Question

Demand conditions and related supporting industries for USMCA?Porter`s diamond analysis for USMCA?

Answer 1

Solution:

USMCA (United States Mexico Canada Agreement)

The USMCA stands for the United States Mexico Canada Agreement which was signed between the three nations on 30th November 2018. The USMCA is basically a modified version of the trillion dollar NAFTA treaty which is over 25 years old. The USMCA was initiated during the 2018 G8 Summit which was held at Buenos Aires, Argentina.

The NAFTA (North American Free Trade Agreement) treaty was signed by the same countries on 1st of January in the year 1994.The intention of the NAFTA treaty was to eliminate trade barriers between the neighboring nations regarding manufacturing, agriculture and services. The deal also proposed the removal of certain investment restrictions as well as the protection of the Intellectual Property rights. The treaty also postulated certain policies and regulations concerning labour and environmental pollution.

Coming back to the recent USMCA, the newly signed treaty demands the fulfillment of certain conditions which include:

• Country of Origin rules >> These rules demand that in order to qualify for tariff exemption, 75% of automobile parts manufacturing should take place in either Canada, Mexico or the US.
• Labor Provisions >> The treaty has given a deadline up to the year 2023, stating that workers responsible for about 40-45% of the automobile manufacturing should earn a minimum wage of US$16 per hour.

Improvised Mexican labor laws provide greater protection to migrant workers including women.

• Greater Access to Canadian dairy market for US-based farmers >> This condition clearly opens up the Canadian dairy market to farmers based in the US.
• Intellectual Property and Digital Trade >> This deal prolongs the copyright term up to 70 years beyond the author's life.

The digital trade provisions demand the exemption of duties on e-books and music and to safeguard internet companies by publishing disclaimers with regards to content so that they are not held liable.

• Sunset Clause >> This condition demands a 16-year sunset clause which implies that the terms of the contract do not expire for atleast 16 years.

The treaty is also accountable for evaluation every 6 years, subject to which the extension of the USMCA shall be decided by the three governments.

However, the deal is yet to be finalized owing to the impending ratification by the Canadian government.

Porter's Diamond Analysis for USMCA

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