Embed Size (px)
Citation preview
USMCA AND THE POTENTIAL IMPACT ON
THE US ECONOMYMichael Konidaris
Principal Economist
Macroeconomic Advisers by IHS Markit
CONTENTS
• ROAD TO USMCA
• PROVISIONS
• LEGISLATIVE PROCEDURE
• USMCA IN NUMBERS
• IMPACT ON THE US ECONOMY
ROAD TO USMCA: NAFTA
• Mexico pursued economic modernization and trade liberalization
• First US FTA with a developing nation
• Massive and unprecedented deal but the net impact on the US economy was muted
• The never ending debate on trade policy started
• Mexico and US started – Canada joined later (extension of FTA with Canada)
• Fears that Mexico would “steal” US jobs and output with no respect for human
rights or the environment
• Covered the entire spectrum of the economy and eliminated most of the remaining
tariffs: Market access, rules of origin, agriculture, financial services, investment,
dispute settlement
• Side agreements on provisions about the labor market and the environment
Rationale
Details
Outcome
ROAD TO USMCA: TPP
• The centerpiece of President Obama’s strategy in Asia (economics + geopolitics)
• Set to become the largest free trade deal covering 40% of the global economy
• Began in 2005 and was signed in 2016.
• Started with 4 Pacific Rim countries (Brunei, Chile, New Zealand, Singapore
• In 2008, US led Australia, Vietnam and Peru to join talks
• Final 4 countries, including Canada and Mexico, joined later
• President Trump withdrew and the remaining countries proceeded with the
Comprehensive and Progressive TPP (CPTPP)
• Missed opportunity for the US to play a key role in global trade and in the Asia-Pacific
region
ROAD TO USMCA: NEGOTIATING OBJECTIVES
• Labor and environmental provisions
• Investor-state dispute settlement process
• Protect the supply management system for dairy and poultry
• Free trade of goods and services
• Strengthen the security of the energy sector
• Improve labor standards, anticorruption and environmental provisions
• Reduce trade deficit with NAFTA countries and rebalance benefits
• Question the validity of binational dispute settlements
• Rules of Origin
ROAD TO USMCA: TIMELINE
August 16th 2017: Negotiations begin
September 30th 2018: Agreement is reached
November 30th 2018: USMCA is signed
April 18th 2019: USITC report is
submitted
May 30th 2019: USTR submitts a draft
statement on administrative
measures
June 20th 2019: Mexico ratifies deal
October 21st 2019: Canadian Federal
Election???????
PROVISIONS
Regional Value Content (RVC)
NAFTA USMCA
Light Vehicles (Heavy Trucks) 62.5 (50) 75 (70) Transition period of 3 + 2 years
Core parts * 75 (70)
Transition period of 3 – 5 yearsPrincipal parts * 70 (60)
Complementary parts * 65
Steel & Aluminum * 70 Effective immediately
Labor Value Content (LVC)
NAFTA USMCA
Passenger Vehicles – 40% Produced by workers earning at
least $16/hourTrucks (Light + Heavy) – 45%
Exemption from Section 232 tariffs
2.8 million PVs and LTs + $108 bil. in auto parts from Mexico
2.8 million PVs and LTs + $32.4 bil. in auto parts from Canada
PROVISIONS
Dairy + Poultry + Eggs
Dairy + Sugar + Peanuts + Cotton
• Trade facilitation to speed-up and simplify trade
• Affirmation and extension of WTO’s Trade Facilitation Agreement in 2017
• Greater duty-free access and expedited customs treatment:
Canada to raise the limit from $16 to $117
Mexico to raise the limit from $50 to $117
US to maintain the limit at $800 (or lower it to achieve reciprocity)
PROVISIONS
• Non-discriminatory treatment of digital products relative to physical ones
• Prohibit cross-border data flows restrictions and data localization requirements
• Prohibit customs duties or other charges for electronically transmitted products
• 3 primary dispute settlement mechanisms in NAFTA:
• Chapter 20: country-to-country resolution mechanism
No change in USMCA
• Chapter 19: arbitration on anti-dumping or countervailing duties must take
place in an international court rather than a domestic one
No change in USMCA
• Chapter 11: Investor-State Dispute Settlement, which enables multinational
corporations to sue participating governments over allegedly discriminatory
policies
Canada is removed under USMCA
US and Mexico are limited to certain industries (gas, transp, telecom, etc.)
Canada and Mexico maintain their relationship under CPTPP
PROVISIONS
• 16-year “sunset” clause
• 6-year reviews Termination or 16-year extension
• Extend copyright length in Canada to life +70 years (+75 for sound recordings)
• Extend patent for biologics (vaccines) to 10 years (Mexico was 5 and Canada was 8)
• Requirement to refrain from competitive devaluation of one’s currency
• Sets a precedence for future trade deals (China)
• Rules of Origin for textiles and apparel = more/less restrictive by product
• De minimis allowance to increase from 7% to 10% for non-originating fibers or yarns
• Potential increase in exports to Canada due to higher tariff preference levels (TPLs)
LEGISLATIVE PROCEDURE: OVERVIEW
• The Trade Promotion Authority guides the legislation procedure
• Revenue bill must be introduced in the House first
• “Fast Track”: No amendments – no filibuster – simple majority
• 20 hours of debate on the floor in each body
• 15 days to vote in each body
• 90 days in total
LEGISLATIVE PROCEDURE: RATIFICATION
House votes
on the bill
Senate votes
on the billWays and Means Committee reports
on the bill
Senate Finance
Committee
reports on the bill
90 Days
60 Days 30 Days
45 Days 15 Days 15 Days 15 Days
Bill is introduced
in the House Bill is signed
LEGISLATIVE PROCEDURE: OBSTACLES
Side agreements vs Amendments
2020 Presidential Election
2019 Canadian Federal Election
Impeachment Inquiry against
President Trump
197
235
1 2
U.S. House of Representatives
Rep
Dem
Ind
Vac
5345
2
U.S. Senate
Rep
Dem
Ind
Speaker Pelosi & Democratic Party
USMCA IN NUMBERS
Source: International Trade Administration
State %
North Dakota 84
Montana 76
Michigan 68
Vermont 57
South Dakota 56
Maine 52
Arizona 46
Missouri 45
Iowa 44
Oklahoma 43
Wyoming 43
Texas 43
New Mexico 42
New
Hampshire
40
Ohio 40
USMCA IN NUMBERS
0
2
4
6
8
10
12
14
16
18
20
CA WI ID NY TX MI PA MN NM WA
% of Total US Dairy Production
74% of total
US production
Source: US Department of Agriculture
Dairy Exports account
for 3% of total
agricultural exports
Dairy Exports account
for 0.2% of total exports
USMCA IN NUMBERS
Source: Office of the US Trade Representative
States with presence of automakers
Alabama Mississippi
Arkansas Missouri
California Nevada
Georgia New York
Illinois North Carolina
Indiana Ohio
Kansas South Carolina
Kentucky Tennessee
Maryland Texas
Michigan West Virginia
USMCA IN NUMBERS
US AUTOMOTIVE IMPORTS AND EXPORTS, 2017 ($bil)
IMPORTS EXPORTS
Canada Mexico RoW Canada Mexico RoW
Total light vehicles 43.5 47.8 103.5 24.2 3.8 36.1
PV 43.5 29.9 103.1 14.7 3.2 35.1
LT 0 17.9 0.4 9.5 0.6 1.0
Total auto parts 19.6 65.9 121.8 40.6 41.1 50.5
Source: US International Trade Commission
USMCA IN NUMBERS
US AUTOMOTIVE IMPORTS AND EXPORTS, 2017 ($bil)
IMPORTS EXPORTS
Canada Mexico RoW Canada Mexico RoW
Total light vehicles 43.5 47.8 103.5 24.2 3.8 36.1
PV 43.5 29.9 103.1 14.7 3.2 35.1
LT 0 17.9 0.4 9.5 0.6 1.0
Total auto parts 19.6 65.9 121.8 40.6 41.1 50.5Source: US International Trade Commission
REGIONAL VALUE CONTENT REQUIREMENT
USMCA IN NUMBERS
US AUTOMOTIVE IMPORTS AND EXPORTS, 2017 ($bil)
IMPORTS EXPORTS
Canada Mexico RoW Canada Mexico RoW
Total light vehicles 43.5 47.8 103.5 24.2 3.8 36.1
PV 43.5 29.9 103.1 14.7 3.2 35.1
LT 0 17.9 0.4 9.5 0.6 1.0
Total auto parts 19.6 65.9 121.8 40.6 41.1 50.5
Source: US International Trade Commission
LABOR VALUE CONTENT REQUIREMENT
IMPACT ON THE US ECONOMY
• Auto:
• Labor Cost OR Tariff Price
• Domestic demand for new vehicles
• Exports / Imports
• Domestic Production of Vehicles and Parts ???
• Agriculture: Exports and Imports with Canada Net ≈ 0
• De minimis thresholds + trade facilitation: trade and mostly exports
• Patents: Pharmaceutical costs
• Sunset Clause: Uncertainty or not ???
IMPACT ON THE US ECONOMY
MAUS
Auto Industry
Agriculture
Trade Facilitation
MA by IHSM USITC IMF C.D. Howe
GDP (%) 0.00 +0.35 0.00 -0.10
Employment -4,150 +176,000 – -20,370
Trade Balance (bil $) +$5.5 +$1.8 -$0.28 +$2,3
IMPACT ON THE US ECONOMY
MAUS
Auto Industry
Agriculture
Trade Facilitation
MA by IHSM USITC IMF C.D. Howe
GDP (%) 0.00 +0.35 0.00 -0.10
Employment -4,150 +176,000 – -20,370
Trade Balance (bil $) +$5.5 +$1.8 -$0.28 +$2,3
GDP: -$21 bil +$72 bil
Emp: -0.01% +0.12%
Trade: 0% + 0.01%
BIBLIOGRAPHY
• United States International Trade Commission (April 2019), “US-Mexico-Canada Trade Agreement: Likely Impact on the U.S. Economy and on Specific
Industry Sectors”,
• Dan Ciuriak, Ali Dadkhah, and Jingliang Xiao (2019), “Quantifying CUSMA: The Economic Consequences of the New North America Trade Regime”,
C.D. Howe Institute Working Paper, Toronto, Canada
• Mary E. Burfisher, Frederic Lambert, and Troy Matheson (2019), “NAFTA to USMCA: What is Gained?”, IMF Working Paper, Washington, D.C.
• Center for Automotive Research (October 16, 2018), “U.S. Consumer & Economic Impacts of U.S. Automotive Trade Policies”, Ann Arbor, MI
• Michael Schultz, Kristin Dziczek, Yen Chen, Bernard Swiecki (February 2019), “Meet the New NAFTA”, Center for Automotive Research, Ann Arbor, MI
• Office of the United States Trade Representative (April 18, 2019), “Estimated Impact of the United States-Mexico-Canada Agreement (USMCA) on the
U.S. Automotive Sector”
• Congressional Research Service (2019), “NAFTA Renegotiation and the Proposed United States-Mexico-Canada Agreement (USMCA)”, Washington,
D.C.
• James McBride and Andrew Chatzky (January 4, 2019), “What is the Trans-Pacific Partnership”, Council on Foreign Relations
• Douglas A. Irvin (2017). “Clashing over Commerce: A History of US Trade Policy”, Chicago & London: The University of Chicago Press
QUESTIONS
