The (Likely) Execution of the USMCA

16 May 2019 Blog
Authors: Alejandro Nemo Gomez Strozzi
Published To: Dashboard Insights Manufacturing Industry Advisor

The USMCA, signed on November 2018, is making its way through the legislative processes in the United States, Mexico, and Canada.  Both Mexico and Canada will be closely looking at the eventual progress in the United States before moving forward on their own.

The biggest hurdle in the United States is, in general, the reticence to provide a "victory" to the Trump administration and, in particular, the requirements of the Democrat-controlled House of Representatives to (i) wait and see how the recently-passed labor reform in Mexico is actually enforced, as well as (ii) seek still undisclosed modifications regarding environmental provisions.  We do not anticipate that such requirements would amount to reopening the negotiations among the three countries, as Congress may utilize U.S. domestic implementing provisions to strengthen the parts that are seen as insufficient.

Time wise, there is a slim chance of ratification before the U.S. Congress August 2019 recess, after which a full swing electoral mode should be kicking in with the office of the President, all seats in the House, and one third of the Senate up for grabs in 2020.

Also, the Trump administration has threatened to start the six-months NAFTA withdrawal process to pressure Congress to vote on the USMCA as is, or risk having no treaty at all. If the withdrawal actually occurs, trade within North America would go back to “ordinary” (this is, no preferential commercial treatment) status under World Trade Organization (WTO) standards, creating a serious disruption of numerous production chains.

We believe, though, that USMCA will be ratified as NAFTA clearly allowed the three countries - particularly the United States and Mexico - to benefit from a seamless workshop that clearly made the pie larger. 

We should not lose sight as well that Mexico´s economic relevance to the United States is frequently overlooked. The 11th largest economy in the world, Mexico has a population (126 million) roughly 40 percent that of the United States and is close to three times the size of Texas. The country has a network of 12 Free Trade Agreements (FTAs) with 46 countries, and seven additional ones will be added with the renewed Trans-Pacific Partnership, from which the United States withdrew under the Trump administration.

Mexico was, in 2018, either the first or second largest export market for more than 50 percent of States in the Union. (It was first for six states – Arizona, California, Kansas, Nebraska, New Mexico and Texas -, and second for 22 states - Colorado, Georgia, Illinois, Indiana, Iowa, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, and Wisconsin-.) It is also the third-largest source of imports in the United States; has an expanding middle class that has grown accustomed to purchasing American goods and services; has demonstrated to be a near-shore, reliable manufacturing partner; as well as will benefit from a demographic bonus during the next several years that will help neutralize the dwindling U.S. population (and necessarily its workforce).

Regardless of where companies are located in any given production chain, in the short term (read this as “right now”) it would be wise to evaluate how the USMCA´s provisions - or lack thereof if the withdrawal process is initiated - will impact their current activities, and design a common strategy with their up- and downstream- business partners.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services