On October 1, 2018, the United States–Mexico–Canada Agreement (USMCA) was formally announced as the successor to NAFTA. It was signed in a ceremony on November 30 by US President Donald Trump, Canadian Prime Minister Justin Trudeau, and outgoing Mexican President Enrique Peña Nieto.
The USMCA left the vast majority of the original NAFTA infrastructure in place while making some key concessions for all sides on things like agriculture, labor, and country of origin rules. The onerous rules on duty drawback, to the disapproval of the trade community, were largely left in place by USMCA. However, this agreement will not replace NAFTA as the law of the land until ratified by the congress of all three nations.
Since the announcement in October, there have been some political changes within the three nations. President Trump’s party lost control of the House of Representatives, and the new Democratic house is putting some resistance to the agreement. Speaker Nancy Pelosi has demanded changes to the enforcement mechanisms especially, asking for negotiations between the nations to be reopened to implement more protections for workers.
Passage through the Republican-controlled Senate isn’t guaranteed. Several high-ranking officials, notably Chuck Grassley of Utah, have indicated they may stand opposed to its passage in some cases. Primarily they are taking issue with other tariffs that have been imposed: the “section 232” steel and aluminum tariffs still include imports from Canada and Mexico, possibly complicating matters.
In Canada, the feeling on tariffs is much the same. While there remains broad support within the Trudeau government for the USMCA, the steel and aluminum tariffs still rankle many. Canada is by far the largest supplier of steel and aluminum to the USA, accounting for 20% of steel and 34% of aluminum imports per the USTR. This represents a huge dollar amount, and so reducing trade barriers on these products is a major priority for Canada.
In Mexico, President Andres Manuel Lopez Obrador took over shortly after Peña Nieto’s signing of the agreement. While his administration has indicated they are largely happy with the agreement and intends, its ratification is not yet guaranteed.
While all sides appear to be driven to ratify and finalize the agreement, it still seems that a long road is ahead. If you’d like to discuss how your company would be affected by current or potential trade agreements, please contact our VP of Sales Andrew Galloway at agalloway@jmrodgers.com or 973-726-5340.
