A fully implemented and enforced U.S.-Mexico-Canada Trade Agreement would likely have a moderate but positive impact on U.S. real gross domestic product, employment, and all broad industry sectors after six years, according to a recent report from the International Trade Commission. While the issuance of the report is a necessary precursor to congressional consideration of legislation to implement the USMCA, which would replace NAFTA, it remains uncertain when that process might get underway because key lawmakers said the report does not change their view that the agreement needs to be further revised before it can be approved.

According to the report, the USMCA includes provisions that would alter current policies or set new standards in the areas of agriculture, automobiles, intellectual property rights, e-commerce, labor, and investor-state dispute settlement. Other provisions in the areas of data transfer, cross-border services trade, and investment issues related to market access and nonconforming measures would reduce policy uncertainty and deter future trade and investment barriers, thus offering firms some assurance that current regulations and standards will not become more restrictive.

The report states that the elements of the USMCA that would have the most significant effects on the U.S. economy are provisions that reduce policy uncertainty about digital trade and new rules of origin applicable to the automotive sector. With respect to the former, the agreement includes provisions not found in NAFTA that largely prohibit forced localization of computing facilities and restrictions on cross-border data flows.

On autos, the agreement would significantly increase regional value content requirements for duty-free treatment and introduce a more complicated process for qualifying automotive, steel, and aluminum products for such treatment. The ITC states that these changes are likely to increase U.S. production of automotive parts and related employment but also increase the prices and decrease consumption of vehicles. A separate analysis released by the Office of the U.S. Trade Representative estimates that over a five-year period the USMCA would result in $23 billion in new annual purchases of U.S.-made auto parts and 76,000 jobs in the domestic automotive sector. According to a CNBC article, a trade group representing the top three U.S. automakers “said it viewed the USTR analysis as more accurate than the ITC’s.”

More broadly, the ITC estimates that the USMCA would raise U.S. real GDP by 0.35 percent and U.S. employment by 0.12 percent. Manufacturing is projected to experience the largest percentage gains in output, exports, wages, and employment, while services would experience the largest gains in output and employment in absolute terms. Workers of all levels of education are estimated to see wage increases of about 0.27  percent on average, with the most highly educated workers experiencing the largest gains.

With respect to trade, the report states that U.S. exports to Canada and Mexico are likely to increase by 5.9 percent and 6.7 percent, respectively, while imports from Canada and Mexico would increase by 4.8 percent and 3.8 percent, respectively. There would be little to no change to the current U.S. balances of trade with those countries. U.S. trade with the rest of the world would also increase but to a lesser degree, meaning U.S. trade with Canada and Mexico would represent a larger share of total U.S. trade.

In response to the report, congressional Democrats said it does not alter their position that the USMCA needs to be improved before it would meet with their approval. House Ways and Means Committee Chairman Richard Neal, D-Mass., said the agreement’s provisions on labor, environment, enforcement, and intellectual property “are not yet acceptable,” while Ways and Means Trade Subcommittee Chairman Earl Blumenauer, D-Ore., added access to medicine to that list. Senate Finance Committee Ranking Member Ron Wyden, D-Ore., also emphasized better enforcement and improved labor standards in Mexico, adding that in its current form the USMCA “represents at best a minor update to NAFTA which will offer only limited benefits to U.S. workers.”...

This was excerpted from the 24 April 2019 of the Sandler, Travis & Rosenberg Trade Report.