On September 30th, just hours before an artificial deadline set by the Trump Administration, Canada reached a deal with the U.S. that will replace NAFTA. The US, Canada and Mexico agreed to update this treaty, rebranding the deal as the US-Mexico-Canada Agreement, or USMCA.
Most business and lobbying groups cautioned that full support would only come after they digested the deal’s technical details.
“USMCA will give our workers, farmers, ranchers and businesses a high-standard trade agreement that will result in freer markets, increased standards for duty-free auto shipments, fairer trade and robust economic growth in our region. It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home.” Also it will increase access to Canada dairy market for US farmers, and a slight tweak to the deal’s dispute resolution system.
The new deal preserves a regional economic unit that enables North American manufacturers, particularly in the auto industry, to compete against global rivals. Canada and Mexico rank first and second among export markets for U.S. companies. Total U.S. trade with the two countries last year topped $1.1 trillion.
Here’s a rundown of where the two sides came out on a few of the major issues:
The plan will not cap imports of light vehicles from Mexico, but keeps the steel and aluminum tariffs that are already in place. Duty-free access for agricultural products and steel and aluminium tariffs will remain in place.
- Canada’s dairy protections
A particular sore spot for Trump, the US is demanding that Canada give American dairy farmers more access to its market. Canada wants to keep the protections in part due to the political influence of its country’s farmers. The new deal would give American farmers greater access to Canada’s dairy industry, worth about 3.6 per cent of Canada’s current dairy market, according to the Dairy Farmers of Canada.
But more significant to the industry’s long-term viability is the dismantling of Canada’s “Class 7” dairy ingredient pricing strategy: a solution to Canada’s skim milk surplus that was negotiated between Canadian farmers and processors. (The more consumers increase their consumption of butter, as they have in recent years, the more skim milk is generated.)
While market access concessions permanently guarantee increasing amounts of foreign dairy products, the Canadian dairy industry has suggested losing Class 7 may be a more costly and serious threat to its long-term sustainability.
While much attention has been heaped on Canada’s dairy concessions, in fact, all five supply-managed agriculture sectors take a hit in the new USMCA.
The U.S. has additional access to Canada’s turkey and broiler hatching eggs and chicks as well.
- Trade Protection
Another major point is Canada’s desire to keep Chapter 19 of the NAFTA deal, which created an extrajudicial dispute resolution process that allows member countries to contest particular trade policies of other members. In fact, Trudeau suggested that Canada needs Chapter 19 to protect itself against Trump’s volatile behavior.
- Auto tariffs
According to reports, Canada is also seeking assurances that Trump will not impose tariffs on imports of cars and auto parts from the country as the president has threatened. Trump has agreed that no hard limit will be placed on Canadian auto exports to the U.S., though if the U.S. moves forward with the imposition of worldwide 232 tariffs on autos, those would also apply to Canada.
Mexico secured an agreement to have 232 tariffs suspended, so long as their auto exports don’t grow by more than 40 per cent — growth that would exceed U.S. production.
“Manufacturers are extremely encouraged that our call for a trilateral agreement between the U.S., Canada and Mexico has been answered,” Said Jay Timmons, president and CEO of the National Association of Manufacturers. “Today, there’s a massive amount of goods flowing across North America, meaning our countries’ economies are inextricably linked. Whats more, as the U.S. works to put an end to China’s cheating and unfair trade practices, we are better of united with our North American allies.”
- National Security tariffs
Canada was scrambling to secure an exemption from steel and aluminum tariffs, but it became clear the Trump administration wasn’t budging easily.
“There isn’t any agreement on that at this point. There’s been talk about potential discussions there but that’s on a completely separate track,” a senior U.S. official told reporters Sunday night.
In addition, the agreement includes a six-year review period for NAFTA and updates on intellectual property treatment.
Deadline day — and where we go from here
The deal must clear a series of procedural hurdles to get to Congress for a vote, which is unlikely to come before 2019.
A central objective for the new agreement is restoring “North America as a manufacturing powerhouse” by encouraging U.S. companies to use domestic suppliers rather than companies based elsewhere
Also, it preserves a regional economic unit that enables North American manufacturers, particularly in the auto industry, to compete against global rivals. Canada and Mexico rank first and second among export markets for U.S. companies. Total U.S. trade with the two countries last year topped $1.1 trillion.
The new treaty is expected to be signed by President Trump and his Canadian and Mexican counterparts in 60 days, with Congress likely to act on it next year.
What would this impact your business so far?
These negotiations may reshape the supply chains for retailers, manufacturers, and agriculture producers. Since its inception more than 20 years ago, U.S. trade with Canada and Mexico has grown faster than with any other trading partner nation.
We all know that, when the economy is doing well, 3PLs tend to do well. It is thus important for the 3PL industry that any changes to NAFTA not slow the flow of goods, or increase the costs of goods to the end consumer.
From now on, The ILS Company is your Cornerstone
Partner with The ILS Company for your Cross-Border Logistics Solutions and find out why your Logistics is now more important than ever.
The ILS Company is an Offshore Group Company dedicated to provide integrated logistic services to manage your supply chain. We effectively plan, implement and control your supply chain, including transportation, import/export, distribution and warehousing in the U.S. and Mexico.
ILS has operations both sides of the NAFTA Countries maintaining close partnerships with Mexican carriers and/or transportation companies. Evaluating each carrier prior to entering a business relationship seems like common sense, yet the extent and depth of the evaluation required is usually undermined in exchange for a quick response or a cheap rate. While cost will always play a part, you should rate your partners for their in-route tracking ability, communications technologies, theft prevention and emergency response preparedness and security solutions that rely on IT applications rather than manual labor.
ILS is on your side
The ILS Company has been shipping internationally for 17 years. The ILS Company’s mission is to contribute to the competitive advantage of our Customers by providing reliable, timely and integrated logistics services, information, and customized solutions in transportation, distribution, storage, and customs; always maintaining the integrity of goods and consistently delivering excellent Customer service.
ILS provides transportation services globally while specializing in cross-border shipping between Mexico and the United States.
A key aspect that is often overlooked is the physical inspection of the facilities where the shipments will stay overnight or will await Customs clearance. Many carriers will hold meetings at their headquarters, impressing partners with the infrastructure in place, while the reality is that the freight will never touch those facilities. While visiting the carrier’s yard at the border you want to confirm they have processes in place for seal verifications; security guards in place to make sure containers are not removed or altered by external parties; and area lighting is adequate to ensure the effectiveness of CCTV recordings at night and to deter criminal behavior.
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