The new NAFTA inches closer to ratification

Canada, Mexico and the U.S. have signed on to what is now the final version of the revised NAFTA, the United States – Mexico – Canada Agreement (USMCA). While Mexico had already ratified the agreement, Canada and the U.S. delayed ratification to push for amendments around labour, the environment, and pharmaceuticals.[1] On December 11, 2019, the final amendments to the USMCA were released.[2] The White House sent legislation to the House for approval on Friday, December 13. The U.S. House and Senate are both expected to pass the new deal.[3]

Following approval of the final amendments, there was contention with a labour provision that was added to the agreement that would allow U.S. labour attachés to monitor factories in Mexico to probe allegations of employee mistreatment.[4] Concerns were handled by U.S. assurance to Mexico that the labour attachés would not be “labour inspectors.”

As it relates to the automotive industry, one analyst described the approval of the final version of the USMCA as “Detroit – End of Disaster”.[5] Why the end of disaster? It is the end of uncertainty for an industry that relies upon years-in-advance planning.

Beyond the end of uncertainty, “Ratifying USMCA ironically doesn’t change much [for the industry]. Rather, it provides for stability in North American vehicle production, which is crucial for the auto industry and the U.S. economy. Costs will likely rise modestly over time due to the higher content and wage rules, but for now this is about finally reducing some uncertainty that has been weighing on the industry for almost two years.”[6]

There are ongoing concerns about the potential threat of new auto tariffs being introduced.[7] The agreement will also put “competing pressures on the auto industry, in part because of requirements for more auto content to be produced at a higher wage range.”[8] It is expected that automakers will introduce measures to offset higher wage costs, including increasing automation, the use of temporary workers and new purchasing strategies.[9]

There is little evidence to support that the agreement will usher in an era of increased jobs in the industry. A fellow from the Peterson Institute for International Economics stated, “It’s not at all clear that there is going to be a positive effect on jobs in the auto industry.”[10] The reason has to do with provisions of the agreement related to content and wage. Increased costs in production may decrease demand and reduce jobs.

The final text of the amendments can be read here.

[1] McGregor, J. (Dec. 11, 2019). NAFTA 2.1: The changes Democrats (and Canada) settled on. CBC News. Retrieved from https://www.cbc.ca/news/politics/what-nafta-changes-mean-for-canada-1.5391803

[2] McGregor, J. (Dec. 11, 2019). NAFTA 2.1: The changes Democrats (and Canada) settled on. CBC News. Retrieved from https://www.cbc.ca/news/politics/what-nafta-changes-mean-for-canada-1.5391803

[3] Coleman, J. (Dec. 16, 2019). Mexican official says he’s ‘very satisfied’ with USMCA after concern. The Hill. Retrieved from https://thehill.com/policy/international/trade/474842-mexican-official-says-hes-very-satisfied-with-usmca-after-recent

[4] Coleman, J. (Dec. 16, 2019). Mexican official says he’s ‘very satisfied’ with USMCA after concern. The Hill. Retrieved from https://thehill.com/policy/international/trade/474842-mexican-official-says-hes-very-satisfied-with-usmca-after-recent

[5] Acker, D. (Dec. 14, 2019). Main benefits from USMCA? End of auto industry uncertainty. Lincoln Journal Star. Retrieved from https://journalstar.com/business/agriculture/main-benefit-from-usmca-end-of-auto-industry-uncertainty/article_b28f39a7-a64f-52b7-8451-9ba46565398c.html

[6] Acker, D. (Dec. 14, 2019). Main benefits from USMCA? End of auto industry uncertainty. Lincoln Journal Star. Retrieved from https://journalstar.com/business/agriculture/main-benefit-from-usmca-end-of-auto-industry-uncertainty/article_b28f39a7-a64f-52b7-8451-9ba46565398c.html

[7] Acker, D. (Dec. 14, 2019). Main benefits from USMCA? End of auto industry uncertainty. Lincoln Journal Star. Retrieved from https://journalstar.com/business/agriculture/main-benefit-from-usmca-end-of-auto-industry-uncertainty/article_b28f39a7-a64f-52b7-8451-9ba46565398c.html

[8]Acker, D. (Dec. 14, 2019). Main benefits from USMCA? End of auto industry uncertainty. Lincoln Journal Star. Retrieved from https://journalstar.com/business/agriculture/main-benefit-from-usmca-end-of-auto-industry-uncertainty/article_b28f39a7-a64f-52b7-8451-9ba46565398c.html

[9] Acker, D. (Dec. 14, 2019). Main benefits from USMCA? End of auto industry uncertainty. Lincoln Journal Star. Retrieved from https://journalstar.com/business/agriculture/main-benefit-from-usmca-end-of-auto-industry-uncertainty/article_b28f39a7-a64f-52b7-8451-9ba46565398c.html

[10] Chokshi, N. (Dec. 11, 2019). Union’s skeptical Trump’s trade deal will bring back auto jobs. The New York Times. Retrieved from https://www.nytimes.com/2019/12/11/business/nafta-usmca-auto-jobs.html