The United States-Canada-Mexico Agreement (USMCA) officially came into effect on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). The USMCA is very similar to NAFTA and is mainly a modernization of the previously existing agreement. Nevertheless, there are important differences that are relevant to a variety of industries. These include changes to automobile manufacturing requirements, more stringent intellectual property rules and increased domestic access to the Canadian dairy market.
Getting revved up
One major change in the USMCA is greater incentives for automobile production to be located in the United States, which is expected to benefit the Car & Automobile Manufacturing industry. The USCMA requires that 75.0% of automobile parts be manufactured within North America and are to be sold duty-free, an increase from 62.5% outlined in NAFTA. The USMCA also introduces a requirement that a portion of qualifying vehicles must be produced by employees earning at least $16.00 per hour, providing an advantage to US auto manufacturing companies and employees.
Intellectual property
The USMCA also contains updates to NAFTA’s provisions regarding intellectual property. The USMCA provides a patent term extension for pharmaceuticals if there is an “unreasonable curtailment” of the patent term due to delays in the regulatory or marketing approval process. These charges are expected to benefit companies in the Brand Name Pharmaceutical Manufacturing industry, which typically lobby for more extensive patent protections on pharmaceutical products. It also gives biotechnological companies a 10-year period of exclusivity for agricultural chemicals, which is expected to benefit companies in the Fertilizer Manufacturing and Pesticide Manufacturing industries.
Dairy provisions
Under the USMCA, the United States is given tariff-free access to up to 3.6% of the Canadian dairy market. Historically, Canada has protected its domestic dairy industry through its “Supply Management” agricultural policy framework. While this framework remains in place, Canada ultimately agreed to increase the United States’ access to its dairy market in the USMCA. Canada also agreed to raise the duty-free limit on dairy purchases. These changes are expected to boost demand for products produced by US Dairy Farms, which have long sought increased access to the Canadian market.
Wait and see
Overall, while the USMCA largely represents a continuation of NAFTA, it nevertheless contains some significant changes. These changes include provisions that provide an opportunity to boost a variety of domestic manufacturing industries moving forward. However, the ultimate success of the agreement will likely become clear over the coming years.
