U.S. International Trade Commission Releases Report on the Likely Impact of the United States-Mexico-Canada Agreement

The U.S. International Trade Commission (USITC) has released its report assessing the likely impact of the United States-Mexico-Canada Agreement (USMCA) on the U.S. economy as a whole and on specific industry sectors and the interests of U.S. consumers. The report, United States-Mexico-Canada Agreement: Likely Impact on the U.S. Economy and Specific Industry Sectors (Investigation No. TPA-105-003, USITC Publication 4889, April 2019), was prepared at the request of the U.S. Trade Representative (USTR) and required by the Bipartisan Congressional Trade Priorities and Accountability Act of 2015.

In preparing its report, the USITC investigated the USMCA’s expected impact on the U.S. gross domestic product; exports and imports; aggregate employment and employment opportunities; and the production, employment and competitive position of industries likely to be significantly affected by the agreement. On its website, the USITC listed these main findings:

• The elements of the USMCA that would have the most significant effects on the U.S. economy are: (1) provisions that reduce policy uncertainty about digital trade; and (2) certain new rules of origin applicable to the automotive sector. The report also notes that for many industry sectors, particularly services industries, the USMCA’s new international data transfer provisions should be of interest, including provisions that largely prohibit forced localization of computing facilities and restrictions on cross-border data flows.
• Because NAFTA has already eliminated duties on most qualifying goods and significantly reduced nontariff measures, the USMCA’s emphasis is on reducing remaining nontariff measures on trade and the U.S. economy; addressing other issues that affect trade, such as workers’ rights; harmonizing regulations from country to country; and deterring certain potential future trade and investment barriers.
• The USMCA would strengthen and add complexity to the rules of origin requirements in the automotive sector by increasing regional value content (RVC) requirements. The USMCA’s requirements on this matter are estimated to increase U.S. production of automotive parts and employment in the sector but also to lead to a small increase in the prices and small decrease in the consumption of vehicles in the United States.
• The USMCA would establish commitments to open flows of data, which would positively impact a wide range of industries that rely on international data transfers. The agreement would reduce the scope of the investor-state dispute settlement (ISDS) mechanism, a change that, based on modeling results, would reduce U.S. investment in Mexico and would lead to a small increase in U.S. investment at home and output in the manufacturing and mining sectors.
• Labor standards and rights would be strengthened, if enforced under the USMCA, including those related to collective bargaining in Mexico, which would promote higher wages and better labor conditions in that country.
• New intellectual property rights provisions would increase protections for U.S. firms that rely on intellectual property.

Overall, based upon quantitative and qualitative model estimates, the USMCA, if fully implemented and enforced, would have a positive impact on U.S. real GDP and employment. The report concludes that the USMCA would raise U.S. real GDP by $68.2 billion (0.35 percent) and U.S. employment by 176,000 jobs (0.12 percent), which would likely have a positive impact on U.S. trade, both with USMCA partners and with the rest of the world. The USITC reports that U.S. exports to Canada and Mexico would likely increase by $19.1 billion (5.9 percent) and $14.2 billion (6.7 percent), respectively, while U.S. imports from Canada and Mexico would increase by $19.1 billion (4.8 percent) and $12.4 billion (3.8 percent), respectively. The model estimates relied upon by the USITC for conducting the analysis and preparing the report indicate that the USMCA would likely have a positive impact on all broad industry sectors within the U.S. economy, with manufacturing experiencing the largest percentage gains in output, exports, wages and employment, while in absolute terms, services would experience the largest gains in output and employment.

The USITC is an independent, quasi-judicial federal agency with broad investigative responsibilities on matters of trade, including, upon request by Congress or the executive branch, the task of gathering and reporting on trade data and other trade policy-related information.