The United States-Mexico-Canada Agreement (USMCA) is a free trade agreement (FTA) between the three North American nations: the United States, Mexico, and Canada. It is a multilateral agreement that creates one of the world's largest free trade zones, encompassing an economy of nearly 30 percent of the global economy. The USMCA was created to replace and modernize the North American Free Trade Agreement (NAFTA), which had been in effect since 1994. Negotiations to update the 25-year-old agreement began in 2017 after the United States proposed its replacement, driven by concerns over NAFTA's impact on jobs and economic sovereignty. The formal signing of the agreement took place on November 30, 2018, in Mexico City, and it officially entered into force on July 1, 2020.
The agreement works by simplifying and liberalizing trade, while also introducing new, stricter requirements. A key mechanism is the updated Rules of Origin for the automotive sector, which increased the required percentage of North American-made parts for automobiles to qualify for zero tariffs from 62.5 percent under NAFTA to 75 percent under USMCA. A new provision is the Labor Value Content requirement, which mandates that 40-45 percent of an imported automobile's value must come from manufacturing facilities where workers earn at least $16 USD per hour. The USMCA also includes new chapters on digital trade and stronger protections for intellectual property. For agriculture, all products that had zero tariffs under NAFTA maintain them, but the USMCA provides broader market access for U.S. exports of dairy, poultry, and egg products to Canada. The agreement connects to the broader concept of trade blocs and is sometimes characterized as "NAFTA 2.0". The USMCA replaced NAFTA, but it largely maintains or updates the provisions of its predecessor, with significant changes focusing on automotive rules, labor standards, and digital commerce.