Farewell, Nafta, hello U.S.-Mexico-Canada Agreement. Suzanne Richer, director of trade advisory practice with Amber Road, explains what's in the renegotiated trade pact, and how it will impact U.S. domestic supply chains.
Q: What are some highlights of the new United States-Mexico-Canada Agreement, which replaces the old North American Free Trade Agreement?
Richer: One of the key things we're going to be seeing is, first and foremost, a change in the automotive industry. The agreement calls for an increased percentage of parts that come from North America in order to qualify a car for reduced tariff rates. This is a huge change, and we're going to see an increase of the return of manufacturing in the United States for parts, accessories, and all those things that go with that industry. We’re also seeing a couple of changes in the agricultural area, which is a big positive for milk-rich states. Canada has curbed some of its restrictions in that area. Another highlight is an increase in wages. In Mexico, for example, an automotive worker has to earn at least $16 an hour. These changes should bring a great deal of business back to the North America area.
Q: What does the U.S. give up in exchange for that?
Richer: There are always going to be some changes in percentage points of what we have been trading previously. There are 34 new chapters, not fully released yet, so it's difficult to say what the full-term impact might be. But I think you're going to see an overall advantage to the three countries.
Q: How big a jump is that $16 an hour from what Mexican automotive workers were making before?
Richer: That's almost three times what the average wage was in this industry before. So this is a big win. By leveling the playing field, we're going to see more opportunity for the North American area overall.
Q: Can we assume that this agreement will drive up the price of manufacturing and, therefore, the price of products to American consumers?
Richer: You can't make any assumptions until the final rules are rolled out, until it all comes into play and we can see what they've intended for this trade agreement. The fact that the three countries could come together, create a new trade agreement and believe that overall it's good for not only for their countries, but the region – that’s got to be positive.
Q: How will the new agreement impact manufacturing supply chains in the U.S.?
Richer: As we see an increase in content requirements for the automotive industry come into play, more parts, accessories and products will have to come from North America. That means a lot of manufacturing coming back into this region. We're going to have to retool our education and understanding of tracing capabilities and what they mean for origin content.
Q: Will that change the way we determined origin content?
Richer: Country of origin has always been a sticky point. We've seen increases in tariffs around the world, and that's brought a lot of people to the table asking, "What is the origin? How can I prove it? Am I doing things correctly today?" So I think you're going to see, first and foremost, free-trade agreement rules prevail. Then, where there might be a loophole or perhaps not a set standard, we’ll go to a concept called substantial transformation, which requires a whole other set of objectives that have to be met. Those are difficult to prove out if you haven't done the homework on the origin of your product.
So I definitely see a need for an increase in education on what is “country of origin,” and how it’s determined. From a U.S. perspective, for example, we have a couple of key areas of legislation called Buy America and Buy American. There's only one letter difference between them, yet they're so different.
Q: Do you think we’ll see more cooperation among the various customs agencies of the three countries in expediting cross-border traffic?
Richer: There has already been a great deal of collaboration. We have the United States C-TPAT (Customs-Trade Partnership Against Terrorism) cargo security program, which is parallel to the Canadian PIP (Partners in Protection) Program. And now Mexico has adopted the AEO, or Authorized Economic Operator. These programs have already required cooperation on cross-border activity. We now have between the United States and Canada what they call a two-for-one. If you have an audit on cargo security, in Canada, for example, that will be good for two countries.
Q: Talk more about the challenge of education. What's needed in order to spread the word on the new agreement?
Richer: Regulations come and go, and change dramatically, and that always requires a change in education. The key here is thinking that a lot of these things are fundamental. How well do we know the elements of doing trade cross-border? The return to education is going to require a greater awareness of what's happening at the border, what the regulations are, and then, of course, country of origin. I think this has already been a big request of ours in the last six months. I would imagine this will continue with the new trade agreement.
