by: Tim Powers, Managing Partner at Haynes and Boone, LLP
The North American Free Trade Agreement (NAFTA) has been integral to the growth of the U.S., Mexico and Canada, and the pending revised trade arrangement, known as the United States-Mexico-Canada Agreement (USMCA), promises to pave the way for these countries to sustain their productive business relationships for many years to come.
The USMCA is particularly good news for Dallas and the state of Texas — and for the businesses that are based here — as they are increasingly robust hubs for cross-border trade with Mexico, Canada and other countries.
In line with the Dallas Regional Chamber’s international strategic plan and as a member of the Chamber’s International Task Force, I would like to offer a few data points to underscore why I believe free trade is so important for the American and Texas economies:
- Mexico was the second-largest importer of U.S. goods in 2017, according to the Office of the U.S. States Trade Representative, which estimated that the U.S. last year traded $615.9 billion in goods and services with Mexico.
- NAFTA helped turn Canada into America’s largest trading partner. Every hour of every day, more than $100 million in trade takes place between the U.S. and Canada, according to the Embassy of Canada in Washington, D.C. In fact, Canada buys more goods from the U.S. than China, Japan and the UK combined.
- More than 33 million middle-class jobs have been created across America as a result of NAFTA.
- Likewise, Mexico and Canada are two of Texas’s biggest trading partners, accounting for nearly $229 billion in trade last year, according to the U.S. Census Bureau. Trade with these two neighbors also supports about 1 million jobs in Texas, according to the U.S. Chamber of Commerce.
The USMCA is expected to further strengthen North America as a competitive platform for manufacturing, most importantly in the automotive sector. It incorporates significant changes on automobile production and new policies on labor and environmental standards, intellectual property protections, and some digital trade provisions. For example, under the new deal, cars and trucks must have 75 percent of their components (on a cost basis) manufactured in Mexico, the U.S., or Canada to qualify for zero tariffs. This is a substantial increase from 62.5 percent in the original NAFTA.
By 2023, a significant share of vehicle production, 40 to 45 percent of content, would be made by workers who earn at least $16 an hour. While this provision will initially benefit U.S. and Canadian workers, the hope is that it will contribute over time to higher wages in Mexico. The USMCA also includes other provisions that will bring improved labor and environmental standards to Mexico.
Also under the new deal, U.S. farmers would gain more access to the Canadian dairy market and U.S. inventors would receive improved IP protections. The agreement extends the terms of copyright from 50 years beyond the life of the author to 70 years beyond the life of the author. It also increases protections for biologic drug production data from eight years to 10 years — which basically extends the period that a drug can be protected from generic competition.
The draft USMCA does not include an integrated chapter on energy, but it still maintains duty-free treatment of hydrocarbons and refined products, investor state dispute resolution protection for the oil and gas and energy sector and full access to procurement opportunities by Pemex and the state-owned power company CFE. It also attempts to consolidate the recent opening to the Mexican energy production market, and Mexico is also expected to benefit by increased investment in the energy sector. This open-market approach to energy investment, marketing, and transportation will consolidate the U.S.’s position as a valued partner, important customer, and a strong competitor. Overall, Texas (as the nation’s energy capital) will particularly benefit from this approach.
I have seen firsthand how businesses benefit from the free flow of goods, ideas and talent across borders. Haynes and Boone opened an office in Mexico City in 1994 to support our many clients that consider Mexico a vital market. And as our clients have steadily expanded in other international markets, so, too, has Haynes and Boone, which was founded in Dallas in 1970 and now has 16 offices worldwide, including in London and Shanghai.
Free trade is so critical to our clientele that last year we set up a multi-office NAFTA Task Force to advise clients on the ongoing renegotiation of NAFTA. During the course of the negotiations, we published the NAFTA Renegotiation Monitor in both English and Spanish and recently published a comprehensive review of the USMCA.
We believe USMCA will help boost intra-regional investment in North America, and we will continue to remain dedicated to these notions going forward.
As we await Congress’s vote on USMCA, we are encouraged (as are many of our clients) by the efforts to preserve this trilateral agreement. I believe that the USMCA, if ratified, will help continue to boost intra-regional investment in North America and will allow businesses in Texas and the rest of the region to continue to enjoy the sort of growth trajectory I have been so pleased to witness at Haynes and Boone.