On July 1, 2020, the United States-Mexico-Canada Agreement (“USMCA”) went into effect. The new agreement replaces the North American Free Trade Agreement (“NAFTA”), which had been the primary trade agreement between the United States, Mexico, and Canada since 1994. The USMCA intends to further strengthen existing market access, expand food and agricultural exports, and support America’s food processing and rural jobs. Canada and Mexico are the two largest export markets for the United States. Food and agricultural product exports to Mexico and Canada totaled more than $40 billion in 2019. A major component of USMCA was to strengthen the farm and agriculture economy and secure market access for U.S. farmers, ranchers, and agri-businesses. The increased market access under the USMCA is expected to increase U.S. agricultural exports by over $2 billion.
What is the USMCA?
The USMCA is a new free trade agreement between the United States, Mexico, and Canada. The USMCA is essentially an updated version of NAFTA. NAFTA was a free trade agreement between the United States, Canada, and Mexico that removed most of the barriers to trade between the three countries. This was done through various ways, such as granting most-favored-nation status to all signers. That means that each country must be treated equally regarding the terms of trade between trading partners. NAFTA also essentially eliminated or reduced many tariffs on exports and imports between the three countries. Tariffs are taxes used to make foreign goods more expensive. NAFTA ensured duty-free and reduced duty access for a vast range of commodities, such as agricultural goods, automobiles, and clothing.
The USMCA is a renegotiation of NAFTA, adopting most of the original free trade agreement, deviating in only a few areas. The adoption of the USMCA by all three countries guarantees that markets in Mexico and Canada will remain free from tariffs and other trade barriers for famers in the United States. Under the USMCA, all agricultural products that had the zero-tariff treatment continue to have zero tariffs. NAFTA did not eliminate all tariffs on agricultural trade between the United States and Canada and the USMCA provides new market access opportunities for both countries. There are several new and modified key provisions that are important to those involved in agriculture. These provisions include biotechnology, geographical indications, sanitary and phytosanitary measures, dairy, poultry and eggs, wheat, and labor. The impact of the USMCA on these areas is expanded upon below.
The USMCA represents the first time that agricultural biotechnology has been specifically addressed to better support innovation. The USMCA covers all biotechnologies and includes provisions to increase cooperation and information exchange regarding agricultural biotechnology trade-related matters. Under the USMCA, biotechnology covers crops produced with all biotechnology methods, including recombinant DNA and gene editing. In addition to crops and agricultural products, the USMCA also includes fish and fish products developed using biotechnology. In order to facilitate the cooperation and information exchange, Article 3.16 of the USMCA establishes a Working Group for Cooperation on Agricultural Biotechnology that meets annually to coordinate their efforts.
One of the new opportunities created by the USMCA is that American dairy farmers now have expanded access to Canada’s dairy market. This will be primarily accomplished by Canada agreeing to get rid of its Class 7 milk pricing policy, Class 7 dairy products are primarily comprised of skim milk and skim milk powder. Prior to the USCMCA, Canada’s Class 7 pricing policy artificially lowered dairy prices for Canadian processors and incentivized the use of domestic Canadian dairy products instead of imported. After the Class 7 milk pricing policy was introduced in Canada the U.S. saw a decline in certain milk exports after the implementation in 2017. U.S. exports went from $102 million in 2016 to $49 million in 2017, while Canada saw an increase in exports that more than tripled from $42 million in 2016 to $133 million in 2017. Canada has agreed to set prices for dairy products that fell into the Class 7 pricing policy using a formula that will take into account U.S. pricing of those dairy products. Canada and the United States will have the opportunity to revisit the diary provisions five years after entry into force to determine whether modifications should be made.
Canada and the United States have agreed to further discussions regarding their seed regulatory systems, which regulates seeds that are sold, imported, or exported by Canada and their quality and reliability. Additionally, Canada has agreed that it will ensure that wheat from the United States is graded in the same manner as Canadian wheat. Canada is doing this by allowing grain that was grown in the U.S. to receive an official Canadian grade as long as it is an approved variety. Prior to the USMCA, U.S. wheat that was exported to Canada was labeled as foreign or mixed origin. This labeling meant that the wheat was automatically classified as feed wheat, which decreased the value of the wheat substantially. Under the new agreement, U.S. wheat that has received an official inspection certificate will be labeled as non-foreign wheat.
The USMCA also includes labor provisions that require all the parties to adopt and enforce labor standards. While the USMCA does not specify what standards must be adopted and enforced, all parties must comply with the internationally recognized labor rights as stated in the International Labor Organization Declaration on Rights at Work. These rights include the right to collective bargaining, elimination of all forms of forced labor, abolition of child labor, and acceptable work conditions with respect to minimum wages, hours of work, and occupational safety and health. The labor provision also requires that each party ensures protection for migrant workers under their respective labor laws.
Other Changes Under the USMCA
The USMCA also provides new market access in the U.S. for Canadian dairy products, peanuts, processed peanut products, sugar, and sugar-containing products. This is being done by providing Canadian specific tariff rate quotas (TRQs), which sets the limit for the number of products that can benefit from reduced tariff prices, and by eliminating tariffs on peanuts and certain peanut products. Poultry producers also gained expanded access for chickens, eggs, and turkeys in Canada through the changing of their TRQs. Mexico has also agreed to protect market access for U.S. cheeses that are labeled with certain common names, such as swiss or cheddar. Market access protection for U.S. cheeses was important because Mexico is negotiating and entering into other free trade agreements with countries that are major global dairy exporters.
Additionally, the USMCA is strengthening each country’s sanitary and phytosanitary measures by ensuring that the measures are science-based and developed using transparency and in a non-discriminatory manner. Some of the provisions require increasing transparency on the development and implementation of the measures, improving processes for certification, and conducting system-based audits.
Finally, the USMCA includes a more rigorous process for establishing geographical indications (“GI”s). All parties agreed to provide procedural safeguards when recognizing new GIs. GIs are place names that are used to identify products that come from certain regions or locations. The USMCA provides guidelines for determining when a term is a common name of a protected GI, grounds for opposing GIs, and how to treat GIs that fall under a different third-party agreement.
The primary means of dispute settlement under the USMCA is the state-to-state dispute settlement mechanism found in Chapter 31 of the USMCA. The dispute settlement process is designed to help the parties resolve their issues cooperatively. The process requires that the complaining party send a written request for a consultation to the responding party. The parties must then try to resolve the issue on their own before utilizing the formal option of a panel. If the parties do not resolve their issues after the consultation, a request for the establishment of a panel can be made after a certain amount of time. If the matter involved perishable goods, the request can be made 30 days after delivery of the request for consultation, for all other issues, it is 75 days after delivery. Once a panel is established, the parties select the chair and other panelists. A panel can include up to 30 panelists, with each party allowed to designate up to ten individuals. Each panelist must be an expert, or have experience, in international law and trade, they must not be affiliated with or take instructions from any party, and they must have been selected on the basis of objectivity, reliability, and sound judgment. The panel will then receive written and oral submissions from each party, then an initial report is presented to the parties. After each party has time to comment on the initial report, the panel will then issue their final panel report. This final, non-binding, panel report determines whether a party’s measures or conduct has been inconsistent with the USMCA. If measures are found to be inconsistent with the USMCA, the party has 45 days to correct the issue before the complaining party can start suspending benefits equivalent to that suffered by the complaining party.
The USMCA opens up trade options to farmers and has provided a sense of security within the agriculture trade industry. According to the U.S. Chamber of Commerce, the agreement, which has only been in place for a year, supports more than 10 million jobs and successfully provided equal opportunities for American farmers trading with Canada and Mexico.
To view the USMCA in full, click here.
To view the NAFTA that is no longer in force, click here.
To learn more about the USMCA, click here.
For more National Agricultural Law Center resources on International Agricultural Trade, click here.
For more National Agricultural Law Center resources on Labor, click here.