How new North American trade pact will impact autos, digital trade, drugs

(Reuters) – The U.S.-Mexico-Canada trade agreement (USMCA) will launch on Wednesday, replacing the 26-year-old North

(Reuters) – The U.S.-Mexico-Canada trade agreement (USMCA) will launch on Wednesday, replacing the 26-year-old North American Free Trade Agreement (NAFTA), as the global economy and international trade reel from the fallout of the coronavirus pandemic.

The flow of goods among the three USMCA members – which totaled $1.2 trillion last year – in April dropped to the lowest level in more than a decade. Meanwhile, the jailing of a Mexican labor lawyer and independent union leader has reignited concern about the challenges of meeting the USMCA’s labor rights provisions.

Some industries, including automakers, had been arguing for a delayed implementation of the new trade pact because of the difficulties they are facing from the coronavirus pandemic.

Here are some of the key changes the new regional pact will usher in:

AUTOS

One of the biggest changes requires increased North American content in cars 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.

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.

To qualify for tariff-free trade, makers of heavy vehicles must meet various requirements, including a 60% regional content threshold that will increase gradually and 70% regional inputs of steel and aluminum.

DAIRY, CHICKEN AND EGGS

Canada will provide U.S. dairy farmers access to about 3.5% 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.

LABOR RIGHTS

To encourage Mexican workers to unionize and to drive up wages, the deal allows the United States and Canada to convene panels of international labor experts to hear complaints if Mexican factories are denying workers the freedom to organize and bargain collectively.

If such violations are found and remedial actions are not taken, it allows the complaining country to rescind tariff-free access for the offending facility’s products, among other penalties.

Mexico has touted a 2019 labor reform meant to make it easier for workers to form independent unions. But with the reform still several years from full implementation and the recent jailing of labor lawyer, there are doubts about the government’s ability carry out federal directives at the local level.

COPYRIGHT, DIGITAL TRADE, E-COMMERCE

Copyright protection will extend for 70 years past an author’s death, in line with current U.S. law. In Canada, copyright generally extends for 50 years past death.

Customs and other charges on digital products such as music, games, videos and e-books will be prohibited.

The deal protects internet platforms from liability related to third-party information they publish.

Mexico’s and Canada’s thresholds for imports subject to duty collection and customs declaration will double. The increases will benefit online retailers shipping across the region’s borders and small businesses importing small orders.

DISPUTE SETTLEMENT

The deal will phase out many of the old investor-state dispute settlement (ISDS) protections, which gave North American firms operating in a neighboring country the option to challenge local government decisions at an international tribunal.

Under the new deal, the ISDS tribunal would only be an option for firms disputing the Mexican government over a small number of issues, such as state expropriation of assets or discrimination against foreign entities, and firms operating in only a few industries.

PHARMACEUTICALS

The deal aims to hold down drug prices by limiting some patent protections for pharmaceuticals. Eliminated from the original text of USMCA is a required 10-year data exclusivity period for biotech medicines, which U.S. Democrats feared would prolong higher prices for some of the priciest drugs.

The deal also removes a provision that would require parties to confirm patents for new uses of known drugs, combating a process called “patent evergreening” that blocks generic competition.

ENVIRONMENT

The deal does not include any provisions to limit climate change, disappointing environmental groups.

But the changes require each of the three countries to adhere to the 1987 Montreal Protocol to eliminate ozone-depleting substances.

The text also requires compliance with international agreements on endangered species, wetlands, Antarctic marine life, whaling and tuna fisheries.

(Reporting by Mexico City, Washington and Ottawa newsrooms; Editing by Dan Burns)

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