USMCA Replaces NAFTA Today

Today, July 1, 2020, marks an historic day in international trade, especially for North American businesses.  After several years of negotiating and overwhelming legislative approval in both houses of congress, the United States-Mexico-Canada Agreement (USMCA) enters into force today and formally updates and replaces NAFTA. 

International trade is vital to the Louisiana economy.  More than a third of Louisiana’s GDP depends on international trade.  According to the U.S. Chamber of Commerce data, international trade supports more than 553,000 Louisiana jobs and more than 3,800 companies export goods from Louisiana locations.  For example, the Port of South Louisiana along the Mississippi River is the largest throughput tonnage port in the Western hemisphere, the largest grain and energy transfer port in the U.S., and the nation’s second most active Foreign Trade Zone.  Additionally, most exported grains harvested in the U.S. pass through a Louisiana port. 

The U.S. runs a trade deficit with Mexico and Canada, but Louisiana maintains a growing trade surplus with each nation.  For example, according to the Louisiana Department of Economic Development, Louisiana’s trade surplus with our North American neighbors totaled close to $5 billion in 2017.  Also, trade grew significantly in 2018, with Louisiana exporting $9.2 billion in goods to Mexico and $3.5 billion to Canada. Of all fifty states, Louisiana’s economy is the third most dependent on international commerce.  According to the Port of New Orleans, port-related industries generate one in five jobs across the state. Of all Louisiana-based exporters, more than 85% are small and medium-sized businesses. 

The quarter-century old NAFTA needed significant updating and modernizing to meet the needs of a 21st century economy.  The USMCA retains most of NAFTA’s market opening measures and most of its chapters but changes the rules-of-origin requirements, market access for agricultural products, dispute settlement procedures, government procurement, investment, and intellectual property rights protection.  The rules-of-origin provisions will help Gulf Coast states continue to draw foreign investment. 

The USMCA also addresses new trade issues, such as digital trade and e-commerce, state-owned enterprises, anticorruption, and currency misalignment. All of these substantive areas are now subject to negotiated rules and disciplines that will encourage non-discriminatory trade.

Since NAFTA came into force in 1994 and created one of the largest free trade areas in the world, the trilateral agreement gradually eliminated most all tariff and non-tariff barriers on trade in goods among its partner nations.  The U.S. and Canada gained access to the previously protectionist Mexican market and reduced the effective duty rate on most goods and services down to zero.  From 1993 to 2017, imports and exports increased for each nation, and today Canada and Mexico are the U.S.’s top two export markets and two of the U.S.’s top three import markets. Challenges remain with some aspects of the agreement, such as enforcing labor requirements in Mexico, but North American supply chains are safe and flowing.  In a world of increasing uncertainty, the updated and renegotiated USMCA is certain to continue to grow and benefit Louisiana’s economy.

AUTHORS

  • Alex B. Johnson
  • Edward T. Hayes