Within the last month, President Donald J. Trump has “eradicated” the NAFTA agreement and introduced a new trade agreement specifically with Canada and Mexico called the USMCA (US-Mexico-Canada Agreement)
While this new agreement may be just rhetoric, there are many questions of how this may affect procurement and its practices going forward.
Here are some takeaways:
- What are the differences (if any) between NAFTA and the proposed USMCA?
- Country of origin rules: Automobiles must have 75 percent of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (up from 62.5 percent under NAFTA).
- Labor provisions: 40 to 45 percent of automobile parts must be made by workers who earn at least $16 an hour by 2023. Mexico has also agreed to pass laws giving workers the right to union representation, extend labor protections to migrant workers, and protect women from discrimination. The countries can also sanction one another for labor violations.
- US farmers get more access to the Canadian dairy market: The US got Canada to open up its dairy market to US farmers, which was a big issue for Trump.
- Intellectual property and digital trade: The deal extends the terms of copyright to 70 years beyond the life of the author (up from 50). It also extends the period that a pharmaceutical drug can be protected from generic competition.
- Are there benefits for businesses with one or the other?
- The USMCA agreement is similar to NAFTA. The main structure of the deal is largely intact. The biggest changes include higher rules-of-origin requirements for the auto sector, greater U.S. access to the Canadian dairy market, and a scale-back of the investor-state dispute settlement (ISDS) rules.
- There may not be any drastic economic effects from this deal—though if it convinces businesses’ that U.S. withdrawal from NAFTA is no longer on the table, resolving this uncertainty may lead to a small increase in investment.
- If so, when will this take effect?
- So far, this has not been brought to the US House and Senate. Therefore, it has not been officially regulated into law.
- Can businesses be proactive? If so, how?
- Yes! While there is much uncertainty as to what policy will take effect, we at TCGi are keeping a close eye on every move. At this time, it is pertinent to ensure that your procurement is handled by a company that specializes in optimizing your procurement AND protecting your transactions.
- Where is this money going?
- Tariffs are taxes, pure and simple. When you raise tariffs, you raise taxes on some specific part of the American people. The money goes straight to the treasury, just like any other tax.
- There are proposed “winners” and “losers” within this new agreement. The “winners” mainly being President Donald J. Trump, Canadian Prime Minister Justin Trudeau, labor unions and stock market investors. The “losers” may be China, U.S. car buyers and Canadian steel.
- What is still unclear is the affect of U.S. “big businesses” as trademark and patent provisions may be affected as regulatory compliance costs may rise.
As the rhetoric of the current president and his trade laws may change, it is important to know the possible affects to your business. We at TCGi will ensure that your procurement will be optimized and protected.
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