Donald Trump has been having some success in his attempts to change the relationships between the US and its trading partners. Or possibly, to appear to be changing the relationships between the US and its trading partners.
The new US-Mexico-Canada (USMCA) trade agreement replaces NAFTA and the new deal appears to be more than just a name change. Such agreements are complex and many of the most important parts arise in the process of implementation or interpretation later. However, at this stage some headlines do stick out.
One is the automotive sector. The ‘rules of origin’ for the car industry have changed, both in terms of the location of parts and rules around the price of labour in the supply chain. Largely focussed on vehicle assembly in Mexico, the new rules have raised the local content requirement from 62.5% to 75% by value. The automotive sector will not find this onerous. Similarly, the demand of a base level of $16 an hour for workers for 45% of the value of the automotive supply chain will be not too difficult to achieve for the more sophisticated component suppliers. It appears that the supply chains that stretch from central Mexico to Ontario are fairly secure. Bearing in mind that just a few months ago Donald Trump was threatening to block all of Canada’s car exports to the US, today’s situation must be viewed as satisfactory.
Another area being discussed is that of e-commerce. Here the bar for ‘duty-free’ e-retail purchases has been raised to $100 -$115. Presumably this will result in greater cross border e-retail trade, something that would appear advantageous to Amazon in particular.
Much of the rest of the agreement is concerned with agricultural and primary commodities, which in the case of relations between Canada and the US are long standing areas of argument.
The next stage for the USMCA will be get it approved by the various legislators. Despite the US Congress’ difficult relations with Donald Trump, this is not expected to be a huge problem.
The political gossip around the deal suggests that USMCA is the precursor to negotiations with China in particular and to a lesser extent, the EU. If this is true it suggests that despite all the sound and fury, some sort of agreement will be reached and reached fairly quickly.
Source: Transport Intelligence, October 4, 2018
Author: Thomas Cullen
