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.
