Fitting Mexico into the new NAFTA, or USMCA, may well have outcomes no one could have ever imagined
 The very name, "United States-Mexico-Canada Trade Agreement", the USMCA, the re-jigged NAFTA replacement, is the soul of flexibility if nothing else. It introduces the possibility of additions and subtractions that the "North America Free Trade Agreement" (NAFTA) precluded because of its limited geographical scope.
For a time, when Canada was vainly trying to reinforce its towering tariff wall against the intrusion of US dairy and poultry imports, when only Mexico was on board, the media were cheerfully referred to the making of the "United States-Mexico Trade Agreement".
If one get comfortable with a Canadian subtraction, should we not be prepared for a British addition when the UK leaves the European Union and needs somewhere to go? Thinking further ahead, perhaps Quebec, the French-speaking Canadian province would be happier in an expanded EU?
Apart from the basic trade agreement, such pacts are subject to ever changing circumstances, the result of continuing negotiations, disputes and their resolutions as well as countless issues which are big issues today but irrelevant tomorrow.
But looking at the first half of 2019, we can see that there is at last more ply in the interest rate dial after Mexico decided to join the US and Canada in tightening money supply.
The inauguration of the leftist Mexican President Andres Manuel Lopez Obrador doesn't look nearly as alarming as it once did. He first alarmed the business world by cancelling a US$13 billion Mexico City airport project, which resulted in a big slump in local financial markets.
His party also slashed bank fees, but he later soothed markets by saying he did not back that proposal.
Mexico’s economy rebounded in the third quarter, helped by stronger industrial output and a jump in services that reflected a surge in consumer confidence. The economy grew 0.9 per cent, bouncing back from a 0.2 per cent contraction in the previous three-month period and growing 2.6 per cent year on year. Industrial output picked up from a slump in the wake of a new trade deal with the United States.
Like Canada, the US is destination for some 80 per cent of their exports so the Americans tend to have the whip hand in trade negotiations as we saw when Canada caved on milk and poultry.
The new Mexican president has pledged subsidies to the young and elderly and ramp up building projects, including a new oil refinery. But Goldman Sachs analyst Alberto Ramos said there was “rising market apprehension” about what policy direction he will take that could make business “more defensive in their spending and investment decisions”.
The USMCA trade deal tightens rules for manufacturing cars and trucks. To remain duty free, the USMCA increases the portion of a vehicle's parts that must be made in the United States, Canada or Mexico. It also adds a wage stipulation, requiring that some of the parts are made by workers earning at least $16 an hour.
Some of the auto industry representatives said it would be complicated and costly to comply. But former Missouri Republican Gov. Matt Blunt, who represents the big three automakers - Fiat Chrysler, GM and Ford - called the new rules "workable".
The idea is that content restrictions will bring manufacturing back into North America, and that raising wages in Mexico would put upward pressure on those in the United States and Canada, too. Mexico has also committed to recognise workers' right to collectively bargain.
Of course, legislative ratification lies ahead for the USMCA, and the biggest objections are likely to arise in the post-midterm Democratic Congress, whose traditional backers in trade unions and labour federations are against free-trade deals.
“Democratic control of the House will mean an uphill battle for Trump to secure ratification of USMCA,” said Gary Clyde Hufbauer of the Peterson Institute for International Economics.
Even though the agreement is protectionist, and thus Democrat-friendly, they do not want to hand the Trump administration any victory, but there are those in the party whose local electorates demand support for the deal.
President Trump will "fast-track" the bill, meaning that congressmen can vote for or against the bill, but can't make changes. That limits the party’s ability to wheel and deal and win concessions on other issues.
Unions also have difficulty taking the word of Mexico that it will transform its "repressive labour regime", said Celeste Drake, the trade and globalisation policy specialist at the AFL-CIO (American Federation of Labour-Congress of Industrial Organisations).
"There is nothing in the text that would limit the current unfettered discretion to ignore blatant labour violations," she said.
Then there are the fruit and vegetable growers in Florida and Georgia are upset that the USMCA does nothing to protect them from lower-priced produce coming from Mexico. A lot of what's grown in the Southeastern United States, including strawberries, blueberries, tomatoes and bell peppers, are also grown in Mexico.
"Unfortunately, the trade environment created under NAFTA, and the trade environment that will be created under USMCA is anything but a fair to Florida's producers," said state agricultural commissioner Adam Putnam.
He and industry representatives said that low labour costs and subsidies from the government allows Mexican growers to sell fruit and vegetables in the United States for less than the cost of production.
Florida Strawberry Growers Association executive director Kenneth Parker said the USMCA would be "devastating" for Florida growers.
Beer Institute CEO Jim McGreevy said more than 60 per cent of beer made in the United States is packaged in aluminum cans, and that the tariffs are driving up the cost. The USMCA, he said, does not hurt the beer trade, but the tariffs imposed to protect the domestic steel and aluminum industries are a serious problem. But they can be lifted by the administration outside of the trade deal. But it is a task that has yet to be done.
"Exempting Mexico and Canada from the Section 232 tariffs on steel and aluminum strengthens the agreement and will in turn strengthen the US manufacturing base," said Ann Wilson, who represents the Motor and Equipment Manufacturers Association.
US steel producers have benefited from the tariffs, but Heidi Brock, CEO of the Aluminum Association, said that's not the case for her members. A majority of aluminum jobs in the US are not in primary production, but at manufacturers that import the metal from foreign countries.
The USMCA requires apparel products to use more North American-made fabrics in order to qualify for trade benefits. It specifically mentions sewing thread, pocketing fabric and narrow elastic bands.
Those restrictions "will make it more expensive and complicated for American brands and retailers to use the agreement" said United States Fashion Industry Association president Julia Hughes.
"We are concerned that there will be some companies who shift operations out of the Western Hemisphere, or decide not to move new orders to Canada or Mexico because of these cost increases," said Ms Hughes.
The requirement is welcomed by the textile industry. Augustine Tantillo, president of the National Council of Textile Organisations, said North American factories can meet the demand and will offer a boost to US producers.
The generic drug lobby and a group that focuses on improving innovation and access to new medical technologies expressed serious concerns.
Most contentious is a provision that will provide a 10-year period of marketing exclusivity for brand name drugs.
"In its current form, the USMCA will decrease competition for some medicines and lead to higher prescription drug prices for Americans," said Association for Accessible Medications lawyer Jeffrey Francer.
In a recent letter to US Trade Representative Robert Lighthizer, the group was joined by the AARP, Blue Cross Blue Shield Association and more than 20 other groups to oppose the agreement.
But the brand-name drug lobby Pharmaceutical Research and Manufacturers of America supports the agreement, particularly for its intellectual property protections that they say will "pave the way for the next generation of treatments and cures", according to its statement.
While there few things that can be said with any certainty, it seems clear that while Mexico has reasons for concern in the USMCA, but not any new threat that was not there in one form or another under NAFTA. |
