trade

North American trade deal to take effect on July 1

The president is eager for his signature trade agreement to enter into force but the economic downturn is expected to mute its effects.

Donald Trump

The Trump administration notified Congress on Friday that the U.S.-Mexico-Canada Agreement will take effect on July 1, bringing to a close an almost three-year process that President Donald Trump began in rewriting the 25-year-old NAFTA.

The three countries still need to wrap up certain requirements in the next two months, but the move triggers the clock for the deal to enter into effect in July. The step, however, is opposed by many North American business leaders who sought to delay USMCA implementation because of the economic difficulties arising from the spread of the coronavirus.

"Given the pandemic's really unprecedented economic disruption, companies will need time to adapt to the new regulations, some of which have yet to be issued," said John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce. "Industry wants the administration to show flexibility in the months before and after entry into force so they can focus on making payroll and avoiding layoffs."

July 1 aligns with Trump’s goal, before the pandemic, for the deal to take effect this summer. Even before the coronavirus stalled the economy, former administration officials and industry leaders thought Trump’s summer goal was “historically ambitious.”

Last week, a private sector committee created by Congress to advise Customs and Border Protection urged the Trump administration not to implement the deal before 2021.

“Now is not the time to implement a trade agreement that contains so many important and meaningful changes that will impact certain industries in a significant financial manner,” the Commercial Customs Operations Advisory Committee said.

Still, Trump officials have been undeterred in their push for the deal to take effect as soon as possible.

"The crisis and recovery from the Covid-19 pandemic demonstrates that now, more than ever, the United States should strive to increase manufacturing capacity and investment in North America. The USMCA’s entry into force is a landmark achievement in that effort," U.S. Trade Representative Robert Lighthizer said in a statement on Friday.

Trump has viewed completion of USMCA as a major win to take into his 2020 reelection campaign. But industry and business sources have long said that the replacement deal for NAFTA will not have a major impact on the U.S. economy, given that the original deal eliminated most tariffs on goods traded between the three countries decades ago.

Some lawmakers have also urged the Trump administration to take more time with implementing the deal. Last month, an influential group of Senate Finance Committee members expressed concern that businesses do not have the information they need to adjust to the new rules in the USMCA.

“The Covid-19 pandemic has impacted governments, businesses, workers, and farmers globally, leaving little, if any, time and resources to prepare for a smooth transition to USMCA,” they wrote in a letter to Lighthizer. “Entry into force should only happen after all necessary regulations are in place and our industries have had an opportunity to understand and implement them effectively.”

And even though Mexico and Canada have certified they have completed the internal requirements necessary for the USMCA to take effect, lawmakers, former officials and trade experts have expressed doubt the three countries could do a comprehensive implementation of the deal — especially on changes to auto manufacturing rules and new labor enforcement rules — in such a short time.

Trump signed the deal into law in January, and Canada only finished its legislative process last month.

House Ways and Means Chairman Richard Neal welcomed Lighthizer's notification, reminding that Democrats secured strong enforcement mechanisms in the new deal that will help protect workers.

"Worker protections and tools to respond to any instances of abuse have always been important, and the existence of mechanisms to hold countries and facilities accountable are particularly crucial now, given the pressures and dangers Covid-19 presents. I am proud to say that the USMCA provides these enforcement tools," Neal said in a statement.

It's unclear, however, whether the three countries will see any economic boost from the changes — especially with the world economy heading for a recession. Well before the pandemic, the U.S. International Trade Commission found the deal would raise U.S. GDP by $68.2 billion, or 0.35 percent, by the sixth year after it enters into force.

The USMCA would also create 176,000 U.S. jobs, increasing employment by 0.12 percent by the sixth year, according to the independent panel’s analysis. It's unlikely voters this election cycle will feel any of the effects of the trade deal.

The three countries plan to offer some flexibility for automakers, which are already hurting from the pandemic as they are either dealing with shutdowns or working to produce medical equipment.

Earlier this week, the Trump administration said it would give automakers a new deadline of July 1 to submit a draft plan laying out a delayed process for complying with new USMCA rules. A final plan is due no later than Aug. 31.

Automakers will be able to petition for more time to comply with the agreement's rules. However, if approved, that petition would only apply to a small portion of an automaker's production.

Industry leaders have also expressed frustration that they have not yet seen the uniform regulations for automakers to follow. Those regulations, which the three countries must agree to, have long been considered one of the most challenging issues for USMCA implementation, because it involves very specific formulas and documents auto manufacturers will need to understand and apply to their production.

The Trump administration is expected to offer its draft uniform regulations a month before the deal enters into force, two industry sources said.

The U.S. was the last country to certify that it has completed the required domestic procedures for the deal to go into effect. Mexico and Canada sent their notifications earlier this month.

USMCA rules state that the deal would go into effect “on the first day of the third month following the last notification," which is now July 1.

Lighthizer originally notified Congress in March that the U.S., Mexico and Canada intended for the deal to enter into force on June 1. But the three countries missed a key deadline in March for the deal to fully take effect as planned in June

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