Seeking a better deal

Future of the plan to replace NAFTA in doubt

Posted on Nov 12, 2019 :: Global
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Posted by , Insight on Manufacturing Staff Writer

Trade agreements are vital to all manufacturers that export products, whether the companies are selling heavy-duty vehicles or cheese products. And while the trade war with China continues, there’s another trade deal that worries exporters: the United States-Mexico-Canada Agreement.

The leaders of Canada, Mexico and the United States signed the deal in 2018 as a replacement for the North American Free Trade Agreement, which was approved by all three countries in 1993. Soon after his inauguration, President Donald Trump, who called NAFTA “a bad deal,” threatened to withdraw the United States unless negotiations for a new deal began. The new deal mirrors most of what’s in NAFTA with some updates, including an area on e-commerce, which didn’t exist in 1993, and more protection for workers.

Before the agreement can go into effect, legislative bodies in Canada, Mexico and the United States need to approve it. So far, Mexican legislators are the only ones voting to affirm the deal. Canada legislators have spoken positively about the deal but are waiting for the U.S. Congress to act before moving forward. When Republicans controlled the House of Representatives in 2018, they didn’t take up the treaty. So far in 2019, with the Democrats now in control, the treaty remains on hold.

As for what’s in the USMCA, representatives from all three countries recently discussed the deal during the Northeast Wisconsin International Trade Conference held last month at Fox Valley Technical College’s D.J. Bordini Center.

Julián Adem Díaz de León, consul general of Mexico in Milwaukee, says the USMCA’s key benefits include better trade integration and production among the three countries. “Right now, there’s a lot of manufactured goods that go across our borders,” he says. “Something like a car may be started in Mexico and then sent to the United States for additional work.”

For Canada, the USMCA will create more certainty for businesses so they can focus on developing improved supply chains, says Wayne Robson, consul and senior trade commissioner at the consulate general of Canada in Chicago.

As part of the new agreement, U.S. dairy farmers will be able to sell more of their products in Canada — a potential big win for Wisconsin. Canada is the No. 1 trade partner for multiple states, including the Badger State.

“A huge benefit of the USMCA is that it allows all three of us to work better together,” Robson says. “NAFTA was updated 13 times, and there’s an opportunity to do that with this trade agreement as well.”

Since NAFTA was ratified, trade among the three countries has quadrupled, with Canada and Mexico consumers buying more than one-third of all U.S. merchandise exports, according to the U.S. Department of Commerce. The National Association of Manufacturers says U.S.-made products going to Mexico and Canada support the jobs of 2 million Americans at 43,000 U.S. manufacturing facilities.

“I’m an unabashed supporter of free trade. Having a trade deficit isn’t a problem. When we don’t have enough workers here, does it make sense for U.S. workers to make something that can be made in Mexico for less?” U.S. Sen. Ron Johnson, R-Wis., says. “American workers can concentrate on more detailed work.”

The USMCA has several components designed to protect workers on both sides of the border, de León says. For example, Mexican employees working on certain products will make more money, and to protect automotive jobs in the United States, a higher percentage of the work will be done domestically.

“The changes in the auto sector will be positive,” de León says. “I know some in Congress want panels in place to look at how we’re treating our workers, but that’s just red tape. Mexican auto workers make great money compared to those in other industries here. Yes, what they make is less than what auto workers make in Detroit, but it’s a different place.”

Ngosong Fonkem, a senior adviser at Addison-Clifton, LLC and an expert on trade, says the USMCA will allow for creation of a real North American supply chain, which will help businesses in all countries. “There’s nothing in this agreement that we haven’t seen before. The best way to avoid conflict with your neighbor is to do business with them,” he says.

Modernizing trade

Here are some updates in the USMCA, showing how it differs from NAFTA rules:

Market access: Maintains tariff-free access to the Mexican market for all exported U.S. goods.

Digital trade: Guarantees the freedom to move data across borders and prohibits the forced localization of data. This is seen as a way to boost the digital economy of the United States.

Intellectual property: Secures stronger protections for the full range of patents, copyrights and related rights and trade secrets. Stronger enforcement tools to guard against counterfeiting and piracy will also be put in place.

Agriculture: Establishes modern, science-based sanitary and phytosanitary standards that are the strongest achieved in any trade agreement.