USMCA at Year One
Cameron Summers at Weber Shandwick Toronto and Jorge Camargo at Weber Shandwick Mexico City contributed to this article.
July 1 marked the first anniversary of the United States-Mexico-Canada agreement (USMCA) coming into force.
While global trade declined generally everywhere over the past year, the USMCA continues to be the most significant trading relationship across the North American market.
The COVID pandemic undermined the regional and global economy at the very moment that the USMCA was promising to spur economic growth. But the pandemic illustrated the growing integration of the three economies — especially in the automotive sector where the reopening of U.S. assembly plants was dependent on Mexico and Canada reopening facilities that provide auto parts and components. Open and integrated supply chains in manufacturing, agriculture and natural resources supports commerce with other global regions, promotes innovation, and offers competitive advantages for all three North American markets.
Borders between the United States, Mexico and Canada have been closed to non-essential travel during the pandemic, impacting business operations and tourism. The borders are scheduled to reopen on July 21, and the three markets are discussing how to ensure safe travel protocols once reopened.
At the one-year mark, here is how the agreement is viewed in each of the three political capitals.
The view from Washington:
· Canada and Mexico remain the two largest U.S. trade partners. From January to April 2021 (most recent data available), bilateral trade accounted for 29.2% of global U.S. trade — a slight increase from 28.3% during 2020.
· The USMCA removed commercial uncertainty that had grown in recent years as both Democrats and Republicans voiced criticism of the impact of NAFTA on U.S. manufacturing and jobs.
· The agreement includes tighter North American content rules for cars and auto parts, new protections for intellectual property, prohibitions against currency manipulation, and new rules on digital commerce — a sector that did not exist when NAFTA launched in 1994.
· Through digitization, the USMCA is improving cross-border customs processing.
· Implementation of the labor and environment chapters of the agreement are the most important policy areas for the Biden administration. The administration will support complaints by U.S. trade unions on labor conditions in Mexico that might impact U.S. workers.
· The USMCA agreement sets a number of policy precedents that the U.S. will use in negotiating future bilateral or multilateral trade agreements.
· Under the Rapid Response Labor mechanism, the United States has filed two complaints against Mexico, alleging that workers were denied trade union rights at two automotive supplier facilities. An agreement has been reached in one case.
· Disputes with Canada remain over the dairy and softwood lumber industries, and taxation of American tech firms.
· The U.S. Chamber of Commerce has voiced concern with the interim procedural guidelines for implementing the labor chapter, stating that U.S.-initiated cases are moving forward before final guidelines are issued. And that the alleged workers’ rights violations occurred before USMCA entered into force, which it says would be a violation of due process.
· Farm groups are watching Mexico’s management of biotechnology approvals and have expressed concern that Mexico is dismantling regulatory institutions and international commitments on agriculture biotechnology. Several U.S. products have exceeded Mexico’s six-month regulatory statute limit to make a determination on an approval.
The view from Ottawa:
· From Canada’s point of view, the USMCA is a modernization of NAFTA — not a complete revamp. In particular, the Canadian automotive industry and certain supply industries have received heavier protection from lower-wage competition, as content rules now require that 75% of a vehicle (up from 52.5%) be manufactured within North America to be tariff-free. In addition, a minimum wage of $16/hour must be paid to workers in the industry. This has benefited Canadian and U.S. workers.
· Long-standing disputes over Buy American provisions, softwood lumber, and access to Canada’s dairy sector remain prominent issues for Canada.
· Concerns about access to the U.S. market and Buy American provisions continues. Canada has pushed back citing the damage they cause to the integrated North America market, but President Biden says exemptions to Buy American provisions will be “strenuously limited.”
· Softwood lumber trade disputes continue to be an issue between Canada and the United States. The U.S. Department of Commerce recommended last month to more than double tariffs on Canadian lumber. Canada said this is a top priority going forward.
· The USMCA has enabled American and Mexican farmers to gain approximately 3.5% of access to the Canadian dairy market. However, the U.S. has requested a dispute settlement panel look at concerns from U.S. producers indicating they are not getting the access to the Canadian dairy market negotiated in USMCA.
· During USMCA’s implementation, the Trump administration included a sunset clause, allowing a country to exit the agreement after six years. Trade experts are recommending Canada address the sunset clause sooner rather than later.
· Trade concerns emerged over the U.S. cancellation of the Keystone XL pipeline and tensions over Line 5 with the Michigan government.
The view from Mexico City:
· European companies are looking at new investments in Mexico to take advantage of preferential access to the U.S, and Canada.
· In a Senate report, the government said USMCA accounted for 84% of Mexico’s exports, 46% of imports, and 65% of total global trade in 2020 — trends that continue this year.
· Mexico has requested a joint negotiation to resolve a complaint over a disputed contract vote at a U.S.-owned automotive factory.
· President Andrés Manuel López Obrador and other members of his government have stated publicly that recent Hydrocarbon and Electricity Reforms are designed to reestablish state control over the energy sector. Some U.S. energy companies say the new reforms will impact foreign investors in this sector and may be violating USMCA.
· Unions say their U.S. counterparts of pressuring auto assembly companies in Mexico through complaints at the USMCA to shift their operations to the United States.
· Through a new working team, Mexico seeks that the United States and Canada strengthen value chains to overcome the crisis derived from the pandemic, and integrate small and medium-sized enterprises (SMEs) into international trade.
· The Ministry of Economy reported it would seek agreement to promote smaller companies owned by underrepresented groups such as women, indigenous groups, people with disabilities, and the LGBTQ+ community.
Edited by Okina Tran
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