Supply Lines: USMCA is born

Supply Lines
Bloomberg

President Donald Trump's replacement for the North American Free Trade Agreement went into force Wednesday, almost three years after negotiations began to establish a new framework for one of the world's largest commercial blocs.

After the long wait, and almost two years since a deal was initially reached, the start of the U.S.-Mexico-Canada Agreement, or USMCA, feels a bit anticlimactic. It's vastly overshadowed in the news by the global pandemic. Even with the new rules, the biggest concern in recent months focused on supply-chain interruptions due to the unsynchronized lockdowns in the three countries.

But trade experts expect a flurry of activity now that the USMCA is the law of the land for more than $1.2 trillion in annual trade. Overnight, the agreement raised the regional content requirement for cars to trade duty-free to 66% from 62.5%, eventually climbing to 75% in three years. The increase is a pillar of U.S. Trade Representative Robert Lighthizer's plan to bring production, and jobs, back to the U.S. Companies that can't yet meet the new threshold can request a temporary waiver.

Automakers also will need to get their workers' wages scrutinized by the U.S. Labor Department under a new rule published on June 29 to ensure that 40% of the work is coming from employees making an average $16 an hour to trade duty-free.

More broadly, exporters need to get new certification from U.S. Customs and Border Protection to confirm that products that they ship to America trade duty-free, even if they had certificates of origin under Nafta that were supposed to last through the end of this year, according to Adriana Ibarra-Fernandez, a trade lawyer with Baker McKenzie in Mexico City.

More Paperwork

"For the private sector, there's lots of work to do," Ibarra-Fernandez said in a forum hosted by the Atlantic Council on Tuesday. "Many companies are assuming this is just a continuation of Nafta. Each sector needs to be viewed as to whether the specific rule of origin for its product suffered any changes."

An additional challenge may come from complaints brought against Mexican factories. Tougher labor laws were a key demand of U.S. congressional Democrats. Some business groups had asked for a delay in implementing the new rules, given the chaos of the pandemic.

So in one sense, politicians who pride themselves on easing regulations have just dumped rolls of red tape on businesses at a very bad time.

In a hearing last month, Lighthizer said that one of the reasons he wanted the USMCA to go into effect on July 1 was to be able to begin pushing for enforcement through consultations and the revamped dispute-settlement system.

In a joint statement Wednesday, the U.S. Chamber of Commerce, the Canadian Chamber of Commerce and Mexico's Business Coordinating Council praised USMCA but acknowledged that auto makers "will have to comply with hundreds of pages of new regulations implementing strict content requirements" and other new rules that will present compliance difficulties.

"The Covid-19 pandemic and economic downturn may make adapting to these new rules even more challenging," the three groups said in a joint statement.

Eric Martin in Washington 

Charted Territory

South Korea's exports fell at a slower pace in June as economies emerged from lockdowns, offering a sign that the worst of a slump in overseas demand may be over, though economists warned a recovery would likely be slow.

Today's Must Reads

  • Buckle up | European Trade Commissioner Phil Hogan said he expects the transatlantic trade relationship will hit a rough patch that could soon result in higher tariffs on U.S. and European goods.
  • Tech squeeze | Huawei will not be part of the U.K.'s 5G telecoms networks in the long term, Culture Secretary Oliver Dowden told Parliament, adding that he welcomes approaches from alternative vendors including South Korea's Samsung and Japan's NEC.
  • Seeking answers | A Democratic senator is asking one of Trump's top China trade advisers to respond to allegations that Trump sought Beijing's help in boosting his re-election chances.
  • Clearing bottlenecks | South Africa's Transnet SOC will deploy staff to its container and multipurpose terminals at the Port of Cape Town in a bid to clear backlogs caused by the coronavirus pandemic.
  • Thousands stranded | About 375,000 temporary visaholders and green card applicants will now be banned from entering the U.S. until next year after Trump signed an executive order barring many people on several types of visas from entering the country.
  • Missing Americans | As the Eiffel Tower gradually reopens from an extended shutdown, an essential segment of the summer tourist trade will be missing: Americans touching down in Paris on lucrative transatlantic flights.

On the Bloomberg Terminal

  • Opportunity knocks | Post-Covid European supply chains offer opportunities and risks, according to Bloomberg Intelligence.
  • Back to basics | Bloomberg Intelligence takes a look at the structure of the pharmaceutical supply chain in this primer.
  • Use the AHOY function to track global commodities trade flows.
  • Click HERE for automated stories about supply chains.
  • See BNEF for BloombergNEF's analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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