WTCBN USMCA Back-to-Back Events Follow-up
In December 2018, WTCBN hosted back-to-back sessions on the new U.S.-Mexico-Canada Agreement (USMCA) – what’s included in the new agreement, what companies should be watching closely, and the political prospects as each of the three countries move toward ratification. We asked our speakers at the two events - for their top takeaways from the discussion:
Lauren Schellinger, Vice President, M&T Bank
During WTCBN’s recent USMCA events, I was intrigued to find people’s view of the new USMCA widely varied. There are many who favor the updates in the agreement for the modernization they provide, and there are many who are disappointed with the new provisions and the pieces left out. Views didn’t seem to fall along national, generational, or industry lines. The political environment in both the U.S. and Canada looms large in any discussion of global trade. The ratification process for USMCA should be very interesting. In anticipation of ratification, I would suggest our readers consider the following key takeaways (leaving out the well-documented changes in the automotive and diary industries):
- USMCA does not include an Investor-State Dispute Settlement (ISDS) provision, which was present in NAFTA as a mechanism for investors to seek recourse for adverse impacts of regulatory changes by a member country outside of the court system. Under USMCA, investors would need to seek recourse through the courts. Note that there are specific carve-outs for the Mexican energy sector and that Canada and Mexico will still have an ISDS through the TPP, but the U.S. will not.
- The USMCA specifically encourages cooperation on the latest agricultural biotechnology initiatives. This will allow for information exchange which will speed technology development and identify/mitigate risks efficiently. Note that the USMCA does not provide a specific seed regulatory system, but recommends one be created.
- There is a true effort in USMCA to advantage small businesses. There are streamlined shipping processes that will reduce costs and ease paperwork and ecommerce. The USMCA also establishes a mechanism for small businesses to provide feedback, magnifying the voices of the engines of our economies.
There are many other items worth reviewing within specific industries and there is plenty to consider as the enforcement mechanisms are discussed through the ratification process. Look forward to the U.S.
Trade Commission report which will be due March 15th. In the meantime, reach out to your advisors in cross-border trade to discuss any specific concerns for your business.
Jack O’Donnell, Partner, Bolton St. John’s
- Organized Labor: Significant labor protections were added to this agreement, especially provisions to raise labor standards in Mexico (most significant include “independence” for Mexican labor unions, which have been historically controlled by employers) and requirements to raise wages for auto workers. Those labor protections may make this agreement palatable to Democrats in Congress. Nevertheless, expect to hear skepticism from Speaker Pelosi and her members about enforcement mechanisms (or the lack thereof) in this agreement. Significantly, although the Trump Administration has pushed hard, the AFL-CIO has not endorsed the deal.
- Politics: Steel and aluminum tariffs were not a part of the agreement and will remain in place. There is a political element to these tariffs and the Trump Administration plans to highlight these in the electorally important states of Pennsylvania, Michigan, and Wisconsin. Significantly, President Trump won these states in 2016 while Republicans lost big there in 2018.
The Wait: While this is important to us, there is a long way to go before Congress focuses on the agreement. We have a government funding battle (leading to the current shut down), confirmation hearings for a new Attorney General and Secretary of Defense, and much more including a Mueller investigation report all before Congress even takes up this agreement. Hang on to your hats!
Craig Turner, President, World Trade Center Buffalo Niagara
It was rewarding to have the opportunity to moderate two excellent discussions on back-to-back days on USMCA. With new insights coming from both the panelists and attendees, the presentations quickly took on more of a roundtable feel – in fact, on the second day, right before the program started we broke down the classroom-style seating in favor of a circle, which facilitated a robust discussion.
The biggest takeaway from the two conversations for me was that while there’s an agreement in place, both sessions included plenty of debate on the details – among both the Canadian and U.S. participants. Understanding that each country still needs to ratify the agreement, we took to labeling the agreement “as written” as we discussed its details. There is still a great deal of work to do, and the final product may have some changes, but the consensus among the room was that the agreement is far too important for all three countries. While there will be squawking, political jabs, fist-pounding and Tweeting, in the end the countries will agree and ratify.
Since there are different directions that USMCA can ultimately go, it is important that companies doing business across the border or throughout North America take advantage of the time to get a firm understanding of how the agreement affects their operations specifically. There continues to be a great deal of rhetoric in the news, but in the end from a company perspective the only thing that matters is how it affects your supply chain. If you don’t have the resources internally to do that exercise, hire a specialist to do an audit for you. You’ll be better prepared for whatever outcome USMCA yields.
