Commentary: How NAFTA 2.0 will shake up business as usual


By PAUL WISEMAN - AP Economics Writer



Canadian Prime Minister Justin Trudeau arrives on Parliament Hill in Ottawa, Ontario on Monday, Oct. 1, 2018. The U.S. and Canada reached the basis of a free trade deal Sunday night, a senior Canadian government official said. (Justin Tang/The Canadian Press via AP)

Canadian Prime Minister Justin Trudeau arrives on Parliament Hill in Ottawa, Ontario on Monday, Oct. 1, 2018. The U.S. and Canada reached the basis of a free trade deal Sunday night, a senior Canadian government official said. (Justin Tang/The Canadian Press via AP)


President Donald Trump speaks as he announces a revamped North American free trade deal, in the Rose Garden of the White House in Washington, Monday, Oct. 1, 2018. The new deal, reached just before a midnight deadline imposed by the U.S., will be called the United States-Mexico-Canada Agreement, or USMCA. It replaces the 24-year-old North American Free Trade Agreement, which President Donald Trump had called a job-killing disaster. (AP Photo/Pablo Martinez Monsivais)

President Donald Trump speaks as he announces a revamped North American free trade deal, in the Rose Garden of the White House in Washington, Monday, Oct. 1, 2018. The new deal, reached just before a midnight deadline imposed by the U.S., will be called the United States-Mexico-Canada Agreement, or USMCA. It replaces the 24-year-old North American Free Trade Agreement, which President Donald Trump had called a job-killing disaster. (AP Photo/Pablo Martinez Monsivais)


FILE- In this Jan. 29, 2018, file photo foreign Canadian Affairs Minister Chrystia Freeland, center, talks with United States Trade Representative Robert Lighthizer, right, and Mexico's Secretary of Economy Ildefonso Guajardo Villarreal after delivering statements to the media during the sixth round of negotiations for a new North American Free Trade Agreement in Montreal. The new United States-Mexico-Canada Agreement replaces the 24-year-old North American Free Trade Agreement, which tore down trade barriers between the three countries. But NAFTA encouraged factories to move to Mexico to take advantage of low-wage labor in what President Donald Trump called a job-killing “disaster’’ for the United States. (Graham Hughes/The Canadian Press via AP, File)


American dairy farmers get more access to the Canadian market. U.S. drug companies can fend off generic competition for a few more years. Automakers are under pressure to build more cars where workers earn decent wages.

The North American trade agreement hammered out late Sunday between the United States and Canada, following an earlier U.S.-Mexico deal, shakes up the way businesses operate within the three-country trade bloc.

The new United States-Mexico-Canada Agreement replaces the 24-year-old North American Free Trade Agreement, which tore down trade barriers between the three countries. But NAFTA encouraged factories to move to Mexico to take advantage of low-wage labor in what President Donald Trump called a job-killing “disaster” for the United States.

Sunday’s agreement is meant to bring manufacturing back to the United States. The president, never known for understatement, said the new deal would “transform North America back into a manufacturing powerhouse.”

But America had to make some concessions, too. For example, it agreed to retain a NAFTA dispute-resolution process that it wanted to jettison but Canada insisted on keeping.

Here’s an early look at what it means for different players:

How dairy farmers are affected

Trump has raged about Canada’s tariffs on dairy imports, which can approach 300 percent. American dairy farmers have also complained about Canadian policies that priced the U.S. out of the market for some dairy powders and allowed Canada to flood world markets with its own versions.

The new agreement ends the discriminatory pricing and restricts Canadian exports of dairy powders.

It also expands U.S. access to up to 3.75 percent of the Canadian dairy market. Above that level, U.S. dairy farmers will still face Canada’s punishing tariffs. And the “supply management” system Canada uses to protect its farmers is still largely in place.

Still, trade attorney Daniel Ujczo of the Dickinson Wright law firm said that “the U.S. dairy industry seems happy … for now.”

Shaking up automakers

NAFTA remade the North American auto market. Automakers built complicated supply chains that straddled NAFTA borders. In doing so, they took advantage of each country’s strengths — cheap labor in Mexico, and skilled workers and proximity to customers in the United States and Canada.

The new agreement changes things. For one thing, the percentage of a car’s content that must be built within the trade bloc to qualify for duty-free status rises to 75 percent from 62.5 percent. A bolder provision requires that 40 percent to 45 percent of a car’s content be built where workers earn $16 an hour. That is meant to bring production back to the United States or Canada and away from Mexico.

The provisions could drive up car prices for consumers.

The new deal also provides some protection to Canada and Mexico if Trump goes ahead with his threat to slap 20 percent to 25 percent taxes on imported cars, trucks and auto parts. It would exclude from the proposed tariffs 2.6 million passenger vehicles from both Canada and Mexico.

Impact on multinational companies

Like other U.S. trade agreements, NAFTA allowed multinational companies to go to private tribunals to challenge national laws they said discriminated against them and violated the terms of the trade agreement. Critics charged the process gave companies a way to get around environmental and labor laws and regulations they didn’t like, overruling democratically elected governments in the process.

Windfall for drug companies

The new trade pact delivers a windfall to pharmaceutical companies that make biologics —ultra-expensive drugs produced in living cells. It gives them 10 years of protection from generic competition, up from eight the Obama administration had negotiated in the TPP.

But good news for the pharmaceutical industry could be bad news for users of the drugs and for government policymakers trying to hold down health-care costs.

“New monopoly privileges for pharmaceutical firms … could undermine reforms needed to make medicine more affordable here and increase prices in Mexico and Canada, limiting access to lifesaving medicines,” Wallach said.

Mixed bag for retailers

The United States pressured Canada and Mexico to raise the dollar amount that shipments must reach before they become subject to import duties. Canada, for instance, will allow tax- and duty-free shipments worth up to 40 Canadian dollars (about $31), up from 20 Canadian dollars ($16) under NAFTA.

The change makes U.S. products more competitive in Canada because they will be subject to less tax at the border — and delivers savings to Canadians who shop online.

Canadian Prime Minister Justin Trudeau arrives on Parliament Hill in Ottawa, Ontario on Monday, Oct. 1, 2018. The U.S. and Canada reached the basis of a free trade deal Sunday night, a senior Canadian government official said. (Justin Tang/The Canadian Press via AP)
https://www.limaohio.com/wp-content/uploads/sites/54/2018/10/web1_121475393-5b40267d7a3a4a8c9b8eabe75f1d31f4.jpgCanadian Prime Minister Justin Trudeau arrives on Parliament Hill in Ottawa, Ontario on Monday, Oct. 1, 2018. The U.S. and Canada reached the basis of a free trade deal Sunday night, a senior Canadian government official said. (Justin Tang/The Canadian Press via AP)
President Donald Trump speaks as he announces a revamped North American free trade deal, in the Rose Garden of the White House in Washington, Monday, Oct. 1, 2018. The new deal, reached just before a midnight deadline imposed by the U.S., will be called the United States-Mexico-Canada Agreement, or USMCA. It replaces the 24-year-old North American Free Trade Agreement, which President Donald Trump had called a job-killing disaster. (AP Photo/Pablo Martinez Monsivais)
https://www.limaohio.com/wp-content/uploads/sites/54/2018/10/web1_121475393-ca90312e97cc469f907f3fea735135b4.jpgPresident Donald Trump speaks as he announces a revamped North American free trade deal, in the Rose Garden of the White House in Washington, Monday, Oct. 1, 2018. The new deal, reached just before a midnight deadline imposed by the U.S., will be called the United States-Mexico-Canada Agreement, or USMCA. It replaces the 24-year-old North American Free Trade Agreement, which President Donald Trump had called a job-killing disaster. (AP Photo/Pablo Martinez Monsivais)
FILE- In this Jan. 29, 2018, file photo foreign Canadian Affairs Minister Chrystia Freeland, center, talks with United States Trade Representative Robert Lighthizer, right, and Mexico's Secretary of Economy Ildefonso Guajardo Villarreal after delivering statements to the media during the sixth round of negotiations for a new North American Free Trade Agreement in Montreal. The new United States-Mexico-Canada Agreement replaces the 24-year-old North American Free Trade Agreement, which tore down trade barriers between the three countries. But NAFTA encouraged factories to move to Mexico to take advantage of low-wage labor in what President Donald Trump called a job-killing “disaster’’ for the United States. (Graham Hughes/The Canadian Press via AP, File)
https://www.limaohio.com/wp-content/uploads/sites/54/2018/10/web1_121475393-5a96ffeedebd4b26b475a15e8073a683.jpgFILE- In this Jan. 29, 2018, file photo foreign Canadian Affairs Minister Chrystia Freeland, center, talks with United States Trade Representative Robert Lighthizer, right, and Mexico's Secretary of Economy Ildefonso Guajardo Villarreal after delivering statements to the media during the sixth round of negotiations for a new North American Free Trade Agreement in Montreal. The new United States-Mexico-Canada Agreement replaces the 24-year-old North American Free Trade Agreement, which tore down trade barriers between the three countries. But NAFTA encouraged factories to move to Mexico to take advantage of low-wage labor in what President Donald Trump called a job-killing “disaster’’ for the United States. (Graham Hughes/The Canadian Press via AP, File)

By PAUL WISEMAN

AP Economics Writer

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