Why in news?
- The U.S., Canada and Mexico arrived at a revised trade agreement, replacing the North American Free Trade Agreement (NAFTA).
- Click here to know more on NAFTA.
What is the new deal?
- The new deal will be known as the United States-Mexico-Canada Agreement, or USMCA.
- The USMCA makes changes to the earlier NAFTA that had some concerns.
- It will thus replace the quarter-century-old North American Free Trade Agreement (NAFTA).
- USMCA does not do anything new to promote the cause of free trade among the North American nations.
- But it achieves the objective of avoiding any significant damage to the international trade system.
What are the key changes?
- Canada - There are changes in production quotas applied to Canada’s dairy industry.
- These quotas were intended to help protect the industry by restricting supply.
- But Canada will now have to allow American dairy producers to compete against locals.
- This move will largely favour the Canadian consumers.
- Cars and Trucks - The goal of the new deal is to have more cars and truck parts made in North America.
- Starting in 2020, to qualify for zero tariffs, a car or truck must have 75% of its components manufactured in Canada, Mexico or the US.
- This is a substantial boost from the current 62.5% requirement.
- Starting in 2020, cars and trucks should have at least 30% of the work on the vehicle done by workers earning $16 an hour.
- This is about three times what the typical Mexican autoworker makes.
- The move addresses the skewed location preferences problem due to the lower wages in Mexico.
- Besides these, Mexican trucks that cross the border into the US must meet higher safety regulations.
- Dispute settlement - The U.S. agreed to retain Chapter 19 and Chapter 20 dispute-settlement mechanisms as a compromise.
- Chapter 19 allows the 3 countries to challenge one another’s anti-dumping and countervailing duties before a panel of representatives from each country.
- This will help Canada and Mexico deal with protectionist duties imposed by the U.S. against their exports.
- Intellectual Property - The new IP chapter contains more-stringent protections for patents and trademarks.
- These include that for biotech, financial services and even domain names.
- These updates were necessary given that the original agreement was negotiated 25 years ago.
- Drugs - U.S. drug companies can now sell pharmaceuticals in Canada for 10 years before facing generic competition.
- That’s up from 8 years of so-called “market protection” now.
- Review - The USMCA stipulates that the three nations will review the agreement after six years.
- If all parties agree it’s still good, then the deal will continue for the full 16 year period.
What are the concerns?
- Not all the amendments are very favourable to the prospects of free trade.
- Many are simply hard compromises that Canada and Mexico may have made just to defuse trade tensions with the U.S.
- E.g. Canada giving greater market share to U.S. dairy farmers
- Much like other free trade deals, the USMCA also attempts to micromanage trade.
- It seems to be benefitting only specific interest groups at the cost of the overall economy.
- E.g. the new labour regulations and rules of origin will add to the cost of production of goods such as cars
- This could make them uncompetitive in the global market.
- Also, the minimum wage specification will make North America a tough place to do business.
- The agreement does away with resolutions through multilateral dispute panels for certain sectors.
- So foreign investors may now have fewer protections from unfriendly local laws.
What does it mean for India?
- The agreement is potential to end up as a double-edged sword for the U.S.’s major trading partners including India.
- Mr. Trump signalled of resetting trade ties with the European Union, China, Japan and India.
- Terming India “the tariff king”, he said it had sought to start negotiations immediately.
- India’s trade negotiators now have the task of ensuring India's exporters the access to a largest market for its services and merchandise.
Source: The Hindu, The Washington Post
