January 29, 2020 / 6:41 PM / 20 days ago

How the North American trade deal will affect autos, digital trade, drugs

(Reuters) - The U.S.-Mexico-Canada trade agreement (USMCA) signed by President Donald Trump on Wednesday modernizes the 26-year-old North American Free Trade Agreement, which has been blamed for hollowing out the U.S. manufacturing sector.

U.S. President Donald Trump speaks during a signing ceremony for the United States-Mexico-Canada Trade Agreement (USMCA) on the South Lawn of the White House in Washington, U.S., January 29, 2020. REUTERS/Jonathan Ernst

Passed by the U.S. Senate on Jan. 16, the trade deal still needs to be approved by Canada’s Parliament before it takes effect. Mexico has already ratified the pact.

The new agreement makes mostly modest changes and will leave more than $1.2 trillion in North American trade flows largely unchanged. While the deal has been forecast to create 176,000 U.S. jobs over 15 years, it is not expected to bring factory jobs lost to Mexico back to the United States in the coming years.

Here are some of the key changes to the pact:

AUTOS

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

DAIRY, CHICKEN AND EGGS

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

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 David Lawder in Washington, Daina Beth Solomon in Mexico City; Additional reporting by Andrea Shalal in Washington; Editing by Heather Timmons, Rosalba O'Brien and Dan Grebler

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