The Canada-U.S.-Mexico trade agreement (CUSMA) signed by U.S. President Donald Trump on Wednesday modernizes the 26-year-old North American Free Trade Agreement, which has been blamed for hollowing out the U.S. manufacturing sector.
Passed by the U.S. Senate on Jan. 16, the trade deal still needs to be approved by Canada‘s Parliament before it takes effect. Mexico has already ratified the pact.
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The new agreement makes mostly modest changes and will leave more than $1.2 trillion in North American trade flows largely unchanged. While the deal has been forecast to create 176,000 U.S. jobs over 15 years, it is not expected to bring factory jobs lost to Mexico back to the United States in the coming years.
Here are some of the key changes to the pact:
One of the biggest changes requires increased North American content in cars and trucks built in the region, to 75% from 62.5% under NAFTA, with new mandates to use North American steel and aluminum.
In addition, 40%-45% of a vehicle’s value must come from “high wage” areas paying workers at least $16 an hour, namely the United States and Canada, a provision aimed at slowing the industry’s migration to low-wage Mexico. Vehicles that fail to meet the standard will be subject to U.S. tariffs.
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The rules put some foreign-brand automakers in the United States at a disadvantage by forcing them to invest in new U.S. or Canadian plants for high-value components such as engines and transmissions.
Canada will provide U.S. dairy farmers access to about 3.5 percent of its $16 billion annual domestic dairy market. In exchange, the United States backed off efforts to force Canada to scrap its longstanding “supply management” system, which maintains high dairy tariffs.
The United States will be able to increase exports of some milk products like skim milk and milk proteins to Canada.
The United States also gets tariff-free access to Canada for 57,000 tonnes of chicken by the sixth year of the deal, and access for 10 million dozen U.S. eggs and egg equivalents.