U.S. Republicans and Democrats have reached an agreement, endorsed by Mexico and Canada, on revised provisions for the United States-Mexico-Canada Agreement (USMCA), the trilateral trade agreement that will replace NAFTA. The pact must still be ratified by all three countries, but the path to approval now appears to be clear.
Reaching the agreement required revisions to the original trade deal, negotiated about a year ago:
- Enforcement of labor commitments – While the revised deal does not grant U.S. inspectors access to Mexican plants, it does provide for a panel review process which at least partially satisfied Democrat demands for stronger enforcement provisions.
- IP protection for biologics – The original USMCA deal provided for 10 years of IP protection for biologic drugs. The new USMCA does not include this provision. In the short-term, this means that the 12-year protection period currently in place in the U.S. will remain. Over the longer-term, it means Congress would be able to lower the protection period as it sees fit, potentially to something less than 10 years. Canada currently provides eight years of protection, while Mexico provides five.
- Steel, not aluminum – The new agreement requires 70 percent of the steel and aluminum of a car to be produced in North America for the vehicle to be eligible for USMCA favorable tariffs. The latest revisions provided a tighter definition of North American steel, i.e., that it “must be molten metal poured in North America,” but the definition of North American aluminum was left largely undefined, which could make it easier for “outside” aluminum to qualify, for example, Chinese metal that is recycled in Mexico. (Note: USMCA also calls for 70 percent of glass in the car to be produced in North America.)
A few months ago I published a blog discussing potential impacts of USMCA on location strategy. By way of an update given the events of the last few days:
- The biggest news is a what the media and business organizations have called a sense of “relief” that a deal has been reached (again). The most worrisome disruption to the market would have been the disintegration of NAFTA without a new trade agreement. We appear to have avoided that potential future.
- It now appears likely that the USMCA will be ratified in the first half of 2020, possibly the first quarter. Most companies needing/desiring to make adjustments in their supply chain in order to remain “North American” will feel justified in moving full speed ahead. This could create – at least in the short- and mid-term – some activity, particularly in the automotive and steel industries, as companies prepare for the USMCA to take effect.
Finally, the movement on USMCA was timely for this week’s #MidAmericaEDC Competitiveness Conference in Chicago, where I had the pleasure of leading group discussions on the topic of USMCA and its potential impact on site selection.
Two things were clear from our collective touchpoints with companies affected by the USMCA:
- The impact varies by industry and company, making it difficult to generalize.
- If the USMCA does create growth opportunities for manufacturers, as all would like to believe it will, companies will be even harder pressed to find workers, given the tight labor market. (We also couldn’t help but detour into conversations about the US-China trade war and immigration, concluding that all of these issues are interrelated.)
Of course, these are just a few components of the complex and variable site selection process. For more information, head to www.BLSstrategies.com.
Tracey Hyatt Bosman is a Managing Director at Biggins Lacy Shapiro & Co., one of the largest, most highly regarded site selection and incentives advisory firms in North America. BLS & Co. helps manage the complexities associated with finding optimal locations and securing incentives to support new ventures. Connect with Tracey on LinkedIn or email her directly at TBosman@BLSStrategies.com.