For many years, the countries of North America have conducted their trade using the North American Free Trade Agreement (NAFTA) as their guide. Late last year, however, President Donald Trump nixed this deal in favor of a new one – the U.S., Mexico, Canada Agreement (USMCA). This agreement was initially signed by all three countries back on November 30, 2018. Now, according to V.M. (Jim) DeLisi, Chief of Fanwood Chemical Inc., it rests with the various legislative bodies in each country to finalize the terms of this deal.
“Some people say that [USMCA] is NAFTA 2.0,” DeLisi said, speaking at the 14th annual AgriBusiness Global Trade Summit in Atlantic City, NJ, on July 30. “But it’s a lot more than that.”
For example, DeLisi said, USMCA features a change to subheading for the rules of origin, provided there is a regional value content of not less than 40% where the transaction method is used or 30% when the net cost method is used.
“These rules should incentivize Mexico and Canada to produce active ingredients and intermediates for the U.S. market,” he said. “This could be especially important since India lost its [Generalized System of Preferences] status, which gave them duty free access to a significant portion of the U.S. tariff schedules. Further, since a chemical reaction is transformative under this agreement, it will allow such producers to purchase upgraded intermediates from China for conversion and then duty-free entry into the U.S.”
At this point, however, politics might keep USMCA from becoming a reality right away. According to DeLisi, the Mexican Senate passed the legislation quickly and ratified the deal on June 19. The Canadian Parliament introduced the legislation on May 29 and is expected to ratify the deal by the middle of September.
Then there’s the U.S. “The House of Representatives must act on this this deal first,” DeLisi said. “And once introduced, it must be voted on within 90 legislative days. But 90 legislative days is not three months in Washington, DC. It only counts days when Congress is in session – and Congress is on vacation for the entire month of August.”
Given the “negative feelings” between many members of Congress, DeLisi wondered if passing USMCA would be possible before the end of 2019. And the consequences could be quite severe if no agreement is reached.
“If you just withdraw from NAFTA from the U.S. codes without something to replace it, you would default back to the Canada-U.S. Trade Agreement, which is still in place,” he said. “This would keep trade between Canada and U.S. intact, but it would be an absolute nightmare for trade between the U.S. and Mexico.”