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The New US Mexico Canada Agreement and Data
Executive Summary
This report creates an analysis of the aftermath of the implementation of the USMCA and its transition from NAFTA. Additionally, the importance of USMCA to the workers, businesses, and farmers across the three nations involved in the deal: the United States, Mexico, and Canada. The advancement of modern business necessitated the change. The advancement is caused by the incorporation of modern technology in various businesses. Over recent years there has been a significant shift to e-commerce, which has, in turn, causes a change in consumers’ behavior. The use of Artificial intelligence and machine learning has also revolutionized the business sector. The analysis is based on the data collected from the various industries by sector, for instance, the automobile company. For the study, we will use the GTAP technique incorporated with the FDI to evaluate the result of the provision executed. (KANG, 110). It consists of an analysis of the export and import data represented in the attached excel document. Despite all the positive attributes of the USMCA, there exist some flaws. The restrictions enacted hurt local auto US manufacturers since USMCA inspires the investment of both Canada and Mexico.
In conclusion, USMCA will provide workers, farmers, and businesses across North America a suitable environment to thrive. Some of the provisions executed under the USMCA include the rule of origin, which allows goods produced by the signatories’ nations to benefit from the free trade agreement. USMCA strengthens some of the provisions executed under NAFTA; for instance, in the motor industry, 70% of the vehicle parts should be made from within the North America region to be considered under the free trade agreement.
Introduction
This study’s core objective is to expound on the process of renegotiation and modernization of the NAFTA to the USMCA. Congress, under its legislatorial mandate, has been dynamic in the various trade guidelines matters. Congress’s main issues included safeguarding the workers’ liberty, the result of the provision on the three nations’ economy, and Congress’s constitutional mandate in dealing with international trade. Additional concerns to the Congress were the United States negotiating aims and the degree to which the recommended deal enacted progressed in fulfilling those objectives as mandated by the TPA (“Updating NAFTA drawing on the TPP,” 180). USMCA adjusted some of the NAFTA plans, for instance, the auto directives of origin. Contrastingly it set up new, improved goals in various sectors such as e-commerce and other enterprises owned by the state. The USMCA consisted of thirty-four chapters and twelve letters. The majority of the market-related provisions from the NAFTA have retained, for instance, the open market provision. There were notable changes in the auto and agricultural sectors. USMCA also contained new provisions, such as the digital market’s embrace through e-commerce, enterprises owned by the various states, anti-corruption regulations, and a mechanism for settling disputes among investors from the various countries.
The primary concerns for Congress were the effective execution of the improved and adjusted plans under the USMCA. One of the main aims for the United States’ involvement in the negotiations was to lower its trade deficit with the nations involved in the NAFTA agreement. The United States government, under the leadership of President Trump, viewed the NAFTA agreement as one of the worst ever united states trade deal so pushed for its replacement. The technological advances in the various sectors necessitated the replacement of NAFTA to the USMCA. The extensive use of e-commerce has, for example, exceedingly affected the behavior of the consumers across the region, with many of them preferring to buy or sell their products using online platforms. Some other recent elements were added into the new body. The supply chain management growth across northern America also brought about the adjustments in the provisions established 25 years ago when the NAFTA was launched. This report summarizes NAFTA, the function of Congress in the entire process of negotiation. Additionally, it gives a deliberation on the execution of the guidelines for Congress. Some existing NAFTA plans are evaluated though not in-depth.
Background
President Bush was the first United States President to launch the NAFTA .it was later signed into action by President Clinton in1993 through the NAFTA execution act. It contributed to establishing trade deregulation plans, which were fundamental in establishing the new trade provisions (Mark Brown and Anderson 20). They included goals on investment, steps for resolving the dispute, labor, and agriculture. NAFTA procedurally eradicated almost all the trade tariffs across the three nations. Trade across North America has recently increased drastically since the enforcement of the plans set under NAFTA. The United States government, under the leadership of President Trump, gave out a three months’ notice to the Congress on its purpose to start negotiations with both Mexico and Canada on the modernization of NAFTA as was mandated by the TPA in 2015. The negotiation started in 2017 and ended in 2018 (Lambert and Park 77). Later the Presidents from the three-member states signed the USMCA deal. The USMCA execution legislation was afterward presented to Congress in 2019. Congress subsequently passed it in the same year and the senate in the following year. The United States president also signed the execution of the deal in January this year.
Data Description
Data was collected from various North America; they include agriculture, Investment, Trade, telecommunication, and financial services. Additionally, the three countries’ economic indicators such as the nominal GDP, per capita GDP, Exports and Imports, and the nations’ population data were also collected for analysis (Jácome145). These sectors formed the sampling unit of the report. The targeted group was the North American population: the US, Canada, and Mexico. Some of the significant products evaluated in the report are oil, gas, and merchandise. An analysis of various companies by sector, that is, the inter-sectorial inputs and outputs, were used to give a holistic analysis of the economy. To get the trade balance for the respective countries, we use the formula;
Trade balance= (value of Exports – the value of Imports)
Methodology
I used the periodic modified customary GTAP technique that assimilates the FDI to evaluate the provisions’ effects over recent years. The GTAP technique is a multidepartment and measurable regular method that polishes contentions and fixed returns to scale (Ciuriak et al. 23). The method gave a comprehensive analysis of the regional expenditures between the several sectors of the economy. It was coupled with the CGE, whose framework was used to produce the three nations’ impact. The technique was also used to determine the returns’ effectiveness from then redistribution of factors of productions. GTAP technique uses economic indicators to analyze the impact of the new trade agreement between the three states. The economic indicators include; Real GDP, National income, Imports, and Exports.
Results
There is an improvement in the trade balance and the decline in trade deficiency across the North America region. The nations are experiencing an increase in market accessibility due to the eradication of tariffs; that is, there is an increase in imports and exports between the three member states. There is an increase in technological advancements across the region (Hillberry and Zhang 454). There has been an increase in advocating for artificial intelligence and machine learning in various industries. USMCA also provided a biotechnology provision that would help increase agricultural production within the region. It would also help improve transparency in the agricultural process. The nations have started recording are an increase in jobs across the region, especially in the automotive sector. There are increase transparency and accountability in the trade between the three countries. There is also widespread use of e-commerce across the region. Finally, there is an increase in the rate of growth of the economy. It is estimated that the US trade with its USMCA partners will more than tripled after implementing the provisions. It will increase more rapidly than the US trade with the rest of the world. Canada was the leading market for exports for the US’s market in 2016, with Mexica being ranked second.
Similarly, the two countries were ranked first and second as US major import suppliers since 2016. Crude oil and Petroleum Oil products are the critical components in the USMCA agreement. They account for more than 20 % of the trade with the USMCA.
Summary of the changes in the Economic indicators during the transition from NAFTA to USMCA
| Country | USCMCA | NAFTA | ||
| Economic Indicators | Percentage change in Real GDP | Prices in 2019 | Percentage Change in real GDP | Prices in 2019 |
| US | -0.41 | -10.90 | -0.50 | -13.8 |
| Mexico | -0.80 | -14.91 | -1.10 | -23.1 |
| Canada | -0.11 | -17.4 | -0.11 | -22.5 |
Discussion of the Results
The execution of the USMCA provisions has brought about an increase in trade liberalization across North American. Trade liberalization has led to an increase in imports and exports across the region. Most of the trade restrictions between the three countries were eradicated. The restrictions include tariffs on goods, quotas, and import licenses. Investment barriers were always removed. USMCA provided a technique for settling a dispute among investors across the region. These provisions would also ensure the nondiscriminatory treatment of services among the involved countries.
Limitations
Just like any other agreement involving nations, there are various flaws in USMCA. The limitations are;
USMCA newly introduced protectionism will hinder growth. The confinements introduced in the auto market and investment will hinder the US’s economic growth. The United States will hurt from the restrictions executed even though the other two nations, Canada and Mexico, will experience a growth (Soluyanov pg.34). The newly enacted regulations will negatively affect the US auto industry competitiveness. USMCA will inspire investment from Mexico and Canada in the US auto industry. The local US manufacturers will hurt as a result. The new plans in the environmental sector do not address climate change. USMCA only creates a suitable environment for business and investment but does not put any effort into the green energy revolution. The provisions executed in the automate industry will have significant risk Auto production in the region. It would lead to an increase in production cost leading to an increase in the auto parts’ prices. It would, in turn, low the exportation of auto parts to other countries. Mexico’s auto industries are worried that they may lose market share to other auto-producing nations such as the Asian manufacturers since the UNMCA’s FTA is higher than that of the US-South Korea FTA. Canadian retailer was also worried about losing their market share to some giant e-commerce companies such as the Amazon and Walmart. USMCA permits that parties should reduce their threshold to complement that of other parties. This provision would cause the US de Minimis to decline to the level of both Mexico and Canada.
Conclusions
USMCA has created a business-friendly environment across the region. These unions will lead to an increase in business activities in Northern America. International companies and supply chains will benefit more than the local traders. The USMCA has and will benefit more in Canada and Mexico than the US. Some of the local industries will be hurt by the investments from Both Mexico and Canada. The three nations will experience disproportional adverse effects with Canada and Mexico suffering more from the US.
Recommendations
The Mexicans and Canadian retailer industries, which face risks of losing their market share due to the enacting of the digital market provision, should seek to incorporate technology. Adaptation of technology will help them remain competitive in the sector dominated by giant e-commerce retailers such as Amazon. For the industries to further their understanding of the ever-changing consumers’ behavior, they should incorporate Artificial intelligence. AI helps analyze the consumers’ behavior and develop a suitable prediction that would help make business decisions. For the Mexican auto industry to maintain their market share amid the implementations of the auto provisions should seek cheaper auto parts from either the US and Canada. Low auto prices will reduce the production cost, which leads to the productions of cheaper vehicles. It will also help increase their exports. USMCA presents an excellent opportunity for Mexico and Canada markets to benchmark other successful businesses in the US and adjusts to maintain their shares.
Appendix
A research conducted by the Congressional research service outlined the following provision under the new agreement;
USMCA established regulations that enhanced non- discriminatory treatment in the region. It explained language associated with the national treatment and the most suitable national language.
All the signatories were required to give MST to investment with regards to the applicable customary laws. The minimum level of treatment protests investors’ assets.
USMCA forbids the involved parties from enacting certain performance necessities with regards to the investment.
The service sectors were key in the negotiation of the FTAs. Services trade such as financial and traditional service was incorporated in the new agreement deal. USMCA eliminated the locality necessity rule, which required that service vendors keep commercial availability in the consumers’ nation.
USMCA advocates for the communal acceptance of skilled qualifications by providing certificates for the various service vendors. It also enforced transparency in the implementation of government policies.
USMCA agreed that the revenue collected will not be used by the postal system to offer their service. It also outlines the standard level for De Minimis.
Some of the provisions established in the financial sector include;
omitting the national procurement from the list of financial services.
It was setting up regulations that protect the source code and algorithms in digital marketing.
We are making adjustments on the ISDS through mutual annex.
Under the financial provisions established by the USMCA, other countries within the agreement are allowed to set up financial institutions in other countries. Under the new agreement, the environment and labor were part of the deal.
Under the agricultural provision, USMCA advocated for the use of biotechnology. It would help increase agricultural productivity across the North American region. Biotechnology has brought about improved crop species that are resistant to diseases and tolerant of adverse conditions. With the research of biotechnology, farmers in the region can plants crops throughout the year regardless of the season. Biotechnology has also enhanced protection against pests at an effective cost to farmers.
The rule of origin was tightened under the new agreement. For the auto industry to have the privileges under USMCA provisions, 62% of the vehicle should be manufactured locally. This provision would increase the local production of auto parts. It would also reduce the importation of vehicles from other countries outside the union. However, the economist argues that the provisions will bring about a negative impact on the auto market in both Mexico and Canada. It would increase production costs, which will, in turn, increase the prices of vehicles. It would low the exportation to other countries, thus increasing the risk of losing the market share.
USMCA provisions will increase jobs across the members’ state. The global supply chains will also thrive since they will not have to pay the various trade tariffs.
USMCA also enhances transparency in the telecommunication sector. The provisions do not impact the Canadian restrictions of foreign ownership of carriers.
Under Digital marketing, USMCA will provide data protection of the various organization across the region. The three countries will cooperate on dealing with cybersecurity threats. USMCA established a legal framework on the consumers’ data privacy. Charges for electronically transmitted commodities were also eradicated across the three member states. USMCA enforced patent laws. It will help advocate for innovations. It provides that patent is made a presence for every single innovation.
Work Cited
Bergsten, C. F., and Monica D. Bolle. A Path Forward for NAFTA. Peterson Institute for International Economics, 2017.
Burnisher, Mary E., Frederic Lambert, and Troy Matheson. 2019. “NAFTA to USMCA: What is gained?” IMF Working Paper WP/19/73
Ciuriak, Dan, et al. “Quantifying the USMCA.” SSRN Electronic Journal, 2019.
Hillberry, Russell, and Xiaohui Zhang. “Policy and performance in customs: Evaluating the trade facilitation agreement.” Review of International Economics, vol. 26, no. 2, 2017, pp. 438-480.
Jácome, Alba G. “Natural Resources and Out-Migration in Local Communities of Southern Mexico: Non-NAFTA Issues Impacting NAFTA.” The Impacts of NAFTA on North America, 2010, pp. 141-158.
KANG, JUN H. “Legal Review on Dispute Settlement Mechanism under the USMCA.” Dong-A Journal of International Business Transactions Law, vol. 30, 2020, pp. 105-130.
Mark Brown, W., and William P. Anderson. “How thick is the border: the relative cost of Canadian domestic and cross-border truck-borne trade, 2004–2009.” Journal of Transport Geography, vol. 42, 2015, pp. 10-21.
Meltzer, Joshua P. “The United States-Mexico-Canada Agreement: Developing Trade Policy for Digital Trade.” SSRN Electronic Journal, 2020.
Soluyanov, A.A. “USMCA New NAFTA Substitute Trade Agreement: Differences and signing history.” SCIENTIFIC DEVELOPMENT TRENDS AND EDUCATION, vol. 53, no. 3, 2019.
Updating NAFTA drawing on the TPP.” An Introduction to the United States-Mexico-Canada Agreement, 2020, pp. 174-199.