Industry Groups, AFL-CIO React to ITC's NAFTA Report; Report Cautions Full de Minimis Benefit May Not Occur

If the AFL-CIO decided to oppose the deal, it could make a path to passage impossible in the House of Representatives -- at this point, it says it would oppose it if it has no changes. The largest union association said the report shows there's a question on whether Mexican labor provisions will become reality. Celeste Drake, trade specialist for the AFL-CIO, said, "By recognizing that the new NAFTA would only strengthen labor standards and rights 'if enforced,' the USITC's study supports the AFL-CIO's demand that the deal be fixed, including by adding swift and certain enforcement tools, before Congress votes on it."

In contrast, the National Association of Manufacturers said the report shows why the U.S.-Mexico-Canada Agreement "is our top trade priority, and we urge Congress to approve it as soon as possible." The Border Trade Alliance said the report's findings of economic growth and job growth "are all the more impressive considering that they are compared against the current NAFTA, in which trade already is conducted almost 100 percent tariff-free. That the U.S. economy is projected to enjoy such strong growth under the USMCA is a testament to the job growth we have already seen with NAFTA.”

The report says that in 2017, the percentage of U.S. imports from Canada subject to duties was 16 percent, and 5 percent of Mexican imports face duties.

The ITC pointed to changes in the auto rules of origin and digital trade as the most significant for future economic or job growth (see 1904180043), but diving into the footnotes on the changes to de minimis reveals some hesitancy among express shippers on how much the provisions will facilitate cross-border trade.

The report estimated that there would be a 0.6 percent decline in the cost of cargo handling in both the U.S. and Mexico, a 0.7 percent decline in the cost of U.S. warehousing logistics, and a 1.4 percent reduction in trade costs for courier services.

That's large in dollar terms, because 70 percent of U.S. express couriers' business is within the NAFTA boundary, the ITC said. But the report noted that "U.S. industry representatives caution that the use of 'best endeavor' language in Article 7.8 may weaken countries’ resolve to implement [de minimis threshold (DMT)] provisions regarding express shipments. Without a firm commitment to such provisions, express delivery and e-commerce firms would likely not realize the agreement’s full benefits."

The article also says the three countries should adopt expedited or "informal" entry procedures for shipments valued at less than $2,500, and express shippers want the countries to "seek a consensus ... on the types of procedures that comprise informal entry, as these may vary by country."

The trade group that represents Detroit's Big Three automakers said the ITC got it wrong when it said that there would be a net gain of 28,000 auto industry jobs -- and a small loss in assembly jobs.

American Automotive Policy Council President Matt Blunt said April 18, "We believe the report’s conclusions are flawed, especially with respect to the automotive sector.

“The report underestimates the longer-term investments and increased U.S. auto parts sourcing that will be made in our sector as a result of the certainty and predictability the USMCA will deliver. In fact, billions of dollars in new U.S. investments have already been announced by FCA US, Ford and GM, as well as by [electric vehicle] battery manufacturers -- even before the USMCA is in effect."

The report also touched on changes to rules of origin for textiles, chemicals and electronics. In the first two cases, economists projected there would be no net effect on trade. "While some changes to the preference rules of origin would make it easier for some textile and apparel products to qualify for duty-free treatment, other changes will simultaneously make it more challenging for other products that satisfy the current NAFTA rules to do the same. In aggregate, these changes can be expected to more or less balance each other out," the ITC wrote.

For electronics, however, ITC expects the changes to add to U.S. exports. The new rules reduce regional value content (RVC) requirements for certain electronics products, convert tariff-shift requirements for other electronics products to RVC requirements, and adjust tariff shifts on other items from the Harmonized System (HS) heading level to subheading level. "For example, under current NAFTA regulations, static converters can enter the United States from Mexico or Canada duty free under either (1) a 4-digit-level HS tariff shift or (2) a 60 percent transaction value (TV) combined with a 50 percent net cost (NC) calculation. Under USMCA, the tariff shift for static converters would instead be at the HS 6-digit subheading level, and the RVC option would be removed, improving trade prospects for converters throughout the North American electronics value chain."

The pact also provides for some trade facilitation on the Mexican side of the border, the report noted, allowing companies to self-file in Mexico, and ending policies that limited customs brokers to certain ports. "Permitting customs brokers to electronically file documentation from multiple locations would increase the efficiency and lower the costs of customs processing in signatory countries," the report said. Customs brokers still need to be licensed for all the locations where they are supervising shipments.