Executive Summary
The implementation of USMCA has been critical in enhancing and regional cooperation among the US, Canada, and Mexico. The overarching aim of the renegotiation of the NAFTA and the implementation of USMCA include the need to protect workers’ fundamental rights in the respective member states, protecting intellectual property rights and rules of origin changes. This paper presented the economic implications of the adoption of USMCA in enhancing an increased and shared market for goods and services produced within the member states. The US has benefited from increased agricultural product production to meet the ever-growing demand, especially in Canada, for its wide range of agricultural products. The research paper discussed the economic implications of the regional trade agreement. Some of the benefits include increased importations and exportations to meet the rising demand for goods and services in the foreign market. Consumers and governments benefit from the increased supply and demand for goods and services and rising employment rates in respective countries. However, just like previous trade agreements, USMCA is facing insurmountable challenges. The paper also provided some recommendations on addressing the common shortcomings associated with the regional trade agreement—including policy review, re-evaluating the oversight roles of USMCA in protecting and upholding the fundamental rights of employees.
Introduction
Domestic policies have significant impacts on regional trade and integration. Trade agreements and treaties are crucial in negotiating for improved trading relationships among the countries. The US remains of the countries investing in other countries and benefits from foreign investments. The formulation and implementation of the North American Free Trade Agreement (NAFTA) and its replacement with the United States-Mexico-Canada Agreement (USMCA). NAFTA became active on January 1, 1994, and removed tariffs for most goods traded among the US, Canada, and Mexico. USMCA did not add new membership; it instead modifies specific provisions concerning trade among the existing parties. The formulation and adoption of USMCA presented numerous opportunities and benefits to North American workers, ranchers, farmers, and businesses (Villarreal and Fergusson). The USMCA promotes the establishment of more balanced trade by supporting job creation and the growth of North America’s economy. This report will evaluate the economy-wide impacts of USMCA, and its sectorial has implications on the members’ economies, especially the United States.
Background Information
The USMCA is an improved version of the 25-year-old trillion-dollar North America Free Trade Agreement (NAFTA). The USMCA sought to introduce significant changes to new policies on labor, intellectual property protections, and environmental standards, and some aspects of digital trade provision. Trump Administration delivered on a negotiated NAFTA, resulting in the founding of USMCA. The new treaty covers different elements of international trade and economic policy frameworks (Villarreal and Fergusson 332). The qualification for the proposed zero tariffs requires the automobiles to have about 76% of their components manufactured in Canada, the US, or Mexico (Villarreal and Fergusson 327). NAFTA required approximately 62.5% to enjoy such benefits. In addressing the wage issues, the new guidelines require that about 40% to 45% of the automobile components much be made by employees earning at least $16 an hour by 2023 (Villarreal and Fergusson). The Mexican government has cooperated with the new directive by giving more excellent protection to employees, including women and immigrants, thus making it possible for Mexico’s workers to unionize.
The Scope of USMCA
The USMCA establishment was to attain numerous objectives as far as trade and regional integration are concerned. Some of the overarching aims of the USMA include creating a more level playing field for the US workers, including improving the rules of origin for the foods and other products—trucks, automobiles, and other disciplines associated with currency manipulation (Villarreal and Fergusson 345). Secondly, the agreement aimed to address the current economy by establishing new protection for US intellectual property by improving US services trade opportunities. Thirdly, the new policy framework included digital trade, adopting acceptable regulatory practices, and addressing the challenges facing Small and Medium-Sized Enterprises (SMEs) by signing such an agreement (Villarreal and Fergusson 328). The new exchange will continue to improve mutual benefits trade, thus enhancing freer markets, better business, and enhanced economic growth.
USMCA also emphasizes the need to improve adherence to environmental obligations.
The protection and upholding of the ecological balance require the need to combat trafficking in wildlife, fish, timber, and improve existing law enforcement networks to address the most pressing environmental challenges, including marine litter and air quality (Villarreal and Fergusson 342). The member states are expected to prevent harmful fisheries subsidies, including those that benefit vessels or operators engaging in illegal, unreported, and unregulated (IUU) fishing. It is imperative to enhance customs inspections of shipments containing flora and fauna products at the entry point. Improvement of air quality and preventing marine litter, including supporting sustainable ecological management, are critical functions of the members (Villarreal and Fergusson 342). The member countries have continued to negotiate on separate environmental cooperation and custom verification approaches.
Other critical aspects of the treaty include enhancing access to foreign markets. According to Trump’s Administration, the implementation of USMCA will improve the market for the local farmers to sell their dairy products in Canada. Another critical element of the treaty is the 16-year sunset clause. It makes it compulsory to review the treaty after six years—in which the parties can decide to continue with the treaty based on the increased mutual benefits of the USMCA (Villarreal and Fergusson 364). It is critical to note that intellectual property and digital trade are pertinent issues the USMCA sought to address. The proposed economic treaty sought to review the provisions to address the digital economy, including prohibiting duties on e-books and other online products (Villarreal and Fergusson 311). USMCA provides immunity to internet companies from the liability of the content that their respective end-users produce.
The process of ratifying and implementing the USMCA has been associated with numerous setbacks. Mexico became the first country to sign the proposed deal. However, the USA cites the need to adopt robust labor provision, improved environmental protection, and other critical changes associated with regional cooperation in trade (Villarreal and Fergusson 327). Further negotiation with the relevant teams has been crucial in addressing the suggested international treaty’s contentious issues. The eventual adoption of USMCA became effective on July 1, 2020 (Villarreal and Fergusson 326). The formulation and the adoption of the proposed new policy have resulted in significant changes, especially in managing human resources within the organizational settings (Villarreal and Fergusson 325n). Currently, most companies and governments are still trying to adjust to the suggested new policies and guidelines associated with the management of employees to remain compliant with the provisions of the USMCA treaty.
Critical Economic Analysis and Impact of USMCA
The proposed USMCA will have significant implications for different sectors in the US economy. The industries in automotive, chemical and agriculture are expected to enjoy the suggested agreement’s potential benefits. Trump’s Administration goal of enhancing the number of cars produced in the US (Villarreal and Fergusson 354). In this context, the USMCA highlights new providing, including improved regulations concerning how the automobile’s quality for the suggested lower tariffs. The changes will imply that the business organizations implement manufacturing their cars to comply with the new requirements (Villarreal and Fergusson 322). The USMA will require the automobiles to have approximately 75% of their parts in North America. The proposed guidelines classify parts of the vehicles as heavy-duty, light-duty, and other categories include core, principles, and complementary parts. The USMCA increase labor value content provision that will require approximately 40% to 45% of the automotive parts made by the employees who earn about $16 an hour (Villarreal and Fergusson 322). The manufacturing will move from Mexico to the United States and Canada.
The proposed agreement will have a positive impact on the agricultural sector. US farmers will significantly benefit from the new deal, especially in enhancing access to the broader Canadian market (Villarreal and Fergusson 329). Many farmers’ products will benefits from the expanded market—cheese, ice cream, and other dairy products. The USMCA provides for improved tariff quotas for poultry exported to Canada, thus allowing the farmers to improve their sales volume and profitability. Under the USMCA, the US will increase annual agricultural exports by about $2.2 billion by 2030. The US will continue tapping into the improved market share in enhancing its agricultural production to meet the increased demand (Villarreal and Fergusson 334). The new market’s availability creates opportunities for the country’s farming sector to improve its production activities and increase employment rates, including foreign better exchange earnings. USMCA will have profound implications in the trade of goods and services
Trade of Goods and services
The adoption of the USMCA has accounted for a significant increase in global exports of goods. The USMCA members accounted for 14% of global exports of goods and 19% of global imports of goods (Villarreal and Fergusson 324). Mexico and Canada remained the largest export markets for the US in 2017; they receive approximately 34% of the US exports (Villarreal and Fergusson). The two countries were also important primary sources, accounting for 26% of the US imports. In 2017, the US exported about $282 billion worth of goods to Canada and $ 243 billion to Mexico (Villarreal and Fergusson 322). The US imports were $314 billion and $299 billion work of imports from Canada and Mexico respectively in the same year. The percentage of US imports from the international market subject duties remained 30%. The majority of the US imports from Canada and Mexico were duty-free (Villarreal and Fergusson 324). The automotive industry is the largest US export source to Canada, while the machinery sector was the largest US export source to Mexico. USMCA members accounted for approximately 17% of the global exports of services and 13% of the international import of services.
Employment and Labor
USMCA has had profound implications in employment and labor regulations in member countries. For instance, USMCA adopted the stipulation requiring Mexico to overhaul its labor laws to gain bipartisan support from the US (Villarreal and Fergusson). The reforms have benefited the employees in Mexico, especially on the provision allowing them to unionize. Such stipulations are relevant, particularly in the manufacturing sector. The successful implementation of the proposed provisions will raise Mexican union wages by approximately 17.2%. The USMCA has devised a mechanism for ensuring compliance with the suggested stipulations (Villarreal and Fergusson 3838). For instance, the rapid-respond mechanism integrate the perspective of labor experts to address the identified compliant (Villarreal and Fergusson 346). Non-compliant with the proposed interventions often results in adopting economic sanctions, including denial of a specific facility or passing customers. According to the recent report from the International Trade Commission (ITC), the adoption of the economic sanction has been instrumental in eliminating unfair competition among the member states (Villarreal and Fergusson 329). Such approaches have remained critical in fostering and promoting fair competition among the member states.
The successful adoption of USMCA will continue to have a critical impact on the respective countries’ economy and employees. The most remarkable gain associated with implementing the treaty includes a significant improvement in the wage rates. The provisions of the treaty proposed a modification of unionization wages by approximately 17.2%. The USMCA will continue to monitor the successful implementation of labor rights in member countries (Villarreal and Fergusson 342). According to the ITC report, Mexican workers are yet to benefits from such labor rights. The impacts of USMCA on workers vary depending on many factors, including education and competencies (Villarreal and Fergusson 341). The demand for certain types of workers will increase more than others (Villarreal and Fergusson 344). The improvement in the wage rate will also influence the decisions of employees to enter the labor market. Thus, the improvement in wage rates can lead to an increased labor supply in the respective countries.
Digital Trade and Economic Implication
The new digital will significantly impact the exportation and importation of digital products. The most commonly traded digital products include software applications, videos, music, and e-books. Under the proposed treaty, it will be critical to ensure that data transferred across the border meets the limits of the storage and processing of digital products while protecting the entire global digital ecosystem (Villarreal and Fergusson 324). It has also eliminated the restriction posed on electronic signatures or authentication to enhance digital transactions among the member states (Villarreal and Fergusson 366). Other implications of the USMCA provisions include the need to limit governments’ involvement in implementing the need to disclose proprietary computer source code and algorithms to promote fair competition among digital suppliers (Villarreal and Fergusson 324). Most importantly, limiting the civil liability associated with internet platforms for third-party content, including platforms host or processes, has significantly improved such economic viability of such engines in enhancing user interaction and content. Such guidelines have been critical in allowing market forces to determine the demand and supply of goods and services within the regional block.
Conclusion
Therefore, it is imperative to note that domestic policies are essential in promoting trade and regional cooperation, especially in economic areas. The formulation and implementation of USMCA, based on the previous models of agreements, has had a significant impact in improving various aspects among the USMCA members. Such interventions and provisions based on the new deal have resulted in an impossible process in enhancing importation and exportation, including protecting citizens’ fundamental rights. Free flow of goods and services across the borders is essential in ensuring improved partnership and cooperation in transferring expertise and technology among the USMCA members. Although the adoption of USMCA has been critical in addressing the previous models of agreement, there numerous shortcomings that require further review through improved policy frameworks. The respective government should consider the socioeconomic and political considerations associated with adopting the proposed regulatory body. It is critical to review the economic implications of the current USMCA in promoting trade-in with domestic policies.
Recommendations
The USMCA is one of the regional trade agreements seeking increased integration. The traditional treaties aimed at reducing tariffs and other forms of barriers at borders. Consumers and the economy tend to benefit from such agreements due to improved efficiency in importing goods and services. Concerning the challenges associated with the existing trade agreement under the USMCA umbrella, the following are some recommendations for addressing the shortcomings
- It is imperative to formulate and implement robust regulations that are efficient and equitable in addressing various aspects of regional trade – such as the issues of intellectual property rights and online privacy that requires balancing the cost and benefits of the USMCA.
- Some of the contentious issues associated with the USMCA include labor, environments, sunset provision, and other regulations on automobiles’ vehicles and components, including government procurement. The US legislative body must continue examining such issues, especially concerning future trade agreements’ possible alignment.
- It is also important to re-evaluate the oversight roles in adopting USMCA regulations, particularly managing human resources. The policy reviews should evaluate the efficacy of the proposed guidelines by USMCA in promoting the workers’ fundamental rights. Labor protection remains one of the top priorities for policymakers in the US.
Reference
Villarreal, M. A and I. F Fergusson. “NAFTA renegotiation and the proposed United States-Mexico-Canada Agreement (USMCA).” Congressional Research Service (2019): 26. Web.