What Is the Difference Between NAFTA and CUSMA? Comparing The Two Deals


The Canada-United States-Mexico Agreement (CUSMA) is a crucial trade deal that impacts many sectors of the Canadian economy. One of the main benefits of CUSMA in Canada is that it provides Canadian businesses with preferential access to two of the world’s largest economies, the United States and Mexico. This access is critical because it helps Canadian companies expand their markets and grow their operations.

CUSMA is often referred to as ‘NAFTA 2.0’ due to the striking similarities in their foundational concepts. CUSMA builds on the framework of the North American Free Trade Agreement (NAFTA). 

However, it is crucial to note that there are significant differences between the two, as evidenced by the substantial page count of CUSMA. At 1,500 pages, it is more than twice the length of NAFTA (741 pages).

CUSMA benefits Canada by including several advantages, such as strengthened protections for Canadian intellectual property, which is a crucial factor for certain business sectors, such as technology, pharmaceuticals, and entertainment. It also provided Canadian dairy, poultry, and egg producers with new export opportunities–a big win for Canadian agriculture. 

Moreover, it includes new provisions that address important issues such as environmental protection and labour rights. These provisions help ensure that trade is tariff-free but also fair and sustainable.

How Does CUSMA Compare to NAFTA?

CUSMA is an improvement over NAFTA because it focuses on key business sectors and issues important to Canada, such as the automotive industry, dairy products, dispute resolution, and intellectual property.

Let’s look at some of the key points of CUSMA: 

Automotive Sector

Under NAFTA, 62.5% of a vehicle’s components had to be manufactured in North America to qualify for tariff-free market access. However, under CUSMA, there was a change in the origin criterion. 

What are the origin criteria of CUSMA?  These are the rules for determining a product’s origin, affecting its eligibility for preferential tariffs; they consider factors like production location and component origins. The requirement was increased to 75%, which means more vehicle parts must be produced in Canada, the United States, or Mexico to qualify for preferential trade terms.

For businesses in the automotive industry, this change will require restructuring supply chains to incorporate more North American components. While this adjustment may initially pose challenges, it offers the advantage of enhancing regional production and supporting job growth within North America. 

For example, if a Canadian car manufacturer sourced 40% of its parts from Asia under NAFTA, it would now need to reduce this amount to 25% or less and find alternative suppliers in North America. This shift promotes greater self-sufficiency and resilience in the face of global disruptions.

Dairy Products

Under NAFTA, the Canadian dairy market was protected through a system called supply management, which controlled the production, pricing, and importation of dairy products. This system allowed Canada to limit the amount of dairy imports and impose high tariffs on imports above the set quota, effectively protecting Canadian dairy producers from foreign competition.

CUSMA, however, opened up this heavily protected market by allowing US dairy producers greater access to the Canadian market. While this adjustment might pose challenges for some Canadian dairy producers due to increased competition and potential oversupply, it also presents opportunities. 

Canada agreed to give US dairy products access to about 3.6% of its dairy market, which, in turn, can provide Canadian consumers with a broader variety of dairy products. This increased market access can stimulate innovation and encourage domestic producers to enhance their offerings to remain competitive. While there may be short-term adjustments, the long-term benefits of a more diverse dairy market could lead to improved choices and more quality products for consumers.

Dispute Resolution

CUSMA brought significant changes to the dispute resolution mechanism. Under NAFTA, chapter 11 provided a framework that allowed companies to sue governments if they believed they were being treated unfairly or in a discriminatory manner.

Under CUSMA, businesses can no longer directly challenge government decisions. This change, however, has potential benefits. For example, governments can take a more coordinated approach to dispute resolution, leveraging more resources and negotiating for multiple businesses facing similar issues. This collaborative approach may enhance dispute resolution and reduce the burden on individual companies, promoting stronger public-private partnerships.

Intellectual Property

Under CUSMA, protections granted to intellectual property were enhanced. This includes extending copyright terms from fifty years to seventy years, helping to bolster protections for patents and trade secrets.

The strengthened intellectual property protections in CUSMA offer significant benefits to industries–such as technology, pharmaceuticals, and entertainment–which rely heavily on intellectual property. Longer exclusivity periods can boost revenues and the return on investment for new product development, but it’s worth noting that these enhanced protections may result in higher costs for businesses using products or services protected by these rights.

About the author

Author: FITT Team

The Forum for International Trade Training (FITT) is the standards, certification and training body dedicated to providing international business training, resources and professional certification to individuals and businesses. Created by business for business, FITT’s international business training solutions are the standard of excellence for global trade professionals around the world.

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