Solid, Stable Trade

Market Certainty from Refreshed North American Treaty

By Lori Musser

While supporting free and open trade is a mainstay for global supply chains, forwarders and engineering, procurement and construction companies asked to outline the pros and cons of the United States-Mexico-Canada agreement, or USMCA, for breakbulk and project cargo movements were unusually coy.

The USMCA was signed by the U.S., Mexico and Canada on Nov. 30, 2018. Mexico was the first to ratify, on June 19. U.S. and Canadian ratifications will take a little longer.

The new agreement is already a hot topic in the container industry, but in the breakbulk and project sector, little has been said.

Olga M. Pina, partner with the Florida-based law firm of  Shutts & Bowen, said to Breakbulk that the “quiet” may be because the lion’s share of the USMCA remains consistent with the North American Free Trade Agreement, or NAFTA; the main improvements relate to modernization to protect trade elements that were in their infancy 25 years ago – for example, technology and data flows across borders and intellectual property rights.

Confidence for Projects

There is support for the USMCA from companies across many industry sectors. The supporters’ one common denominator appears to be a quest for market certainty. Simply having a workable free trade agreement in place is the end goal for many.

American Petroleum Institute President and CEO Mike Sommers said to Breakbulk: “Retaining a trade agreement for North America will help ensure the U.S. energy revolution continues into the future.”

U.S., Canada and Mexico markets are highly integrated and interdependent. The energy market (which supports millions of jobs, energy security, and reliable/affordable energy), depends on the unfettered flow of energy products across North America, according to Kyle Isakower, vice president of regulatory and economic policy for the American Petroleum Institute, or API.

An API spokesperson noted that the oil and gas sector finds value in provisions such as continued zero tariffs on its products, and investment protections to which all countries commit and the eligibility for investor-state dispute settlement for U.S. companies investing in Mexico.

Much to the relief of the energy industry and the project sector, on May 20, U.S. steel and aluminum tariffs on Canada imposed roughly a year earlier were officially lifted. Such quotas and tariffs created uncertainty for U.S. energy projects and potentially threatened U.S. jobs, as well as America’s energy leadership, according to API in a comment submitted to the U.S. International Trade Commission at the end of 2018.

U.S. oil and gas industries rely on steel products for virtually every aspect of their infrastructure, including pipelines, well casing, terminals, petrochemical plants, and refineries.

Disjointed Government Procurement

Chapter 13 of the USMCA, which deals with government procurement, may prove to be a weak spot – it only covers procurement between the U.S. and Mexico. Procurement between the U.S. and Canada will be governed by the World Trade Organization’s Government Procurement Agreement, and Canada-Mexico deals are covered by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or TPP.

Chapter 13 only looks at government procurement bilaterally,” Shutts & Bowen’s Pina noted. “Leaving Canada out defeats the purpose of a tri-party agreement. It creates a disjointed situation.” That situation could impact a great deal of business including large infrastructure projects.

Mexican contractors may end up with better access than U.S. contractors to Canadian procurement through TPP, because it likely will allow greater competition in purchasing. U.S. contracts may have decreased competition because Canada isn’t bidding. Ultimately, the system is less efficient.

Pina said, technically, the USMCA achieves what it should, but that there are parts that may deter trade, and others that won’t have much of an impact at all. “I’m not sure the rules of origin have been greatly simplified, and there is a need to look at remaining barriers to trade,” she said.

Also, concerns are arising related to Chapter 34’s review and termination processes, which may allow, under certain circumstances, annual reviews. Pina said: “Infrastructure development is long term. If rules were changed in the midst of a contract it could be very disruptive for major infrastructure projects.”

Delays in Ratification

The trade agreement ratification process was never expected to be speedy.

While Mexican ratification depended on a relatively simple U.S. Senate vote, Canadian ratification involves tabling the agreement and an explanatory memorandum in the House of Commons, followed by debate and governor in council order, which allows the minister of foreign affairs to ratify. The Canadian government may not be in a hurry to ratify an agreement that will take some time to wend its way through the U.S. political process.

That said, in Canada there is widespread support for the trade agreement. In a May 29 letter to Canadian Prime Minister Justin Trudeau, the Canadian Chamber of Commerce, along with Canadian Manufacturers and Exporters, the Business Council of Canada, the Canadian Federation of Independent Business and the Canadian Agri-Food Trade Alliance, offered their full support for Canadian ratification.

With a membership responsible for the vast majority of Canada’s exports to, and commercial ties with, the U.S. and Mexico, the group of organizations noted that the Canada-United States-Mexico Agreement, or CUSMA as it is called in Canada, would “lift the cloud of uncertainty that has hung over the North American trade and investment relationship since 2017,” spur new investments and create jobs.

Congratulating the government for maintaining Canada’s preferential access to the U.S. and Mexico (Canada’s largest and third-largest trading partners respectively), while modernizing NAFTA’s outdated terms, the group noted that there is no need to wait for ratification – the opportunities start now for a more productive and mutually beneficial trilateral relationship. “For example, we would encourage all three governments to work together to enhance North American competitiveness and good regulatory practices as outlined in the agreement by establishing committees in each area to promote economic growth and strengthen regulatory cooperation,” the letter stated.

Seaports Kept Busy

U.S seaports are also onboard. On March 26, the American Association of Port Authorities, or AAPA, testified before the U.S. House of Representatives Ways and Means Subcommittee on Trade, urging congressional approval of USMCA.

Susan Monteverde, AAPA vice president of government relations, told the committee: “AAPA is concerned, however, that potential trade sanctions imposed on Canada, Mexico or other trading partners like China, and reciprocal actions, could result in significant losses of good-paying U.S. trade-related jobs, including those in the seaport industry. You can help by approving the USMCA and encouraging the president to speed up negotiations with China.”

Monteverde added to Breakbulk: “The 31 million jobs supported by cargo of all types moving through U.S. deep-draft ports benefit from increased trade, both imports and exports.”

She said that North American seaports handle about 2 billion tonnes of cargo per year and that the economic value that U.S. coastal ports provided in terms of revenue to businesses, personal income and economic output by exporters and importers accounted for nearly 26 percent of the nation’s US$20.5 trillion economy in 2018.

Manufacturers Sign Up

Not surprisingly, given the broad base of its membership, the National Association of Manufacturers, or NAM, was among the first, last November, to release a statement encouraging U.S. ratification. CEO Jay Timmons said: “Manufacturers called for a trilateral agreement, and this moves us one step closer to restoring certainty to the North American market, the biggest market for U.S. exports in the world.”

Like other friends of the USMCA, NAM was careful to articulate its support in a broader, global context: “By securing the relationship with our North American allies, we are also better positioned to demonstrate a strong and united front against China’s unfair trade practices and end the harm they inflict on manufacturers in America.”

Canada and Mexico purchase one-fifth of the total value of U.S. manufacturing output – more than the next 11 countries combined, according to NAM. “The USMCA is about restoring certainty, improving the rule of law and expanding our partnerships with our most significant trade partners,” said Linda Dempsey, NAM vice president of international economic affairs.

Jonathon Huneke is spokesperson for the U.S. Council for International Business, an advocacy group that represents many of America’s largest global companies. He said to Breakbulk, “Our members are strongly in favor of the USMCA. We view more open trade and investment between the United States, Mexico and Canada as essential to maintain American economic strength, and to support a more competitive North American economy as a whole.”

While no agreement is perfect, Huneke said: “USMCA makes a number of important improvements over NAFTA, and it provides a firm foundation for growth in cross-border commerce.”

Across sectors, the case for an updated North American trade agreement is strong. It is about preserving and strengthening trade ties between long-time allies who operate some of the globe’s busiest trade lanes.

The breakbulk and project cargo sectors traditionally support the benefits of free and open trade. A solid, stable, certain trade environment that extends well into the future underpins trade in more goods and services within the North American bloc. It buoys North American trade in a wildly competitive world economy.

Based in the U.S., Lori Musser is a veteran shipping industry writer.

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