How NAFTA’s Replacement Trade Deal Will Impact Businesses

Representatives from the United States, Mexico and Canada recently reached an agreement to update the North American Free Trade Agreement (NAFTA). The new trade deal, referred to as the United States-Mexico-Canada Agreement (USMCA), includes a number of changes to support North American businesses, increase labor regulations and overhaul intellectual property (IP) protections.

Although the USMCA has many similarities to NAFTA, some important changes will likely affect businesses:

• North American auto industry—Starting in 2020, vehicles will only avoid tariffs if at least 75 percent of their parts are made in North America (up from the current 62.5 percent requirement). Also, at least 30 percent of the work done during the manufacturing process must be done by employees with hourly wages of $16 or more. Although these changes should help to discourage overseas imports, some believe that they could significantly increase the price of vehicles.
• Better IP protections—The new deal has stricter regulations to protect trademarks, copyrights and other strategic plans. The USMCA also extends copyright protections to 70 years beyond the life of the author.
• Disputes and reviews—One of the USMCA’s provisions allows for a special dispute process that’s handled by a panel of representatives instead of one of the three country’s court systems. An automatic review process will take place six years after the three countries ratify the deal, and it will automatically dissolve after 16 years.

NAFTA will remain in effect until all three countries approve the USMCA, which is likely to occur sometime in early 2019.