U.S. Agreements with Mexico, Canada Replace NAFTA, Create USMCA

After a year of uncertainty, two agreements between the U.S. and its neighbors to the north and south reached within a month of each other, have replaced the long-standing North American Free Trade Agreement (NAFTA).

Following 24 years operating under an established trade agreement that many saw as stale, and weathering the fallout amid an intensifying trade dispute between the U.S. and China, these new and updated trade agreements across North America (which will be now known as the United States-Mexico-Canada Agreement - USMCA) are a welcome development for U.S. farmers and ranchers.

At the end of August, the U.S. and Mexico successfully forged a new trade agreement that included the continuation of zero tariffs on farm goods being traded between the two countries - effectively locking in the Mexican market - the largest buyer of U.S. corn - for U.S. producers.

The agreement is also beneficial to the U.S. dairy industry, after the EU had been working to convince Mexico to delineate and control the names of cheeses and other products via the use of geographical indicators. Through this agreement, for the first time, the U.S. and Mexico have agreed to standards for geographical indication, and to not restrict access to the Mexican market for certain U.S. cheeses that carry specific labeled names.

The two countries also addressed agricultural biotechnological development such as gene editing, agreeing to an increased exchange and sharing of information on intellectual property and trade-related issues.

Barriers that could have a negative impact on the trade of wine and distilled spirits between the two countries have also been lowered, with Mexico agreeing to recognize Bourbon Whiskey and Tennessee Whiskey as distinctly U.S.-made products, and the U.S. recognizing that Tequila and Mezcal are distinctly Mexican products.

"This is the kind of trade news we have been waiting for. In a time when the U.S. economy is booming our farmers have been left behind,” said Zippy Duvall, president, American Farm Bureau Federation. “Open markets and good trade agreements will give American agriculture the opportunity to be a part of this booming economy.”

Further relief was felt by the U.S. agricultural sector when on September 30, the U.S. and Canada announced that both countries had reached their own accord, allowing for the continuation of a revised North American trade agreement.

The agreement was reached only hours before a final deadline, after an extended period of tension and uncertainty between the two major trade partners.

The New York Times reports that in a joint statement, Robert E. Lighthizer, a top U.S. trade negotiator, and Chrystia Freeland, foreign affairs minister for Canada, stated that the newly agreed-upon deal “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.”

A key provision under the new agreement will give U.S. farmers access to 3.5 percent of Canada’s closed $16 billion dairy market - a greater percentage than would have been secured under the Trans Pacific Partnership. This represents a significant win for U.S. dairy farmers, who had previously been unable to export milk protein to Canada due to Canada’s Class 7 pricing scheme - a new milk class created last year to price dairy items including protein concentrates, and both skim and whole milk powder.

Remaining unchanged is the Chapter 19 dispute settlement clause, which has been in place for the negotiating of anti-dumping and countervailing claims between Canada, Mexico, and the U.S. by a panel of representatives from each market.

However, another dispute settlement channel called Chapter 11 - one in place for investor-state disputes, will be phased out over a period of time. Chapter 11 was a channel specifically in place to provide a process by which investors could address disputes with any of the three government members under NAFTA outside of a court setting. With the exception of select key industries such as oil, energy, and telecommunications, Chapter 11 will no longer be an option.

Other highlights include expanded access to the Canadian market for U.S. eggs and poultry producers, as well as greater access to the Canadian market for U.S. wheat.

Not addressed in the negotiations was the reinstatement of any Country of Origin Labeling - an omission that angered U.S. cattle producers and their representative bodies.

“A glaring omission from the deal is a reinstatement of Country of Origin Labeling, a crucial component of a fair market,” said the Organization for Competitive Markets in a media statement reports American Agriculturalist. “The provisions of the USMCA allow South American cattle and beef to be brought into Mexico and shipped into the U.S. beef market without any limitations and labeled a “Product of U.S.A.” This trade deal harms U.S. cattle producers’ prices and denies U.S. consumers the U.S. products they are demanding.”

However, most U.S. farm groups are supportive of the USMCA as they appreciate the greater market stability that the agreement provides.

“After more than a year of escalating trade tensions, the prospects of progress on trade with our two closest trading partners is encouraging,” said Roger Johnson, president of the National Farmers Union. “Farmers have seen their income plummet over the past five years, only to have farm prices further depressed by trade disruptions. While this agreement is certainly no cure-all, it is hopefully a start to repairing our trade relationships around the world, to restoring our reputation as a reliable trading partner, and to resolving long-standing issues with discrimination against U.S. wheat.”