A new North American trade deal is almost a reality.
The U.S. Senate on Jan. 16 passed the United States-Mexico-Canada Agreement by an 89-10 margin, bringing a process of more than two years to replace the North American Free Trade Agreement almost to a close.
The deal, passed in the House on Dec. 19, 2019, now moves to President Donald Trump's desk for signing, which the White House has indicated will come soon. After Trump's signature, it is then up to Canada to ratify the deal for full implementation in North America. Throughout the negotiation process, Ottawa has said it will follow suit once Washington approves the deal.
Canada's House of Commons returns to session Jan. 27 and is widely expected to pass the deal not long after; Mexico has already ratified the deal.
Expanding export markets
Farmers and politicians from both parties have touted the USMCA as preserving and expanding market access for U.S. agriculture in Canada. The deal is intended to boost U.S. exports of agricultural goods like corn, dairy, poultry and eggs to Canada and Mexico, two major markets for farm products.
It also would require that 75% of automobile components be produced in North America — up from the current 62.5% requirement — for cars to qualify for duty-free treatment. However, automakers are projected to pay nearly $3 billion in tariffs over the next 10 years under the USMCA, according to an estimate from the Congressional Budget Office. The Office of the U.S. Trade Representative estimated that it will incentivize a $23 billion increase in annual U.S. auto parts sales. The agency also expects the deal to create between 176,000 and 589,000 U.S. jobs.
The USMCA would replace the 26-year-old NAFTA, an agreement that many politicians, trade groups and companies argued did not account for modern-day e-commerce. Trump has called NAFTA the "worst trade deal ever made."
A broad swath of U.S. industries welcomed the deal. The American Petroleum Institute, which worked with more than 200 companies and other trade groups to support the agreement, welcomed its passage. Mexico is the primary market for U.S. exports of gasoline, fuel oil and total refined products, and Canada is a big market for U.S. exports of crude oil and fuel blending components.
"Congressional approval of USMCA, following completion of the U.S.-China phase one trade deal, represents a significant turning point in American trade policy," API President and CEO Mike Sommers said in a statement. "Free trade plays a critical role in sustaining and growing America's global energy leadership — leadership that has made the nation more secure, kept household energy costs low and advanced environmental progress."
A U.S. textile trade group also hailed the passage of the bill, calling the trade deal a "win" for the industry. "We are pleased the Senate voted swiftly to approve USMCA — a trade deal that we expect to significantly bolster textile exports to the Western Hemisphere, particularly to Mexico," National Council of Textile Organizations President and CEO Kim Glas said.
A protracted fight
It has not been an easy road to get to this near-implementation stage of the process. More than a year of negotiations beginning in August 2017 led to a bilateral agreement between the U.S. and Mexico in August 2018 before Canada came aboard at the 11th hour ahead of a looming deadline the following November.
House Democrats held up passage of the deal until they were satisfied with additions of enforcement, environmental and labor provisions, as well as protection against spikes in pharmaceutical prices, after months of closed-door meetings with U.S. Trade Representative Robert Lighthizer and his team. The three countries reached a revamped agreement amendable to the Democrats in December 2019.
The deal, which had strong support from both parties, passed a number of Senate committees, including the Finance Committee, the Committee on Environment and Public Works and the Budget Committee, over the past two weeks. The Senate's consideration of the trade deal was expedited to come before the start of Trump's impeachment trial, slated to begin Jan. 21.
Senate Minority Leader Chuck Schumer, D-N.Y., voted against the USMCA, saying it did not sufficiently address climate change.
The Senate's passage gives Trump his second major trade victory in two days at the start of an election year. Trump and Chinese Vice Premier Liu He on Jan. 15 signed the "phase one" agreement to pause some elements of the ongoing trade war between the two countries.