U.S. House approves USMCA trade agreement with potential impacts for counties

Key Takeaways

On December 19, the U.S. House approved the United States-Mexico-Canada Agreement (USMCA) Implementation Act (H.R. 5430) to replace the former North American Free Trade Agreement (NAFTA), which governs international trade between the United States, Mexico and Canada. Passage of H.R. 5430 follows months of negotiations between Congress and the Trump Administration, as well as with government officials and stakeholders in Mexico and Canada.

The final deal offers sweeping changes to the current international trade system, outlined below, some of which could impact counties if enacted:

• New supports for small- and medium-sized enterprises (SME): As drafted, USMCA is the first-ever U.S. trade agreement to include a chapter on increasing trade opportunities for SMEs. The deal establishes new information-sharing tools aimed at helping SMEs improve their understanding of trade rules in specific global regions. USMCA also eliminates the local presence requirement for cross-border service providers, which could ease the burden of opening a physical foreign office for small business. To ensure stakeholder engagement in these processes, USMCA also creates a committee on small business issues that includes government leaders from each member country.
  
  These updates could be beneficial to counties, which work with state and local financial institutions to promote the viability and expansion of small businesses in our communities.
   
• Updates to the rules of origin: USMCA makes updates to NAFTA’s rules of origin for several products, including auto parts and industrial products such as glass, chemicals and optical fibers. These rules determine where and how much of a good are produced in a given country and, in the context of USMCA, aim to provide incentives to “source goods and materials in the United States and North America.”
  
  Under the new agreement, the percentage of a vehicle’s parts produced in the U.S. must equal 75 percent, up from 62.5 percent under NAFTA, to qualify for tariff exemptions. In some cases, USMCA links the updated rules of origin to new wage requirements. For example, 40 percent of an automobile and 45 percent of a light truck must be produced using an average labor wage of $16/hour. This provision could help companies attract skilled local workers, while ensuring individuals earn appropriate wages – a priority for counties as partners with federal and state governments in the national workforce system.
   
• Intellectual property rules: The new trade agreement makes updates to intellectual property protections under NAFTA with the goal of increasing the global economic competitiveness of North American firms. In addition to creating a Committee on Intellectual Property Rights, USMCA streamlines trademark application procedures and makes information on a range of intellectual property issues available online. The trade agreement also updates NAFTA to include new rules for digital trade, such as prohibiting customs and duties on products distributed electronically (e.g., videos, software and music).
   
• Potential impacts on housing affordability: According to an initial analysis by Housing Wire, the trade agreement’s price stabilization for construction materials could help improve the housing shortage in the United States. Housing availability and affordability are major priorities for counties, which play a central role in determining funding streams and zoning strategies for housing.

In addition to these wide-ranging provisions, USMCA includes a 16-year sunset clause. Until then, the deal is subject to review every six years, at which point member countries can renegotiate specific measures in the agreement.

H.R. 5430 now moves to the U.S. Senate, where the legislation is expected to pass with bipartisan support. However, Senate Majority Leader Mitch McConnell (R-Ky.) has indicated he does not plan to hold a floor vote until after the impeachment trial concludes in the chamber, likely pushing final passage of the agreement later into 2020.

For more information on USMCA, counties and international trade, please see the following resources:

• United States-Mexico-Canada Agreement (United States Trade Representative USMCA page)
• NACo International Economic Development Task Force (NACo landing page)
• Counties can boost economies by wooing foreign investment (NACo County News article)