NAFTA 2.0:
The U.S. Mexico Canada Agreement is a Fraud
By Joel D. Joseph, Chairman, Made in the USA Foundation
Like Trump University, the U.S. Mexico Canada Agreement is a massive fraud. It is NAFTA light. The USMCA was negotiated badly, but will be promoted by the White House to claim that the President achieved another goal, the end of NAFTA, the North American Free-Trade Agreement.
Meanwhile, NAFTA is still in force. The renamed trade agreement, the USMCA, won't start until 2020 at the earliest, because of all of the signatures and approvals the deal needs from leaders and legislators. It may not even pass Congress. Under the Constitution, all treaties must be approved by a two-thirds vote in the Senate. Make no doubt about it, the USMCA is a treaty, an agreement with foreign nations that will last many years. Nonetheless, the Trump administration will bypass the Treaty Clause and just seek a majority vote in both chambers, ignoring the Constitution.
Of ten major problems with NAFTA, the Trump administration addressed only two of the issues, and even those two areas, cars and dairy, the agreement significantly fails to achieve the goal of leveling the playing field.
Cars
Starting in 2020, to qualify for zero tariffs, a car or truck must have 75 percent of its components manufactured in Canada, Mexico or the United States, a substantial boost from the current 62.5 percent requirement.
There's also a new provision that a significant percentage of the manufacturing of the car must be completed by workers earning at least $16 an hour, or about six times what the typical Mexican autoworker makes. Starting in 2020, cars and trucks are required to have at least 30 percent of the labor on the vehicle done by workers earning $16 an hour. That percentage gradually moves up to 40 percent for cars by 2023.
The problem with this mandate is that most of labor for $16 an hour will be done in Canada. Remarkably, Canada and Mexico each produce more cars per capita than the United States. Cars are manufactured in Canada because of the weak Canadian dollar and because Canada has a government health-insurance program that gives our northern neighbor a $1,500 advantage per car. Cars are made in Mexico because of its cheap labor. Neither the Canadian advantage nor the Mexican advantage were addressed in NAFTA 2.0.
And this is the best part of the new trade agreement.
Dairy
The new NAFTA deal gives U.S. farmers access to only 3.59 per cent of the Canadian dairy market. Canada now has a punitive 300% tariff on dairy products from the Untied States. Canada agreed to provide new tariff rate quotas for U.S. dairy products, which, in most cases, after reaching designated levels by year six of the agreement, will be raised 1% each year for 13 years. The result is the United States may have access to about 3.6% of the Canadian dairy market, and that is for skim-milk solids, not whole milk, not cheese, not ice cream and not yogurt. Ben and Jerry's will still be banned in Canada.
Meat
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