Replacing NAFTA
North American Free Trade Agreement or NAFTA was an
agreement signed between North American countries named as Canada, America and
Mexico. It officially came into practice since 1994. On September 30, 2018 it
was announced that NAFTA will be replace with United States – Mexico- Canada
Agreement (USMCA). This was a result of negotiation between NAFTA members.
Importance
Though this trade agreement does not achieve a free trade
zone, but it reduced the significant damage to the International trade system.
What has changed?
USMCA is changed from NAFTA as America wanted certain
provisions to be scrapped. One of the crucial change is that Canada has to remove the production quotas applied
for the protection of its dairy industry, So Canada has to allow American Dairy
products to compete against locals, and this move will benefit Canadian
consumers.
Chapter 19 and Chapter 20 are retained- All countries have agreed to keep the dispute settlement mechanism
as a compromise, this will help Canada and Mexico to deal with protectionist
duties imposed by U.S.
Increase in Labor Wages-The new labor regulations and rules of origins will add to
the cost of production of goods such as cars etc. So basically USMCA mandates a
minimum wage that is above the market wage on labor employed in Mexico.
Impact on investors - Foreign investors will have less protection as now
resolution will not be done through multi-lateral dispute panels for certain
sectors. This means unfriendly local
laws will dominate for certain sectors.
Automobile Manufacturing - According to the new USMCA, the 75% of parts of car have to be made in either of three countries. The intention was to keep production of car under US.
Easy to form Worker's Union- According to USMCA, it will be easier for Mexican workers to from an opinion.
Chapter 11 - Removed- Chapter 11 is removed as it was argued by the critics that big business firm to take advantage of tax payers money.
America’s Attitude
Now America has announced now that resettling of trade ties
with European Union, China, Japan and India
is going to be “All or nothing” approach.
India was called a Tariff King by the United States
President Donald Trump.
Many agreed conditions of this new USMCA do not promote free
trade but a compromise that Canada and Mexico have made to avoid tensions.
