A trade agreement is a set of rules agreed upon by two or more countries that regulate their economic interactions. Most of the focus is on lowering government barriers to trade—whether they be tariffs, quotas, or internal taxes and regulations. But they can also include more expansive provisions on intellectual property, environmental and labor standards, and foreign investment protections.
Most modern trade agreements provide for the resolution of disputes through independent adjudication, which reduces the possibility of government retaliation that would harm domestic producers as well as foreign ones. They also establish detailed obligations and require governments to bring a complaint rather than act unilaterally. And even when retaliation is permitted, it is typically limited to noncompliance rather than a generalized response against all members of the agreement.
The USMCA also contains rules to discipline how governments collect tariffs on imported goods. For example, it defines what constitutes “origin” in the context of a finished good so that a manufacturer can qualify for a lower tariff if all of its components were manufactured in an FTA country. This can be a complex rule, such as in the case of a sled that is made partly out of wood imported from Finland but is assembled into a completed product by a company located in Canada, which can then claim origin in the USMCA.
Finally, the USMCA provides for the rapid enactment of trade-related legislation by establishing an expedited legislative process that requires consultations with Congress as negotiations progress and provides for limited floor debate on final implementing legislation. This preserves an important role for Congress in making trade policy and bolsters the credibility of the executive branch.
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