Dear Members and Friends:
Hope you are staying well and enjoying the beginnings of summer!
The last few weeks have brought more “vision” on our overall relationships in the Americas going forward, and that will affect our decision-making as companies and organizations.
USMCA Update
July 1 marked the second anniversary of the USMCA and, as is typical with agreements, is an occasion to review how the implementation is going – or not going! The Brookings Institution has recently released two reports on the USMCA. The first, “USMCA Forward 2022: Building a More Competitive, Inclusive, and Sustainable North American Economy,” is an extensive (94-page) report that identifies five main priority areas: improving North American economic competitiveness; strengthening supply chains; expanding digital trade; improving labor conditions and wages; and supporting the transition to low-carbon economic growth. It is led off by viewpoints of Canadian Trade Minister Mary Ng, Mexican Secretary of Economy Tatiana Clouthier, and United States Trade Representative Katherine Tai. It is definitely a document worth reading as a basis for the important aspects of the agreement.
The second report, “USMCA at 2: Visions for Next Steps,” just released, looks at several areas of importance in improving North American economic relations as we move toward the first formal review of the agreement by the three parties in 2026. These include a new agenda for border cooperation; greater commitment to supply chains, labor, digital trade, and expansion; continuing to meet the letter and spirit of the agreement and promoting its benefits; continuing to work on the betterment of US-Mexican relations even after new presidential elections in both countries; and making the USMCA the cornerstone of new agreements with Latin America via the Americas Partnership for Economic Prosperity (APEP) presented at the recent Summit of the Americas.
Three weeks ago the USTR released its first biennial “Report to Congress on the Operation of the United States-Mexico-Canada Agreement with Respect to Trade in Automotive Goods.” The report goes through the key facets of Section 202 and the Rules of Origin. In particular, there is a detailed section on the Alternative Staging Regimes (ASRs) that allow for a tailored plan to gradually meet RVC and LVC levels for up to five years before satisfying the standard requirements. The ASR differs from the standard staging regime by providing additional time and a different phase-in of the new requirements. Thus far, thirteen vehicle producers requested and received approval for their ASR. On external factors affecting the US auto industry, the report finds, “Assessing the full impact of the USMCA on the U.S. and North American automotive industry is difficult at this time due to three extraordinary external factors that have adversely impacted the industry since early 2020: the COVID-19 pandemic, the subsequent supply chain shortages of semiconductors and inputs, and the 2022 Russian invasion of Ukraine.”
On July 8, USTR released a “Joint Statement of the Second Meeting of the USMCA/CUSMA/T-MEC Free Trade Commission,” which took place in Vancouver between USTR Katherine Tai, Canadian Minister of International Trade, Export Promotion, Small Business and Economic Development Mary Ng, and Mexican Secretary of Economy Tatiana Clouthier. It was the second meeting of the three trade representatives. The meeting covered a number of topics, including North American competitiveness; SMEs and inclusive trade; labor; the environment; and next steps.
In more recent activity, the USTR on July 20 indicated that the “United States Requests Consultations Under the USMCA Over Mexico's Energy Policies.” Ambassador Tai said in the announcement:
“We have repeatedly expressed serious concerns about a series of changes in Mexico’s energy policies and their consistency with Mexico’s commitments under the USMCA. These policy changes impact U.S. economic interests in multiple sectors and disincentivize investment by clean-energy suppliers and by companies that seek to purchase clean, reliable energy. We have tried to work constructively with the Mexican government to address these concerns, but, unfortunately, U.S. companies continue to face unfair treatment in Mexico. We will seek to work with the Mexican government through these consultations to resolve these concerns to advance North American competitiveness.”
Two additional documents are related to this announcement, “WHAT THEY ARE SAYING: United States Requests Consultations Under the USMCA Over Mexico’s Energy Policies on Behalf of U.S. Stakeholders” and “Copy of the Consultations Request.”
Summit of the Americas
The Ninth Summit of the Americas came and went in Los Angeles five weeks ago. It was the first time the United States hosted the Summit since the inaugural meeting in Miami in 1994 – and it was not without its share of strife.
Not all of the countries of the region were invited. Only 23 of the hemisphere’s 35 heads of government participated in the summit along with representatives of eight other countries. There were also three official stakeholder forums occurring alongside the summit to discuss regional challenges and interact with the assembled leaders.
The Congressional Research Service provided a summary of the outcomes, “2022 Summit of the Americas,” following the event. One of the outcomes was President Biden’s announcement of a new program to work with the countries in Latin America and the Caribbean. A fact sheet from the White House, “FACT SHEET: President Biden Announces the Americas Partnership for Economic Prosperity,” is attached. Some additional comments on the partnership and what it might accomplish are contained in the Center for Strategic and International Studies piece, “Taking the Americas Partnership for Economic Prosperity as an ‘Opening Bid’ to Go Bigger.”
At the time of the Summit, representatives of the US, Mexico, and Canada released a statement, “Joint Statement on Canada-Mexico-United States Cooperation,” affirming their commitment to working together to solve problems of the region.
Following President Biden’s inability to see President Lopez Obrador at the Summit, they did meet at the White House on July 12 in a session that was previously scheduled. Their remarks prior to the formal meeting are contained here: “Remarks by President Biden and President López Obrador of Mexico Before Bilateral Meeting.”
China Tariff Relief and Nearshoring
Will we or won’t we? President Biden has been considering reducing the 301 tariffs on goods coming from China. A decision could be made this month. The reason? Recent reports have tied in a reduction in the tariffs with a reduction in inflation – now a problem in the US economy. The Peterson Institute’s (PIIE) analysis, “To fight inflation, cutting tariffs on China is only the start,” indicates:
“The direct effect of removing tariffs on imports from China could lower consumer price index (CPI) inflation by 0.26 percentage point—only marginally reducing inflation. But as US corporations trim their markups to compete with imports, the competitive impact of cutting the China tariffs could eventually lead to about a 1 percentage point reduction in inflation.”
PIIE details other possible changes to US trade policy that can affect costs in the inflation sphere. What products that are part of the 301 tariffs could see relief remain to be seen, although consumer goods that figure more in lower-income households' expenditures, like clothing, furniture, school supplies—and baby formula – might be on the list.
Not all parties are in agreement with lifting tariffs on China, wanting to continue waging a trade war and limiting abilities for US companies to invest in the country. The White House, working to improve competitiveness and resolve supply chain issues, is working with Congress to pass a $52 billion subsidy bill to support semiconductor chip research and manufacturing. However, the White House supports prohibiting semiconductor companies from expanding certain investment in China if they take new subsidies to build plants in the US. The China investment restrictions are still under negotiation and are a target of heavy lobbying by the semiconductor industry. Currently, the legislation would prohibit companies from expanding their semiconductor manufacturing in China for 10 years after they take a grant to build a US plant. The Senate is debating the language of the legislation this week.
In another activity affecting China and nearshoring, legislation has been introduced by Rep. Mark Green (D-TN). The bill, H.R. 7579 Western Hemisphere Nearshoring Act, has as its goal “To decrease dependency on People’s Republic of China manufacturing and decrease migration due to lost regional economic opportunities.” Among other things, the legislation would provide duty-free treatment for goods and services of companies moving from the Peoples Republic of China to Latin America and the Caribbean. It also supports having the USTR initiate free trade agreements with countries in the region that do not now have agreements with the US.
You can view all of our past updates including, links to articles and documents, at www.usmcocma.org/resources.
Also, stay tuned for more webinars from our Chapter, including a two-session "USMCA Update," "Mexican Investment in the State of Illinois - Opportunities and Process," and "Mexico in a World of Industrial Clusters."