. And don’t the Dairy Farmers of Canada know it. “Today, the message sent to our passionate, proud and quality-conscious farmers and all the people who work in the dairy sector is clear: they are nothing more than a bargaining chip to satisfy President Trump,” said Pierre Lampron, the industry group’s president. After the trans-Pacific trade pact and Canada-European, this was the third straight deal to erode Canada’s dairy protections. Additional imports mean less captive domestic market for Canada’s farmers, which means more farms may downsize herds and close. It will “force our dairy sector to become more competitive,” and may eventually translate into lower grocery prices, Sylvain Charlebois, a business professor at Dalhousie University, wrote in an email.

READ MORE: ‘A huge disappointment:’ A dairy farmer reacts to the USMCA

Steel

What did they agree to?  Canada and Mexico went into the trade deal with a frustrating 25 per cent tariff on steel shipments to the United States, and 10 per cent on aluminum. In this trade deal, those tariffs … stay exactly as they are.

What does it mean? The tariffs are antithetical to free trade. But hey, there’s a reason the term “free trade” is absent from the USMCA title. The Trump administration is keeping the metals tariffs separate, under the pretence of ensuring the United States can ensure domestic supply for its military needs, but the president is blunt about wanting to protect U.S. steel manufacturers. “I don’t want to give that up,” Trump said Monday. He suggested he could negotiate further to lift tariffs, perhaps replacing them with a quota system that safeguards domestic business. Canada’s retaliatory tariffs will also stay in place, nudging up industrial commodity prices in both countries on everything from cars to beer cans. Canada and Mexico will reportedly push to resolve this before the deal is signed later this year. 

Dispute resolution

What did they agree to? The so-called Chapter 19 on dispute resolution from NAFTA was preserved—though it’s now known as Chapter 10 in the USMCA (we know; we also have a headache). The mechanism revolves around antidumping and countervailing duties, through which a nation can block imports if it believes the country sending the goods is not behaving fairly in its trading relationship. If the U.S. were to enact such a thing, dispute resolution gives Canada the right to challenge it before an independent arbitration panel. The Canadian government made it clear that ditching this was a deal-breaker because, as Prime Minister Trudeau explained, “we know we have a president who doesn’t always follow the rules as they’re laid out.”

What does it mean? Both President Trump and U.S. trade representative Robert Lighthizer disliked that provision because they argued it interfered with U.S. sovereignty. Dispute resolution previously played an important role for Canada in the softwood lumber disputes of the early 2000s, when arbitration panels ruled against the U.S. and Canada eventually worked out a settlement. The fact that Canada prevailed here will be touted as a significant win by the Canadian negotiators. “Having a robust and fair dispute-resolution mechanism is absolutely critical to maintaining a rules-based trading system and providing an avenue for Canada and Canadian companies to appeal unwarranted duties,” Susan Yurkovich, president of the B.C. Lumber Trade Council, said in a statement.

RELATED: The NAFTA story, as told by photos of Trump and Trudeau

Wine

What did they agree to? One of 12 “side letters” appended to the main trade agreement, each dealing with one narrow issue, spells out that this concern was all about British Columbia giving its wine preferential treatment over outsiders. “B.C. shall eliminate the measures which allow only B.C. wine to be sold on regular grocery store shelves while imported wine may be sold in grocery stores only through a so-called ‘store within a store,’” the letter from Lighthizer to Freeland stipulates. “And such contested measures shall not be replicated.”

What does it mean? The U.S. had lodged two disputes with the World Trade Organization over the practice, which it says it will drop if B.C. allows American wines to cozy up on grocery store shelves next to B.C. grape. Back in May, when the U.S. launched its second complaint with the WTO, the B.C. Wine Institute issued a testy-sounding press release disputing the entire premise of the American griping. “We remain puzzled how they have been harmed as the U.S. has a wine trade surplus of $450.6 million,” Miles Prodan, President and CEO of the wine organization, said at the time.

Sunset clause

What did they agree to? Unlike a carton of supply-managed milk, NAFTA had no expiry date. The new USMCA, on the other hand, runs out after 16 years—a mechanism called the “sunset clause.” The U.S. had been agitating strongly for a five-year expiry date, after which all three countries would have to review and re-negotiate, but Canada and Mexico held out for a bit more stability. Instead, the USMCA will last 16 years if nothing else is done, and six years from now, the three countries will review the deal and have an option to extend it beyond that term.

RELATED: Trudeau’s biggest threat after NAFTA—himself

What does it mean? Everyone could be thrown back into this same market-churning uncertainty six years from now. And it bears mentioning that when this deal comes up for review, Trump would still be president if he were to win a second term. Buckle up; try not to toss your cookies.

Copyright

What did they agree to? Canada will now extend copyright protection for intellectual property such as music scores, books, computer programs, artworks or sound recordings to 70 years beyond the death of the person who created them. Previously, copyright was protected in Canada for 50 years beyond the life of the author; the change under USMCA brings Canada into line with the U.S. and European Union.

What does it mean? It’s good news for the estates of people who create copyrighted works, which will now reap the financial rewards of holding onto the rights for an extra 20 years. But it will make things more expensive for anyone who wants to use those works. “The cost will be significant, locking down works from the public domain for decades and potentially increasing educational costs by millions of dollars,” Michael Geist, Canada Research Chair in internet and e-commerce law at the University of Ottawa, wrote in a blog post analyzing the deal.

Drugs

What did they agree to? Part of the agreement concerned biologic drugs, which are cutting-edge medications such as vaccines and gene therapy that are isolated from natural sources and often produced by biotechnology (in contrast to the majority of drugs, which are chemically synthesized). The USMCA extends the length of time newly developed drugs in this class will be protected from generic competitors. Canada had previously agreed to eight years, and the U.S. wanted its trading partners to up that to 12 this time around; they compromised and the new term will be 10 years.

RELATED: Trump wins, but not enough for Trudeau to lose

What does it mean? It will take longer for cheaper generic medications to reach the market—which means Canadians will be paying more for pharmaceuticals. A plan for a national pharmacare plan is likely to be an election issue in Canada next year, and if that came together, it would insulate individual patients from many of these rising costs—but someone is still going to have to foot a larger bill. The now-defunct Trans-Pacific Partnership, in contrast, protected biologics from generic competitors for eight years, or five years along with other measures, explains Geist—and even that lesser term was highly fraught. “This was one of the most contentious TPP issues as countries recognized that every additional year potentially adds billions of health care costs,” he wrote.

Online shopping

What did they agree to? Consumers could order $150 of goods from U.S. retailers without paying duties, and $40 without paying provincial sales taxes at GST. The so-called de minimis threshold is currently set at $20.

What does it mean? This threshold, one of the world’s lowest, hasn’t changed since 1985, when the Sears catalogue dominated and Amazon was just a river somewhere south. It’s a boon for Canadian online shoppers and American online retailers. Retailers had lobbied against it—malls and big box centres had been hollowing out fast enough without this further reason for shoppers to stay home and click.

Oil

The deal removes a fee charged on diluent, a product added to bitumen to make it flow through the pipeline. Freeland also highlighted the end of what’s known as the “proportionality clause,” which stipulated that if Canada greatly reduced its fossil fuel or electricity exports to the United States, production for domestic consumption had to drop accordingly—a provision meant to prevent abrupt jolts in a supply U.S. had become reliant upon. Trade skeptics on the left had seen this as a threat to Canadian sovereignty as far back as the 1988 Canada-U.S. trade pact, though the energy sector itself was never fussed by it.

Labour

Another case of “no news is good news” for travelling professionals: Canadian negotiators fended off the Trump administration’s interest in scaling back the number of temporary visa renewals it gave to Canadian engineers, nurses, doctors and other workers—existing NAFTA language was retained. But this also means Canada couldn’t make it easier for citizens in other professions, such as technology fields, to ease cross-border movement.

The Chinese sunset clause

If a USMCA signatory enters free trade negotiations with a “non-market country,” it must notify other USMCA partners in advance, must let those partners review the new deal’s text in advance, and it allows at which point those other countries to may serve six months’ notice that they plan to exit the USMCA. All of this is code for: Canada had better watch itself and its ambitions to secure a trade pact with China, or else Washington will make Ottawa beg for mercy. “It’s hard to read this as anything but a way to further lock Canada and Mexico into the U.S. orbit, restricting their ability to counterbalance against overwhelming American economic influence,” Brock University political scientist Blayne Haggart writes.