Arizona companies export an annual $9.7 billion in goods tariff-free to Canada and Mexico largely due to the North American Free Trade Agreement (NAFTA) that took effect in 1994.
Flash forward to 2020 and the new modernized version of that accord, the United States-Mexico-Canada Agreement (USMCA), is now in place, giving Arizona more chances to reap the benefits of free trade, trade experts said Tuesday.
Top Arizona Exports to Canada and Mexico, 2017Computer & Electronic Products ($2.1 Billion)
Electrical Equipment, Appliances & Components ($1.3 Billion)
Minerals & Ores ($1.1 Billion)
Transportation Equipment ($947.2 Million)
Machinery ($727 Million)
Agricultural Products ($536.9 Million)
Plastics & Rubber Products ($528.6 Million)
Fabricated Metal Products ($440.6 Million)
Chemicals ($386.2 Million)
Primary Metal Products ($278.8 Million)
How this new agreement impacts Arizona businesses was the topic of a panel discussion hosted by the Arizona Chamber of Commerce and Industry. The event, entitled A New Era for Trade: USMCA Implementation & Growing Arizona’s Trade Ties, detailed the changes in the new agreement that went into effect July 1.
Four panelists, all who are involved in strengthening economic ties and trade between Arizona, Canada and Mexico, were the speakers: Zaib Shaikh, consul general of Canada in Los Angeles; Jorge Yescas, consul general of Mexico in Phoenix; Juan Ciscomani, senior adviser for regional and international affairs for the Arizona Office of the Governor; and Glenn Hamer, president and CEO of the Arizona Chamber of Commerce and Industry.
New rules to advance world’s largest free trading block
Among the new chapters and provisions in the USMCA lauded by the panelists were higher dollar thresholds for duty-free sales, labor reforms and higher wages for auto workers in Mexico, legally binding standards to protect the environment, protections for intellectual property, gender equity provisions, and new measures to help small- and medium-sized companies more fully access the global market.
The new treaty also positions the three countries to come out of the pandemic in a stronger position, united together as a global competitive force, the Chamber’s Hamer said.
“The more we use the tools of this agreement, the more prosperous all three countries will be, and the faster we’ll get out of this damage that the pandemic has caused us all,” Hamer said.
Free trade in a region with 470 million customers
Mexico and Canada are Arizona’s top trading partners. Canada also is the No. 1 country with direct foreign investment here.
For North America, the USMCA represents a region with 470 million consumers and an annual marketplace of more than $1.2 trillion in trade.
“In this time of the pandemic, as we look forward to what the agreement means to the reset and the recovery, those kinds of numbers are really meaningful,” said Shaikh, consul general of Canada, whose job is to encourage cooperation between Canada and Arizona, Southern California and Nevada. “From a Canada perspective, the USMCA is a top-notch updated modern agreement, but it also is a preservation of the North American Free Trade Agreement. There will be no new tariffs.”
New and improved USMCA changes
The USMCA’s stated purpose is to deepen gains from trade and preserve and expand regional trade and production by further “incentivizing the production and sourcing of goods and materials in the region.”
Here are some of the most important changes in the new agreement, the panelists said:
New Rules of Origin
More stringent rules from the automotive industry. Seventy-five percent of vehicles, including electric vehicles, must be produced in North America instead of the former 62.5 percent, and 40-45 percent of vehicles are to be assembled by workers who earn at least $16 an hour.
Yescas, consul general for Mexico in Phoenix, said his country’s president and congress overwhelmingly support labor reforms including the “gradual” increase of hourly wages and “the extension of labor protections for migrant workers and the protection of women from discrimination.”
These new rules will benefit Arizona, tilting automotive original equipment manufacturers (OEMs) toward the southern part of the U.S. and Mexico.
Arizona is well positioned, given its proximity to OEMs in Northwest Mexico like Ford in Sonora, and Toyota in Baja California, and its connectivity via I-19 to Mexico’s Highway 15 corridor, leading to the Bajío automotive cluster. Trinational electrical vehicle projects, such as the Lucid Motors factory in Casa Grande and the Nikola truck factory in Coolidge, also are well positioned to meet USMCA goals and leverage research and development and auto assembly in the U.S.
The agreement preserves market access for Arizona’s agricultural industry and includes additional U.S. access to Canada’s poultry, dairy and turkey markets. There are additional measures to improve phytosanitary inspections.
In Arizona where agriculture is a key industry, tariff-free trade is essential to the economy, said Ciscomani, who also is vice chair of the board of directors for the Arizona-Mexico Commission that has been working for 61 years to improve economic, cultural and tourism ties between Arizona and Mexico.
Yuma alone produces the vast majority of America’s green leafy vegetables in the winter months, Ciscomani said.
“Agriculture has always been a staple for the Arizona economy so we’re excited about the advantages tariff-free trade brings to the sector,” Ciscomani said. “It did well under NAFTA and the new improvements will set it up for further expanded success.”
Higher duty-free thresholds
Minimum thresholds were increased, removing tariffs on more goods. This will allow for additional flexibility in sourcing globally while also keeping the duty-free incentive to source in North America. This also would have a positive impact on the SkyBridge project at Phoenix-Mesa Gateway Airport, a new operation that capitalizes on the U.S.-Mexico Unified Cargo Processing that expedites import and export processing times of goods.
Stronger IP protections
New protections for intellectual property extend patent protections to 10 years from eight in Canada, expand copyright protections, and broaden trademark rules to cover sound marks and scent marks. Penalties are increased for violating trade secrets or trading counterfeit goods. Custom rules for detaining illegal counterfeit goods have been modified. Internet service providers are now required to implement a “notice and takedown” system in Mexico when digital information infringes on ownership rights.
Digital Trade and cybersecurity
New provisions for digital trade such as e-books, music, software and video games include a prohibition on tariffs on digital products distributed electronically, rules for validating e-signature and e-documents, anti-spam measures, and coordinated cybersecurity measures for the three countries’ highly integrated telecommunication systems.
Small businesses will benefit for first time
For the first time in a U.S. trade agreement, the USMCA includes a dedicated chapter on small- and medium-sized enterprises (SMEs) and other provisions targeting this group including:
-Establishes information-sharing tools to help SMEs to better understand the benefits of the agreement
– Creates a committee on SMEs issues comprised of government officials from each country to ensure they benefit from the agreement
To read more about the new USMCA and its impacts in Arizona, go to: USMCA Now.