The U.S. House of Representatives voted to approve the U.S.-Mexico-Canada Agreement (USMCA) Thursday, sending the deal to the Senate for ratification. A Senate vote is unlikely before 2020, but the deal is largely expected to pass whenever it comes to the floor.
State representatives of Canada, Mexico and the U.S. signed a revised version of the U.S.-Mexico-Canada Agreement (USMCA) in Mexico City Dec. 10, containing enhanced labor, environmental and pharmaceutical enforcement protections called for by congressional Democrats.
All three countries must ratify the deal before it can go into force.
Some of the additional provisions in the revised USMCA include:
- Labor: Removed language from the deal that would have made it difficult for governments to take action if trading partners were not living up to, or violating, labor protections. Created an interagency committee to monitor Mexico's labor reform and compliance.
- Environment: Established an interagency committee that will assess the current environmental conditions in Mexico and Canada and monitor the implementation of, and compliance with, environmental requirements included in the USMCA.
- Pharmaceuticals: Removed 10-year exclusivity provisions for expensive biologic drugs that currently prevent or delay the sale of cheaper generic versions. Included new provisions to encourage greater competition between drug producers with the goal of keeping prices lower.
"We are optimistic this development will open the door to final approval of USMCA on a bipartisan basis by the end of the year, which will especially benefit American farmers, manufacturers, and small businesses," U.S. Chamber of Commerce CEO Thomas J. Donohue said in a statement. The Chamber, which has been a proponent of the USMCA in the past, will review the full text of the deal with its membership to examine the full impact of the agreement, Donohue said.
While the business community has been supportive of the USMCA, touting the potential for smoother customs processing and streamlined shipments, economists estimate the overall impact on the economy will be middling.
A study from the International Trade Commission (ITC) found the deal would increase the U.S. real GDP by $68.2 billion (0.35%) and add 176,000 jobs to the U.S. economy (a 0.12% increase).
The International Monetary Fund called the impact "negligible," saying in a report earlier this year that the primary gains from the USMCA would be realized "with the elimination of U.S. tariffs on steel and aluminum imports from Canada and Mexico and the elimination of the Canadian and Mexican import surtaxes imposed after the U.S. tariffs were put in place."
However, many experts consider the USMCA preferable to no NAFTA at all. "At a time when slower global growth, rising protectionism, lingering policy uncertainty and a strong dollar are constraining activity, the [USMCA] prevents a negative impact worth 0.5% of GDP from a dissolution of NAFTA," Oxford Economics Chief U.S. Economist Gregory Daco wrote in a note to clients obtained by the Washington Post.
Many of the USMCA's benefits will be seen in the automotive, manufacturing and agricultural sectors, according to the ITC's report, as they represent a significant portion of U.S. exports to Canada and Mexico.
A survey of 100 automotive executives conducted by LevaData found that while 78% expect the long term impact of the USMCA to be positive, 63% expect production costs to increase and 58% said those increases would be passed on to customers.
The bulk of the cost increases would be due to electronic components and labor becoming more expensive, according to the report. The USMCA also requires automakers to source higher amounts of American-made parts, which could affect vehicles' duty-free status when being shipped from manufacturing plants in Mexico back to the U.S.
The majority of the executives LevaData surveyed are optimistic the deal could increase trade and boost U.S. manufacturing, which has been struggling in part due to global trade uncertainty.
The agricultural sector, which is deeply dependent on trade with Canada and Mexico, has also been supportive of the agreement.
"Mexico is the #2 market for whole beans, meal and oil, and Canada is the #4 buyer of meal and #7 buyer of oil for U.S. soybean farmers, making the [USMCA] essential to sustaining the growth realized in those two countries under the North American Free Trade Agreement (NAFTA)," according to a statement from the American Soybean Association.
Update: This story has been updated to include the U.S. House of Representatives' approval vote.