Key takeaways from the USMCA deal and an AP fact check

OTTAWA—After more than a year of talks, Canada finalized a revamped free-trade deal with the United States and Mexico. The new deal, dubbed the U.S.-Mexico-Canada Agreement, or USMCA, will replace the North American Free Trade Agreement. Here are some key elements of the new deal:

GETTING MILKED: Trump frequently railed against Canada’s dairy industry throughout the trade talks, calling it unfair to the United States. The new deal grants the U.S. access to 3.6 per cent of the Canadian dairy market, a move roundly criticized by domestic dairy farmers. The access given to the U.S. is slightly more than the 3.25 per cent conceded in the Trans-Pacific Partnership trade deal with Pacific Rim countries. Aside from new quotas on American ice cream, there will also be increases in access for American poultry and eggs, in exchange for greater access south for Canadian peanuts and sugar.

TARIFFS AND TAUNTS: Trump joked that the deal wouldn’t have been made without tariffs, specifically on Canadian-made steel and aluminum, which prompted tit-for-tat retaliatory tariffs from Canada on a number of U.S. goods. And as negotiations dragged on, Trump threatened to slap Canada’s auto industry with significant tariffs—a threat apparently now dodged. The deal says the first 2.6 million Canadian autos exported to the U.S. will be exempted from tariffs, a figure well above the current export rate of 1.8 million. But the steel tariffs remain in place and Trump has given no indication when he might lift them.

ATTENTION SHOPPERS: The trade deal raises the threshold for duty-free purchases online from American retailers. When the deal takes effect, shoppers won’t pay duties until their online purchase is worth more than $150—a significant bump from the current threshold of $20. But there’s more: Language in the agreement no longer requires companies—such as Google or Microsoft, for example—to put a data centre in Canada in order to do business here, meaning Canadians’ information could be housed south of the border and subject to American laws.

INTELLECTUAL PROPERTY: The rules around copyright and intellectual property are set to change. On copyright, the length of time after a creator’s death that they maintain rights will move to 70 years from 50. On pharmaceuticals, new biologics—drugs made from natural sources—will be copyright protected for 10 years, up from the current eight, an extension that analysts believe will benefit U.S. companies over Canadian firms and delay when Canadian patients can access cheaper, generic versions of drugs.

RESOLVING QUARRELS: Two of Ottawa’s key sticking points throughout the talks involved holding on to dispute-resolution tools and decades-old cultural exemptions that leave Canada in control of its own media content, from broadcasting to publishing to music. The USMCA preserves what was known as Chapter 19, which allows independent panels to resolve disputes over tariffs and duties, as well as Chapter 20, the government-to-government dispute-settlement mechanism. Chapter 11, which allows companies to sue governments over perceived mistreatment, has been dumped.

TURNOVER ON DOWNS: The National Football League and Bell Media lost their 2017 legal challenges to sack a CRTC decision that banned the long-time practice of Canadian advertisers inserting their ads into Super Bowl broadcasts over the more popular American ones. They now appear to have a win. The University of Ottawa’s Michael Geist points out on his blog that wording in the new trade deal would see Canada “rescind the CRTC policy with a requirement that all programs be treated equally.” Result? American ads could be punted from Canadian airwaves during the big game. It was one of many cultural issues in the deal, but the language around a decades-old cultural exemption remains in place, leaving Canada in control of its own media content, from broadcasting to publishing to music.

INDIGENOUS RIGHTS: The Liberals pushed inclusion of a new chapter on Indigenous rights in the trade deal. In the end, the chapter turned into provisions sprinkled through the text, including one allowing governments to enact measures needed to meet their legal obligations to Indigenous Peoples. Similarly, a gender chapter didn’t materialize as originally envisioned.

TRADING PLACES: There is also language in the deal that requires any of the three partners to notify the others when they start or finish trade agreement talks with a non-market economy—like China—and gives the other partners a say in the text of that deal. While this language is new, the list of professions that can more easily enter another partner country on a temporary basis hasn’t been updated to include, for instance, many tech jobs.

FACT CHECK

U.S. President Donald Trump, meanwhile, inaccurately described his new trade deal with Canada and Mexico as the biggest ever—it’s not even close—and glossed over some possible consequences of the agreement, such as higher car prices.

Here’s a sampling of his expansive statements on the deal and the complexities behind them:

TRUMP: “The agreement will govern nearly $1.2 trillion in trade, which makes it the biggest trade deal in the United States’ history.”

THE FACTS: That’s wrong, simply by virtue of the number of trade partners involved.

The proposed new agreement, replacing the North American Free Trade agreement, covers the same three countries. The Trans-Pacific Partnership, negotiated by the Obama administration, included the three NAFTA partners—United States, Canada and Mexico—plus Japan and eight other Pacific Rim countries. Trump withdrew the United States from the pact on his third day in office.

Even the Pacific deal pales in comparison with one that did go into effect with the U.S. on board—the Uruguay Round. Concluded in 1994, the round of negotiations created the World Trade Organization and was signed by 123 countries. The Federal Reserve Bank of Boston found the following year that the WTO’s initial membership accounted for more than 90 per cent of global economic output.

TRUMP: “This deal will also impose new standards requiring at least 75 per cent of every automobile to be made in North America in order to qualify for the privilege of free access to our markets.”

THE FACTS: That’s true. But as with any such requirement, it could make autos more expensive by discouraging the use of cheaper components from overseas. The same could be true of another provision, requiring at least 40 per cent of a car’s content to be built where workers earn $16 an hour. The new United States-Mexico-Canada Agreement indeed contains greater worker protections, a tradeoff that could mean higher costs.

The pact, if approved by Congress, will raise the percentage of a car’s content that must be built within the trade bloc to 75 per cent from 62.5 per cent if it is to qualify for duty-free status.

Similarly, the deal would give pharmaceutical companies that make biologics—ultra-expensive drugs produced in living cells—10 years of protection from generic competition, two more years than the Obama administration had negotiated under the Pacific deal. That also comes with the possible tradeoff of higher costs for users of the drugs.

TRUMP, on overcoming the major hitch with Canada: “Dairy was a deal-breaker. And now for our farmers it’s, as you know, substantially opened up much more. And I know they can’t open it completely. They have farmers also. You know, they can’t be overrun. And I fully—and I tell them that. I say, ‘Look, I understand you have limits.’ But they could do much better.”

THE FACTS: That’s a fair reading of one of the agreement’s most significant changes—though dairy only accounts for about 0.1 per cent of U.S.-Canada trade. Canada’s tariffs on dairy imports can approach 300 per cent. U.S. 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 would end the discriminatory pricing and restrict Canadian exports of dairy powders. Still, it’s in some respects an incremental advance from the Pacific deal that Trump walked away from. It would expand U.S. access to up to 3.75 per cent of the Canadian dairy market, versus 3.25 per cent in the Trans-Pacific Partnership. Above that level, U.S. dairy farmers will still face Canada’s punishing tariffs.

TRUMP: “As one primary aspect, it will transform North America back into a manufacturing powerhouse.”

THE FACTS: North America already is a manufacturing powerhouse. The United States ranks No. 2 in the world behind China in manufacturing output. Mexico ranks 11th and Canada 13th, according to United Nations numbers pulled together by the Brookings Institution.

TRUMP: “I think my biggest concession was making the deal, because we could have done it a different way. But it would have been nasty, and it wouldn’t have been nice, and I don’t want to have that.”

THE FACTS: Other concessions were made, as is typically the case in trade agreements.

For one, the “supply management” system Canada uses to protect its farmers would remain largely intact. For another, 2.6 million passenger vehicles from Canada and Mexico each would be exempt from tariffs of up to 25 per cent that he has been threatening to impose on imported cars, trucks and auto parts. And Canada prevailed in insisting that a NAFTA dispute-resolution process be retained. The U.S. wanted to get rid of it.