Many stakeholders have credited NAFTA with facilitating agricultural trade in North America by reducing tariffs and other market access barriers and by providing a stable and improved trading environment in the region. Studies conducted to estimate the incremental effect of USMCA indicate modest increases to regional trade in North America. For example, a study commissioned by the Farm Foundation estimated that USMCA would generate a net increase in annual U.S. agricultural exports to Canada of $450 million—about 1% of U.S. agricultural exports under NAFTA in 2017. Similarly, the U.S. International Trade Commission (USITC) assessed that U.S. agricultural exports would likely increase 1.1% in year six of USMCA implementation compared to its 2017 baseline export levels. Another study, conducted by the International Monetary Fund, estimated small gains in regional trade from USMCA compared with NAFTA; with respect to agriculture, it found modest gains to the region, primarily benefiting Canada. 

A study by economists at the University of Georgia says that USMCA may lead to losses for Georgia’s small fruit and vegetable producers because of subsidized imports from Mexico. The study was limited in scope and did not examine the broader impact of USMCA on other agricultural and nonagricultural sectors, other states, or the effects at the national level for the three USMCA signatories.

Issues for Congress

Congress has an interest in the implementation of USMCA because of its constitutional authority over foreign commerce and its long-standing involvement in U.S. farm policy.

Regarding market access, Congress may monitor Canada’s implementation of its commitments regarding U.S. dairy products, poultry products, and eggs. Some Members of Congress have raised concerns that Canada’s dairy TRQ allocation may not be consistent with its commitments under USMCA.

Congress may also monitor the implementation of the various nontariff provisions that the three countries agreed to under USMCA, such as assurances by Canada and Mexico that they will provide the same treatment to U.S. proprietary food formula and alcoholic beverages as they provide to their domestic products. Some Members of Congress have raised concerns that Mexico has not taken actions to fulfill its commitments regarding improving access for U.S. cheeses and agricultural biotechnology products46 and that Canada is making insufficient progress toward a protocol to allow the registration of U.S. wheat varieties in Canada.

Efforts by the USMCA signatories to establish a coordinated approach for greater harmonization of SPS rules, rules governing trade in products created with agricultural biotechnology, and rules pertaining to geographical indications may also be of interest for congressional oversight. This subject has drawn the attention of some Members of Congress, who have suggested that USTR and USDA use the GI provisions in USMCA as a model for other trade agreements. 

USMCA has also expanded access for Canadian peanut butter, dairy, sugar, and sugar-containing products to the United States. Congress may monitor how this improved access to the U.S. market affects U.S. producers in these sectors and the U.S. rural economy more broadly.

Congress may also use its oversight and legislative authority to address the effects of COVID-19 pandemic on greater integration of the North American market. The COVID-19 pandemic has placed unexpected stresses on food supply chains, with bottlenecks in farm labor, processing, transport, and logistics, particularly in developing countries such as Mexico. According to a report by a market intelligence company, Mexico has faced logistics and transportation difficulties including shortages of shipping containers, which could affect Mexico’s ability to trade perishable and packaged food products with the United States.

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Anita Regmi is a Specialist in Agricultural Policy for the Congressional Research Service.

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Worker rights are a prominent issue in U.S. FTA negotiations. Some stakeholders believe worker rights provisions are necessary to protect U.S. workers from perceived unfair competition and to raise labor standards abroad. Others believe these rights are more appropriately addressed at the International Labor Organization (ILO) or through cooperative efforts and capacity building. Since 1988, Congress has included worker rights as a principal negotiating objective in Trade Promotion Authority (TPA) legislation. The United States has been in the forefront of using FTAs to promote core internationally recognized worker rights. Labor provisions have evolved significantly since the North American Free Trade Agreement (NAFTA), moving from side agreements to integral chapters within FTA texts, with more provisions subject to enforcement. The conclusion of NAFTA renegotiations resulted in the U.S.-Mexico-Canada Agreement (USMCA), which replaces NAFTA and has a new labor chapter and enforcement mechanism. USMCA entered into force in July 2020.

Issues for Congress

In considering future TPA legislation (the current reauthorization expires in July 2021) or trade negotiations, Congress may wish to examine the application of worker rights provisions in FTAs. This debate could include

• The effectiveness of FTAs as a vehicle for improving worker rights and labor standards in other countries;
• The extent to which FTA partners are complying with labor obligations and whether dispute settlement provisions have been applied effectively;
• Whether USMCA labor provisions serve as a new template for future U.S. FTAs;
• The effectiveness of FTAs in providing technical assistance and trade capacity building; and
• The role of businesses in promoting U.S. labor practices abroad and conducting supply chain due diligence.

Cathleen Cimino-Isaacs is an Analyst in International Trade and Finance at Congressional Research Service

M. Angeles Villarreal is a Specialist in International Trade and Finance at Congressional Research Service.

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NAFTA has had a positive impact on the Canadian economy and has supported a stable, integrated and competitive North American market. The entry into force of NAFTA in 1994 created the largest free trade region in the world. By strengthening the rules and procedures governing trade and investment in North America, the agreement has proved to be a solid foundation for building Canada’s prosperity and has set a valuable example of the benefits of trade liberalization for the rest of the world. Since 1994, NAFTA has helped generate economic growth and raise the standard of living for the people of all three member countries. In particular, NAFTA has supported the development of an integrated and competitive North American market by providing manufacturers, producers, investors and consumers with a predictable and secure commercial environment.

From a trilateral perspective, NAFTA has contributed to an unprecedented increase in trade flows across North America since its implementation in 1994. Between 1993 and 2018, total merchandise trade between Canada and the United States tripled and total merchandise trade between Canada and Mexico grew almost 10-fold. Overall, total trilateral merchandise trade (the total of each country’s imports from one another) had risen to reach nearly US$1.2 trillion in 2018.

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The Canada-United States-Mexico Agreement (CUSMA), originally agreed in November 2018, and amended in Mexico City last December, represents a significant step back from the three-decade partnership in North America launched with the 1989 Canada-United States Free Trade Agreement (CUSFTA) and further developed with the addition of Mexico in the NAFTA.

The CUSMA signals this clearly: the words “North America”, and “free trade” have vanished. Unusually for a modern trade agreement, it has little traditional market access liberalization. Moreover, its modernizing elements, based largely on the Trans-Pacific Partnership (TPP) text, contribute little to reducing trade costs or border frictions.

At the same time, the CUSMA introduces more restrictive rules of origin and increases uncertainty about future market access by leaving unchecked protectionist measures dusted off by the Trump administration, including the Section 232 tariff measures that have been used against Canadian steel and aluminum exports and threatened against Canadian exports of automotive products.

While side agreements provide some assurance against the further use of these measures on these products, there is no such guarantee for other products. And the introduction of a sunset clause coupled with rhetorical signals of the intent to use this to revise the deal in favour of the United States, send a warning signal to business: curb your enthusiasm about investing in Canada to make hay in the US market. The new institutional environment works to effectively raise non-tariff barriers to the US market.

The protectionist focus of the agreement comes with a net cost to all three parties. These costs are, however, more severe for Canada and Mexico since North American trade makes a proportionately much larger contribution to our economies. We estimate that the Agreement will lower Canada’s real gross domestic production (GDP) by -0.4 percent and Mexico’s by -0.8 percent on an ongoing basis.

For the United States, the estimated impact is -0.1 percent. The only comparable published study of the agreement – by the United States International Trade Commission (USITC) – arrives at a similar estimate for the United States of -0.12 percent but does not provide estimates for Canada or Mexico.

One element of the USITC study warrants explicit comment: it introduces a large positive impact for reduction of uncertainty about future cross-border data flows and data localization requirements. These uncertainty effects flip the -0.12-percent impact into a 0.35-percent gain or even as much as a 1.21 percent gain. We decline to introduce such an effect into our evaluation for three major reasons which call into question the additional effect of the CUSMA in this area:

• Canada and Mexico have already signed onto similar provisions in the CPTPP and the USMCA changes matters comparatively little.
• The future regulatory regime for data flows in areas ranging from privacy, to competition policy, to taxation, to protection of democratic processes is being actively pursued worldwide; outcomes are highly uncertain and there is little empirical evidence on what restrictions will ultimately be deemed as legitimate as opposed to barriers to digital trade that would be prevented by CUSMA disciplines.
• The United States has articulated an extraordinarily expansive scope for national security, in particular for the emerging Internet of Things (IoT) area, which suggests all three parties will have considerable latitude to develop regulations on data flow to ensure national security in the backbone services sectors (communications, transportation, power, and finance) at least.

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Key Achievement: Most Comprehensive Enforcement Provisions of Any Trade Agreement

For the first time, a trade agreement will require all of the following:

• Ex officio authority for law enforcement officials to stop suspected counterfeit or pirated goods at every phase of entering, exiting, and transiting through the territory of any Party.

• Express recognition that IP enforcement procedures must be available for the digital environment for trademark and copyright or related rights infringement.

• Meaningful criminal procedures and penalties for unauthorized camcording of movies, which is a significant source of pirated movies online.

• Civil and criminal penalties for satellite and cable signal theft.

• Broad protection against trade secret theft, including against state-owned enterprises.

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