Devil Is in Details on New Trade Deal

COMMENTARY Trade

Devil Is in Details on New Trade Deal

Dec 1st, 2018 2 min read
COMMENTARY BY
Tori K. Whiting

Jay Van Andel Trade Economist

Whiting provides the conservative true north on free trade through her research and writing.

Key Takeaways

Thanks to NAFTA, American exports are enjoyed around the world, benefitting U.S. businesses and the millions of American workers they employ.

In the coming days and weeks, experts at The Heritage Foundation will be conducting a full analysis of the USMCA.

The goal should be for a new agreement to increase Americans’ freedom to trade with their North American neighbors.

So what are we to make of the United States Mexico Canada Agreement (USMCA), which the administration plans to sign before the end of November? Considering that the new agreement is more than 1,700 pages long, it will take time to fully evaluate it. Let’s face it, the devil is really in those details.

On initial look, it’s encouraging that the White House secured a trilateral agreement that preserves North America as one of the largest free trade areas in the world. More than two decades under NAFTA allowed American businesses to develop efficient supply chains, especially in the automotive industry, that make North America one of the most competitive regions for manufactured goods.

Thanks to NAFTA, American exports are enjoyed around the world, benefitting U.S. businesses and the millions of American workers they employ. Families and businesses in the U.S. also benefited from increased access to imports from Canada and Mexico, ensuring better prices and greater options at stores.

The USMCA largely maintains these benefits, or what we refer to as market access, and even expands upon it to some extent. For example, the administration negotiated new tariff rate quotas for some dairy, poultry and egg products that will allow for additional exports to Canada.

Despite these advancements, the USMCA also seems to include many provisions that are more about managing trade than facilitating true free trade. The new agreement increases the rules of origin requirements, which determine the level of North American content for automobiles to receive duty free access, currently in NAFTA from 62.5 percent to 75 percent. The USMCA also contains a burdensome minimum wage of $16 per hour for 40 to 45 percent of the automobile production process.

The United States also failed to fully remove the Section 232 tariffs on steel and aluminum for Canada and Mexico, a sign that the White House intends to continue its abuse of this law. A side agreement does exist regarding the investigation into automobile imports under Section 232, but it does not guarantee that President Trump will refrain from bullying our allies with these tariffs in the future.

The Trump administration’s USMCA is not out of the woods yet, as the agreement must now be evaluated and approved by Congress. The timeline for approval will follow processes established by Trade Promotion Authority, or “fast track,” which allows for expedited congressional procedures.

It could be possible for Congress to vote on the USMCA this year, but that would not occur until after the November elections. Voting on a trade agreement in an election year, and especially during a “lame duck” period, is unlikely. It is more likely that the new Congress will have the opportunity to vote on the USMCA in the spring of 2019.

In the coming days and weeks, experts at The Heritage Foundation will be conducting a full analysis of the USMCA. Heritage will focus on three principles of free trade in this analysis: (1) does the USMCA lower tariffs in all three countries, (2) does the USMCA eliminate or decrease non-tariff barriers in all three countries, and (3) do the new chapters in the USMCA modernize the agreement for the 21st century in a way that promotes economic freedom in North America.

This analysis will pay special attention to topics such as automotive rules of origin, the sunset provision, government procurement, dispute settlement, labor regulations, and all other areas where the rules were changed. Congress should also evaluate the USMCA in accordance with the conservative principles of free trade. In the end, the goal should be for a new agreement to increase Americans’ freedom to trade with their North American neighbors. How effectively the USMCA does this remains to be seen.

This piece originally appeared in the Hill on 10/2/18