On 1st July 2020, the enforcement of the new trade agreement USMCA began. The 25-year-old North American Free Trade Agreement was replaced by USMCA.
Both the trade agreements, NAFTA and USMCA, appear similar on the surface. However, on scrutiny, the differences between them become visible. Most people are either confused or unaware of these differences.
So, here is a simplified guide highlighting how the new USMCA differs from NAFTA.
Comparison Between NAFTA And USMCA
|Origin Rules||Under NAFTA, automobiles with 62.5% of components made in any one of the three countries could be sold with zero tariffs.||Under USMCA, automobiles with 75% of components made in any one of the three countries can be sold tariff-free.|
|Copyright Period||The copyright period was 50 years after the passing away of the creator.||The copyright period has been prolonged to 70 years.|
|Digital Economy||It did not consider digital products.||Under USMCA, duties on digital products like music and e-books have been forbidden.|
|Sunset Clause||The automatic sunset clause was absent in NAFTA.||USMCA will automatically cease to exist unless extended by all three parties.|
Understanding NAFTA And USMCA
What Is NAFTA?
NAFTA, or the North American Free Trade Agreement, was a landmark trade pact between three nations; the US, Canada, and Mexico. It was developed during the presidency of George Bush and implemented on 1st January 1994.
By ending tariffs between these three countries, NAFTA aimed to spur trade between them.
What Is USMCA?
It was under Donald Trump’s administration that negotiations took place, and USMCA substituted NAFTA. It was signed in 2018 and came into effect in July 2020.
Called a “mutually beneficial win for North American workers, farmers, ranchers, and businesses,” USMCA is a revised version of NAFTA. On reviewing, certain significant changes can be observed in its provisions.
Key Differences Between NAFTA And USMCA
Rules For Automobiles
- NAFTA- According to NAFTA, automobiles that have at least 62.5% of their parts and components made in any of the three countries, the US, Canada, or Mexico, could be sold with no tariffs.
- USMCA- The change in the provision of automobiles is considered one of the most striking changes in USMCA. According to USMCA, only automobiles that have at least 75% of their components made in any of the three participating countries can be sold with zero tariffs.
- NAFTA- There was a side agreement that contained labor provisions. Known as the North American Agreement on Labor Cooperation (NAALC), the side agreement had eleven guiding principles.
- USMCA- In USMCA, the labor provisions are present in the core part of the agreement. It has a major provision regarding the laborers of the automobile industry. It says that only the laborers who earn $16 per hour must make 40-45% of the automobile parts.
- NAFTA- NAFTA removed tariffs on most agricultural goods.
- USMCA-Under USMCA also, the tariffs on agricultural goods between the three participating countries remained zero. This new agreement opened up the Canadian dairy market for US farmers. Now up to 3.6% of the Canadian dairy market has become accessible to US farmers.
- NAFTA- Under NAFTA, the copyright period was fifty years after the demise of the creator. Many products were not addressed in NAFTA because they were not present at that time.
- USMCA- Another key change that has been made is the increase in the copyright period. Under USMCA, the copyright period has been updated from 50 to 70 years.
This revamped trade agreement has also taken into consideration some of the newly emerged goods. For instance, under USMCA, duties on digital products like digital music and e-books have been forbidden.
- NAFTA- It did not have any sunset provision.
- USMCA- The sunset clause in USMCA has emerged as a ground of debate among experts. According to the sunset clause, the agreement will terminate after 16 years unless each participating country agrees to its extension. All three countries should meet after every six years to decide on this matter.
FAQs (Frequently Asked Questions)
1. What is one criticism of NAFTA?
The critics of NAFTA have blamed the agreement for the job losses in the manufacturing sector of the United States.
2. Is NAFTA still in effect in 2022?
NAFTA was in effect until the implementation of the USMCA. When USMCA came into force in July 2020, NAFTA ceased to operate and was substituted by USMCA.
3. What is one concern with USMCA?
Experts are concerned that USMCA might lead to a decrease in the competitiveness of the United States’ auto industry.
4. Does USMCA help the environment?
USMCA contains a chapter on Environment with provisions to address many environmental concerns.
These environmental provisions are enforceable. However, there is no provision to address the pressing issue of climate change directly.
5. Why did the US join NAFTA?
The reason why the US joined NAFTA is that by warding off the tariffs, it encouraged trade with United States’ neighbors and significant economic partners, Canada and Mexico.
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