On July 1, 2020, the new Canada-United States-Mexico Agreement (CUSMA) entered into force.
Signed on the margins of the G20 Leaders’ Summit in Buenos Aires in November 2018, CUSMA outcomes preserve key elements of the long-lasting trading relationship and incorporate new and updated provisions that seek to address 21st-century trade issues and promote opportunities for the nearly half a billion people who call North America home.
In 1994, the United States, Mexico and Canada created the largest free trade region in the world with the North American Free Trade Agreement (NAFTA), generating economic growth and helping to raise the standard of living for the people of all three member countries. By strengthening the rules and procedures governing trade and investment, this 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. The new Canada-United States-Mexico Agreement will serve to reinforce Canada’s strong economic ties with the United States and Mexico.
The agreement provides key outcomes for Canadian businesses, workers and communities in areas such as labour, environment, automotive trade, dispute resolution, culture, energy, and agriculture and agri-food. Importantly, CUSMA also includes language on gender and Indigenous peoples’ rights.
Specifically, for the auto sector the revised automotive rules of origin require higher levels of North American content in order to incentivize production and sourcing in North America. The final outcome builds on the ideas that Canada put forward in early 2018 related to strengthening the North American production platform, reducing red tape and increasing the use of North American parts, steel and aluminum.
More robust rules of origin for the auto sector will help keep the benefits of the agreement in North America and diminish incentives to make investment and sourcing decisions based on the availability of low-cost labour. The new agreement includes:
- An increase in the CUSMA regional value content threshold for cars from 62.5% to 75%;
- Stronger regional value content requirements for core car parts, such as engines and transmissions;
- 70% North American steel and aluminum requirements; and
- A new labour value content provision requiring that 40% of value of a passenger car (45% for a light truck) be made of materials, parts and labour (including final assembly) produced or carried out by workers in a plant where the average hourly wage is at least US$16.
The new agreement has the potential to generate increased automotive production in North America, including in Canada, as well as additional sourcing opportunities for Canadian parts producers. The Canadian advantage in the automotive sector has always been the strength of our highly skilled workforce, and our workers’ ability to produce high quality and reliable cars and trucks.
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