American Shipper will take an in-depth look at the new trade agreement in a webinar on Thursday.
The U.S. International Trade Commission said that a completely implemented and enforced new trade agreement with Mexico and Canada will have a “positive impact” on U.S. real GDP and employment. (American Shipper will look at the impact in a free webinar, “USMCA: What’s In It, How Will It Affect U.S. Manufacturing, and What’s Next?” at 2 p.m. Thursday.)
Trade negotiators from the three countries on Nov. 30 entered into a new agreement to replace the 25-year-old North American Free Trade Agreement (NAFTA). The updated version of the trilateral trade agreement is referred to as the U.S.-Mexico-Canada Agreement (USMCA).
The bipartisan, fact-finding commission, as required under the 2015 Bipartisan Congressional Trade Priorities and Accountability Act, was tasked by of the Office of the U.S. Trade Representative to conduct the USMCA study into the likely impacts on the domestic economy, industrial sectors and consumers.
The commission estimates that USMCA would raise U.S. real GDP by $68.2 billion (0.35 percent) and U.S. employment by 176,000 jobs (0.12 percent), if fully implemented and enforced.
A positive impact on U.S. trade with Mexico and Canada also is expected, with U.S. exports to Canada and Mexico increasing by $19.1 billion (5.9 percent) and $14.2 billion (6.7 percent), respectively. U.S. imports from Canada and Mexico would increase by $19.1 billion (4.8 percent) and $12.4 billion (3.8 percent), respectively, the ITC noted.
The ITC said its analysis of USMCA is much broader than previous trade agreement analyses due to advancements in economic modeling research and increased access to data.
“For example, many nontariff provisions such as the changes to automotive rules of origin, increased intellectual property rights protections, collective bargaining requirements, de minimis thresholds, and reductions to investor-state dispute settlement mechanisms are quantified to a greater extent than possible in past studies,” the commission said.
Since most duties are eliminated on most qualifying goods, as well as nontariff measures are deeply minimized under the existing trade agreement, USMCA focuses on remaining non-tariff measures on trade.
The ITC’s study found that USMCA would reduce “policy uncertainty” related to cross-border digital trade, particularly for the services industry, with new data transfer provisions and prohibitions on forced localization of data-storage facilities.
According to the ITC’s analysis, USMCA would strengthen and add complexity to the rules of origin requirements in the automotive sector by increasing regional value content (RVC) requirements. “USMCA’s requirements are estimated to increase U.S. production of automotive parts and employment in the sector, but also to lead to a small increase in the prices and small decrease in the consumption of vehicles in the United States,” the commission said.
For the automotive sector specifically, the ITC’s analysis forecasts that USMCA will result in $34 billion in new automotive manufacturing investments in the U.S., $23 billion in new annual U.S.-made auto parts purchases and 76,000 new U.S. automotive sector jobs over the first five years of the new trade agreement’s implementation.
The ITC said USMCA, if enforced, also should strengthen labor standards and rights, including those related to collective bargaining in Mexico, which would promote higher wages and better labor conditions in that country. In addition, new intellectual property rights provisions would increase protections for U.S. firms that rely on intellectual property.
Despite the ITC’s positive projections for USMCA, House Ways and Means Committee Chairman Richard Neal, D-Mass., said the committee “must closely review analyses of the terms of the agreement relating to labor, environment, enforcement and intellectual property, as I remain concerned that these portions of the renegotiated deal are not yet acceptable.”
Senate Finance Committee Ranking Member Ron Wyden, D-Ore., also expressed skepticism in the current benefits of USMCA. “This report confirms what has been clear since this deal was announced — Donald Trump’s NAFTA represents at best a minor update to NAFTA, which will offer only limited benefits to U.S. workers. As I’ve said for months, the administration shouldn’t squander the opportunity to lock in real, enforceable labor standards in Mexico and fix the enforcement problems that have plagued NAFTA,” he said in a statement.
Sen. Chuck Grassley, R-Iowa, praised the ITC for its USMCA analysis, saying, “This is the first time the ITC has analyzed a renegotiated trade deal, let alone one of this size.
“The USMCA makes critical updates to rules on intellectual property, currency practices, digital trade, customs, state-owned enterprises, sanitary and phytosanitary measures and technical barriers to trade that will be valuable to many American farmers and businesses, even though their impact on GDP has historically been inherently difficult for economists to measure,” Grassley added.
Major U.S. trade groups are urging Congress to press forward with adopting USMCA.
“The USMCA is a win for manufacturers,” said Linda Dempsey, vice president of international economic affairs for the National Association of Manufacturers. “This agreement will level the playing field for manufacturers in the United States and support the 2 million American manufacturing jobs that depend on our exports to Canada and Mexico. That’s why the USMCA is our top trade priority, and we urge Congress to approve it as soon as possible.”
Davie Stephens, president of the American Soybean Association, said, “We know that the modernizations included in USMCA will make trade with our North American neighbors even smoother.”
Stephens continued, “These non-tariff enhancements include the highest enforceable sanitary and phytosanitary (SPS) standards of any trade deal to date, an enforceable biotechnology chapter that supports 21st century innovations, and create a rapid response mechanism to address trade challenges. These provisions not only serve to update the North American agreement but set a paradigm for future free trade agreements.”
Register here for the free American Shipper webinar, “USMCA: What’s In It, How Will It Affect U.S. Manufacturing, and What’s Next?” scheduled for 2 p.m. Thursday.