The USMCA Agreement

The USMCA agreement (The US-Mexico-Canada Agreement), which overhauls the Clinton-era North American Free Trade Agreement, is commonly known as the “New NAFTA.” With this, lawmakers intend to do away with United States, Mexico, and Canada import/export barriers.

The proposed legislation makes it less expensive for your business to export and import goods within North America. They also give Canadian companies easier access to investment dollars, technology and talent in both Mexico and the U.S. What does this all mean for your small business? 

The USMCA Agreement & The Small Business

According to the U.S. International Trade Commission, the USMCA agreement will raise real U.S. GDP by $68.2 billion, 0.35% of the total GDP. In terms of employment, it could generate up to 176,000 jobs (0.12% of the overall number). So what does this mean for your small business? 

For starters, small to midsize businesses dominate trade amongst Canada, the United States, and Mexico. This GDP increase and subsequent employing power are mostly impacting small businesses. More importantly, the U.S. International Trade Commission concludes the USMCA will have a positive and overarching impact on the economy. This means no matter what your business, you’re likely to reap benefits from the new legislation. 

The USMCA Compared to NAFTA

The big question is if there are any changes to USMCA compared to its predecessor, NAFTA. A major change is to the country of origin rule. Under NAFTA, 62.5% of automobiles components must be manufactured in one of the three countries to qualify for zero tariffs. Under USMCA, this percentage has been upped to 75% to strengthen the three countries’ manufacturing abilities while increasing the automotive workforce.  

Meanwhile, under NAFTA, domestic quotas always protected the Canadian dairy market. Protecting its farmers from foreign competition, these protection quotas only allowed 1% US exports of the total market. Under the USMCA agreement, the US will be able to export up to 3.6% of Canada’s dairy market. 

Now unless the automotive manufacturing or dairy directly impacts your business, you might decide this has nothing to do with your small business. However, as more people have jobs the more spending power they have for patronizing businesses such as yours. 

Moreover, NAFTA never stipulated an automatic sunset clause agreement (predetermined ending date). And any of the countries can withdraw with only six months’ notice. Under USMCA, however, a tentative predetermined ending is in place 16 years down the road. And after six years, the three countries will negotiate and fix any unforeseen problems.  

Nothing too Seismic

Overall, the shift from NAFTA to USCMA should not impact the three countries too dramatically. On December 10th, representatives finalized the deal in Mexico hours after Democrats in US Congress said they would support the deal after the White House agreed to strengthen the labour and environmental rules.

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