In the eleventh hour, the US and Canada reached an agreement to save NAFTA. Or rather, its new incarnation, the United States-Mexico-Canada Agreement (USMCA).
They cut it really close. Maybe a little too close.
After over a year of hard negotiations, with the potential death of the agreement and its implications looming over all three countries like storm clouds, just a few hours before the deadline, the deal was reached.
Details of USMCA
“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. 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.”
While the US reached an agreement with Mexico in August, issues with Canada still remained unresolved. The main pain points were access to the Canadian dairy market for US farmers, and the dispute resolving mechanism Canada insisted on keeping.
What It Means for Your Small Business
In general, small businesses on all sides of the borders can breathe a sigh of relief: business as usual will continue. No dropped business contacts, no payments delayed.
Even if the industry you’re active in wasn’t particularly affected by the trade negotiations, cooling relations with the US’s main trade partners would’ve certainly taken their toll on your business.
Global trade may be the best way forward for US small businesses. The new agreement will help pave the way for finding international business partners, exporting your products to Mexico and Canada, as well as importing supplies from these countries.
The new USMCA deal ensures that US farmers have greater access to Canadian dairy, egg, and poultry markets. This will help reduce the pain from chronic overproduction in the US dairy market.
Another victory for US negotiators is the elimination of the Canadian Class Seven pricing strategy that favored Canadian milk producers and effectively prevented US (and any other imported) diafiltered milk from entering the Canadian market.
Granted, small dairy producers on the Canadian side will surely feel the effects of this change. Currently, we aren’t aware of the pricing possibilities. But, depending on what US producers are charging, Canadian dairy farmers may see a dip in sales and production as a result of the deal.
Canada will be allowed to continue exporting vehicles and auto-parts to the US, which amount to around $71 billion annually.
Should the US decide to go forward with Section 232 national security tariffs, in theory, those would apply to Canada and Mexico as well. However, both countries can have the 20–25% tariffs suspended as long as they don’t reach a certain level of export (around 40% above their current levels).
Dispute Resolving Mechanism
Chapter 19 of the NAFTA agreement dealt with dispute resolutions. Although the US wasn’t particularly fond of the mechanism, Canada insisted on keeping it without significant change.
The section outlines the ways companies can seek arbitration if they feel that the other parties don’t follow the rules set by the USMCA agreement.
USMCA can be enforced once legislative bodies in all three countries have given their assent. In the US, Congress has sixty days to review the text before President Trump can sign it.
The plan is to sign the deal before December 1, when Mexican President Enrique Peña Nieto leaves office.