North American Trade and the USMCA

SMITH BRAIN TRUST – The pros outweigh the cons in the proposed United States-Mexico-Canada Agreement (USMCA), trade leaders across industries said Oct. 15, 2019, at the University of Maryland’s Robert H. Smith School of Business.

The experts spoke during the year's second installment of the Distinguished Speaker Series in International Business, hosted by the Center for Global Business at Maryland Smith. Panelists addressed the effects of the proposed replacement for the North American Free Trade Agreement (NAFTA) on several industries, such as technology, automotive, agriculture and dairy.

Moderator Doug Palmer, a senior trade reporter at POLITICO, explained that business leaders were concerned about certain early proposals to the USMCA, like the sunset clause, which initially required the terms of the agreement to expire after just a few years. Another now-defunct proposal would have required 50% of all content of cars in Canada and Mexico to come from the United States.

It’s been almost a year since this agreement was signed by Canadian and Mexican leaders at the G20, and businesses are ready for a deal. The Trump administration has not yet sent it to Congress for a vote, as Democrats have raised concerns in several areas, including:

• Weak labor enforcement mechanisms, continued from NAFTA.
• A pharmaceutical provision for biologics, which could raise drug prices.
• A potential loophole for environmental enforcement mechanisms.

Panelists then discussed the potential industry benefits of the USCMA.

The International Trade Commision (ITC) modeled the economic effects of the trade agreement, finding that the trade agreement would raise U.S. GDP by $68.2 billion and add more than 175,000 jobs overall. 

The assessment took into account new industries like services, intellectual property rights, and even e-commerce, that in the past have not been considered in trade agreement models, explained panelist Laura Baughman, president of the Trade Partnership and Trade Partnership Worldwide.

Besides these potential benefits, industries across sectors, like agriculture, are pushing for USCMA for continuity, explained John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce. Canada and Mexico represent the two biggest export markets for the United States, and the importance of these markets are magnified during a trade war with China.

Other industries, like tech, would experience huge improvements. While NAFTA didn’t even mention the internet, the USMCA contains a cutting-edge digital trade chapter designed to address emerging measures that affect trade in all sectors. said Sam Rizzo, director of policy at the Information Technology Industry Council. Among other things, provisions in the chapter enable free cross-border data flows and permanently prohibit internet tariffs. 

Panelist Alexander Perkins, senior manager of international government affairs at Fiat Chrysler Automobile Group, explained the implications for the auto industry as well, discussing the USMCA auto rules of origin and their impact on investment and component sourcing in North America and more specifically, the United States.  

The USMCA would also give the dairy industry minimal access to the Canadian market, said panelist Beth Hughes, senior director of international affairs at the International Dairy Foods Association. After years of declining dairy prices, this new market would be a win for dairy farmers.

However, panelists agreed that the stronger enforcements that House Democrats are working toward would make it more difficult for Canada or Mexico to bypass certain areas of the agreement, ensuring its efficiency in the long run.

This event was supported in part by CIBE, a Title VI grant provided by the U.S. Department of Education.