For over a year, President Trump threatened to cancel the North American Free Trade Agreement. He called it the worst trade deal ever.
Thankfully, cooler heads prevailed.
What has emerged after several months of negotiations is a retooled, rebranded trade agreement between our country’s friends and neighbors that, if Congress does its job, will relaunch North America as the globe’s most competitive region.
It’s good news for a border state like Arizona, whose proximity to Mexico and its close relationship with Canada has made our state one of the country’s most attractive for investment. Had the deal completely collapsed—which wasn’t out of the realm of possibility—Arizona’s economy would have suffered real and lasting damage.
A DEAL FOR A 21ST CENTURY ECONOMY
The nearly 25-year-old NAFTA needed an update. Originally negotiated and implemented in the dial-up era, it was time for North America to adopt a trade agreement built for a broadband economy. The new agreement, now known as the United States-Mexico-Canada Agreement, or USMCA, has much to like.
USMCA contains an important new chapter on intellectual property to protect the continent’s innovators and creators, including in the entertainment, pharmaceutical, and agricultural space.
The agreement also toughens enforcement provisions, creating new mechanisms to prevent pirating, counterfeiting, and data breaches.
The USMCA recognizes the realities of today’s economy by ensuring that digital goods—music, software, games—aren’t hit with customs duties when traversing North American borders.
And credit to Arizona Rep. David Schweikert, who, from his perch on the powerful House Ways and Means Committee, successfully advocated for a major increase to NAFTA’s former de minimis rules, which will now make it easier for small and medium-sized U.S. businesses to reach customers in Canada without duties being assessed on the shipments.
AVOIDING MAJOR ERRORS, ADDING SOME NEW WRINKLES
The new USMCA is notable not just for its updates and revised articles, but for what it preserved.
Under NAFTA, investment beyond U.S. shores could take place with confidence and certainty thanks to an arbitration system known as Investor State Dispute Settlement. Under ISDS, investors who had been treated unfairly by a foreign government could seek redress. Prior to USMCA, the administration was making noise about wanting to eliminate ISDS completely, despite that the U.S. and U.S. companies fared well under the system.
Many in the U.S. business community view the USMCA version of the ISDS mechanism as weaker than it was under NAFTA. It’s a fair criticism. More investors could end up having to seek redress in local courts rather than via international arbitration. But eliminating ISDS altogether would have been disastrous.
The new USMCA also avoids a quick sunset, which trade advocates like the U.S. Chamber and National Association of Manufacturers balked at for what it would do to investor confidence. Would you build a brand-new factory in a foreign country if there was a chance the trade agreement that made that country appear open for business could be canceled in a few short years?
Much like ISDS, the sunset provision isn’t perfect, but USMCA contains a 16-year sunset with an automatic review by the party countries after six years, which hopefully will avoid injecting uncertainty into the marketplace. Time will tell.
And USMCA keeps things trilateral, which is incredibly important. That was hardly assured just a few weeks ago. Canada was absent from negotiations for a month as the U.S. and Mexico pursued their own bilateral agreement. Had Canada been left out in the cold, it would have presented major problems for North American companies that depend on sophisticated supply chains to move products back and forth across the northern and southern borders before assembling a finished product.
The preservation of the TN classification of visas, also known as the NAFTA Visa, is important for Arizona’s workforce needs. The ability for certain Canadian and Mexican professionals to work in the U.S. is mostly unchanged.
Some amendments, like to rules of origin and new requirements relating to wages, are not what most business community advocates wanted. But the certainty that the new deal delivers makes its final adoption absolutely worthwhile.
GETTING THE DEAL DONE
This is a big deal to solidify this agreement. USMCA has some shortcomings. There are areas where the business community would have preferred different decisions. But the other option—no trade deal at all with Canada and Mexico—was untenable.
The USMCA negotiation represents a moment where the administration appears to have recognized the benefit of maintaining good relationships with our neighbors. There is a diplomatic dividend to USMCA.
While locking down the USMCA is an incredibly positive development, there are still headwinds on trade. Each country needs to carry out its own ratification process as efficiently as possible, which means the U.S. Congress needs to work quickly in 2019 to move the agreement through the legislative process, regardless of which party is in control.
And the administration should take heed of recent rough days on the stock market. Investors like the certainty of a new trade agreement, but they don’t like rising costs due to the self-inflicted harm of tariffs, especially those imposed on friends like Canada. USMCA accomplished a lot, but there are still barriers to free trade that need to be torn down.
Glenn Hamer is the president and CEO of the Arizona Chamber of Commerce and Industry