John Denslinger presents the pros, cons and obligations of a new era of international trade.
For too long, politicians and well-intentioned bureaucrats steadfastly championed the status quo when it came to international trading agreements. Despite overwhelming evidence of predatory trading practices and lopsided trade imbalances, meaningful change seemed all but impossible. Only after the imposition of (or mere threat of) economy-killing tariffs did the reality of a broken, global trading system finally get the attention of world leaders.
One can certainly argue the pros and cons of tariffs. Globalists and nationalists will have distinct opinions. Nevertheless, tariffs forced nations to discuss and ultimately amend outdated trade policies. USMCA is the first of these new agreements to be ratified by Congress and signed by the President. As such, it is the catalyst ushering in a new era of trade with several more deals in the works: China Phase 1, Japan, UK, South Korea and eventually the EU to name the majors.
USMCA is important not because it was the first re-negotiated agreement, but because it governs $1.2 trillion of economic trade among US, Mexico and Canada, one of the world’s largest trading blocs. It’s likely much of the framework for this agreement will serve as the template for other bilateral negotiations.
So, what’s new in USMCA? Pharma and farming aside, the agreements include: vital automotive industry protections; labour rate increases; labour rights provisions; IP protections; some environmental advancements; and streamlined dispute resolutions. Unchanged from NAFTA but included in USMCA are: currency manipulation protections; regulatory cooperation; digital trade; investment protections; and continuation of the sunset clause. In my opinion, USMCA appears to foster incremental enhancements to the 1994 NAFTA agreement rather than breaking new ground. That being the case, adoption should not disrupt established supply chains, cost models and existing legal structures.
One area of particular note. If you are a small or medium-sized enterprise (SME), USMCA offers specific support for the first time in a US trading agreement. There is a whole chapter dedicated to fostering growth of SME that: establishes a SME Dialogue with admission open to any and all stakeholders; cuts excessive border-related red tape; offers digital trade provisions for e-commerce exports; invites small business participation in both US & Mexican government procurement opportunities; sets affordable IP protections; allows for cross border trade in services that eliminates a need of foreign offices; and establishes good regulatory practices giving particular attention to small business impact.
As I said earlier, USMCA ushers in a new era of trade. Now it’s up to your legal, logistics and procurement teams to verify compliance. Understand the new rules of origin and changed customs laws, confirm that your contractual support for import-export operations qualifies under the new regs, review labour and employment agreements if your company has a physical presence in Mexico, and validate automotive content. The latter is critically important. It may require major realignment of your supply chains and raw material sourcing.
USMCA is the first of the new trade agreements reshaping international economics. Jay Timmons NAM President and CEO recently commented: “This agreement strengthens trade and restores needed certainty to our industry.” Certainty is key. Let’s hope the global goal of free and fair trade absent tariffs is realised sooner than later.