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The new USMCA treaty from a mexican perspective

After months of negotiations, the USMCA enters into force on July 1st 2020 bringing major change. As one of the most modern Trade Agreements in the world it is focused on implementing international standards while seeking to promote best practices for all industries. 

mexico city

The Agreement between the United States of America, Mexico, and Canada (USMCA), is a free trade agreement between the north American countries. Rather than a wholly new agreement, it has been characterized as “NAFTA 2.0”. This agreement is the result of a 2017-2018 renegotiation by the member states, which formally agreed to the terms on September 2018.

The USMCA negotiations were focused on sectors from the manufacturing industries such as vehicle and textile production as well as agriculture. Furthermore, it centred on regulation about steel and aluminium tariffs, and labour laws. This agreement, in comparison with NAFTA, increases the environmental and working regulations, and incentivizes more domestic production of cars and other manufacturing industries.

The expected outcome of the USMCA is a mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America. Some of the chapters with key achievements include: Intellectual property, digital trade, financial services and the environment.

At the core of the negotiations: labour obligations and environmental issues

Labour law is one of the mainstays of the treaty riding fully enforcable labour obligations into the trade agreement. It includes an annex on worker representation and collective bargaining, under which Mexico commits to specific legislative actions to provide for effective recognition of the laws. Additionally it includes new provisions: to prohibit the import of goods produced by forced labour, to address violence against workers exercising their labour rights, and to ensure that migrant workers are protected under labour laws.

Similar to the labour chapter, the environment chapter includes the most comprehensive set of enforceable environmental obligations of any previous agreement, including obligations to combat trafficking in wildlife, timber, and fish; to strengthen law enforcement networks; and to address pressing environmental issues such as air quality and marine litter. Some of the obligations include: new protections for marine species like whales and sea turtles, a commitment to work together to protect marine habitat; obligations to enhance the effectiveness of customs inspections of shipments containing wild fauna and flora at ports of entry; and to adopt, maintain and implement relevant obligations under seven multilateral environmental agreements.

New rules to encourage the region’s development

Another substancial discussions treated new rules of origin, including product specific rules for passenger vehicles, light trucks, and auto parts. These rules of origin will provide greater incentives to source goods and materials in North America. It encourages regional economic growth by requiring that 75% of vehicle content must be made in North America. The deal will drive higher wages by requiring that 40-45 % of a car must be made by workers earning at least $16 USD per hour and thus, encouraging the development of the region and investment by the car manufacturing industry.

More stability for Mexico

Market access and free movement of goods have been treated as a focal point. The aim is to facilitate movement of manufactured goods between the three countries by removing provisions that are no longer relevant, by updating key references and by affirming commitments.
It maintains duty free treatment for goods produced in North America; it adds new provisions for transparency in import as well as export licensing procedures; and it binds parties to:

  1. waive the requirements to use local distributors for imports
  2. allow the import of commercial goods that contain cryptography
  3. ban import restrictions on goods used for manufacturing

It is expected that the USMCA will bring more stability to Mexico, as it is the most open of the three economies. The changes are expected to help the country boost its position as a high-level supplier of goods, committed to internationalized quality standards. Mexico’s government also pushed other options for expanding trade, such as the opened automotive trade with Brazil. Considering the power of geography this new NAFTA treaty was a good way forward.

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Would you like to explore your business opportunities in Mexico? Benjamin Werenfels is happy to discuss your export project. At Switzerland Global Enterprise, we offer you initial free country consulting sessions, prepare more detailed market and competition analyses oriented to your needs, support you in your search for the right business partner and inform you about legal regulations.

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