For 25 years the United States, Mexico, and Canada operated under the North American Free Trade Agreement (NAFTA) which is now a $1.2 trillion open-trade zone. Despite the staggering revenue, overtime NAFTA became more associated with loss of jobs and manufacturing rather than a rising tide lifting economic agreement. As the economy tumbled into recession and with many American’s still struggling to recover, free trade agreements such as NAFTA became less and less popular. Enter Donald Trump who as both a candidate and then as President made trade renegotiations such as NAFTA a priority. On Sunday, September 30th, right before the trade deadline, the United States, Mexico, and Canada came together on a new trade deal known as the United States-Mexico-Canada Agreement (USMCA).
The major parameters of the USMCA are:
- International settlement dispute: A system that allows USMCA countries to rely on an independent body to resolve disputes will remain intact.
- Dairy: The United States will be allowed to increase dairy exports into Canada allowing greater access for United States dairy farmers (more on this below)
- Other agricultural goods: Canada will give the US more access to its chicken, turkey, and egg markets. British Columbia will allow the sale of US wines at its state-owned liquor stores. Mexico agreed to allow imports of certain US cheeses.
- Autos: Requires a higher percentage of a car to be manufactured in North America to qualify for zero tariffs. The deal also requires that a percentage of any vehicle that qualifies for zero tariffs must be manufactured in a factory where the average production wage is at least $16 an hour.
- Tariffs: Steel and aluminum tariffs remain in place on Canada and Mexico, pending further negotiations. Canada and Mexico secure at least a partial exemption from any potential future American tariffs on automobiles.
- Increased protections for intellectual property: The deal increases the copyright period in Canada to 70 years after the creator’s death (up from 50 years) bringing the country in line with the US. Also, exclusivity for biologic drugs before generics can be produced will be increased to 10 years in Canada from eight years.
- Increase in the de minimis levels: The de minimis level is the amount of a good a person can take across the border without being hit with duties. Canada will increase the de minimis level for US goods to 40 Canadian dollars from 20 Canadian dollars; for cross-border shipments like e-commerce, the level will be boosted to 150 Canadian dollars. Mexico will also bump its de minimis level to $50 and duty-free shipments to $117. (Business Insider)
There was concern among many that Canada would be left out of the agreement which would have been bad news for boarder states particularly New York. Under the current terms though it looks like New York will get a much needed boost particularly the dairy industry. Though it is not the first thing that comes to mind when thinking about New York’s economy, the dairy industry and agriculture as a whole provide significant jobs and revenue to the state (see tables below).
(Source: NYS Agriculture and Markets 2016 Report)
(Source: NYS Agriculture and Markets 2016 Report)
(Source: NYS Agriculture and Markets 2016 Report)
Opening New York dairy to Canada comes at the perfect time as reduced milk prices and other costs have dramatically cut into revenue.
(Source: NYS Agriculture and Markets 2016 Report)
New York State has seen a big agriculture push in recent years with wineries, breweries, farmers markets, orchards, etc. This trend should receive a nice push with the new USMCA deal but it looks to be the dairy sector that will benefit the most. Obviously, the deal is not finalized yet and even then, only time will tell how it truly works but for right now the state’s dairy industry should be feeling optimistic.
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