USMCA trade deal takes effect with economic, workforce impacts for counties

Key Takeaways

On July 1, the U.S.-Mexico-Canada Agreement (USMCA) became effective, officially replacing the former North American Free Trade Agreement (NAFTA) governing international trade between the U.S., Mexico and Canada. Enactment of the trade deal follows Congress’ passage and President Trump’s approval of the USMCA Implementation Act (H.R. 5430/S. 3052) in January 2020. Mexico ratified the agreement in June 2019, followed by Canada in March of this year.

The new agreement makes sweeping changes to the current international trade system and offers updates to NAFTA outlined below, that would impact counties as key players in promoting local economies, workforce readiness and housing affordability.

Major highlights of the USMCA trade deal for counties include:

• New supports for small- and medium-sized enterprises (SME): USMCA is the first-ever U.S. trade agreement to include a chapter on increasing trade opportunities for SMEs. The deal establishes new information-sharing tools aimed at helping SMEs improve their understanding of trade rules in specific global regions. USMCA also eliminates the local presence requirement for cross-border service providers, which could ease the burden of opening a physical foreign office for small business. To ensure stakeholder engagement in these processes, USMCA also creates a committee on small business issues that includes government leaders from each member country.
  
  These updates could be beneficial to counties, which work with state and local financial institutions to promote the viability and expansion of small businesses in our communities. NACo supports the use of county partnerships with entrepreneurs and state and federal governments in improving small businesses’ access to business planning resources, advisory networks and financing opportunities.
   
• Update to rules of origin: USMCA makes updates to NAFTA’s rules of origin for several products, including auto parts and industrial products such as glass, chemicals and optical fibers. These rules determine where and how much of a good are produced in a given country and, in the content of USMCA, aim to provide incentives to “source goods and materials in the United States and North America.”
  
  Under the new agreement, for instance, the percentage of a vehicle’s parts produced in the U.S. must equal 75 percent, up from 62.5 percent under NAFTA, to qualify for tariff exemptions. In some cases, USMCA links the updated rules of origin to new wage requirements. For example, 40 percent of an automobile and 45 percent of a light truck must be produced using an average labor wage of $16/hour. This provision could help companies attract skilled local workers, while ensuring individual earn appropriate wages – a priority for counties as partners with federal and state governments in the national workforce system.
   
• Update to Intellectual property rules: The new trade agreement makes updates to intellectual property protections under NAFTA with the goal of increasing the global economic competitiveness of North American firms. In addition to creating a Committee on Intellectual Property Rights, USMCA streamlines trademark application procedures and makes information on a range of intellectual property issues available online. The trade agreement also updates NAFTA to include new rules for digital trade, such as prohibiting customs and duties on products distributed electronically (e.g., videos, software and music).
   
• Other changes under USMCA could impact counties: For instance, according to an initial analysis by Housing Wire, the trade agreement’s price stabilization measures for construction materials could help improve the housing shortage in the United States. Housing availability and affordability are major priorities for counties, which play a central role in determining funding streams and zoning strategies for housing.

Next steps on USMCA implementation

Although the new agreement took hold on July 1, next steps on its implementation remain uncertain as governments and manufacturers transition away from NAFTA and bring their policies into compliance with USMCA’s new rules. The trade deal’s enactment could also be complicated by the economic recession brought on by COVID-19 and the costs of addressing the pandemic for federal, state and local governments, as well as companies.

More information on USMCA can be found on the U.S. Trade Representative landing page. NACo will continue to engage with our federal partners to represent the county perspective as implementation of the trade deal moves forward.

For additional information, please see the following links:

• U.S. House approves USMCA trade agreement with potential impacts for counties (NACo blog)
• Trade agreement impacts rural economies (NACo County News article)
• About the United States-Mexico-Canada Agreement (U.S. Trade Representative landing page)
• Analysis of the Fiscal Impact of COVID-19 on County Finances (NACo economic analysis)