Economic Development

Trade Deal Will Be Boon for Automotive, Chemical Sectors

YOUNGSTOWN, Ohio – Depending on who you ask, the recently negotiated U.S.-Mexico-Canada Agreement is either a rebranding or reconstruction of the 24-year-old North American Free Trade Agreement.

The reality lies somewhere in between, explained Dan Ujczo, an international trade and customs attorney for Dickinson Wright. The new deal more akin to a renovation of the framework, he said Nov. 7 at a seminar at the Williamson College of Business Administration.

“About half of this deal is a fresh coat of paint on the original NAFTA,” he said, noting that much of the deal is “getting it up to the 21st century,” including a new section that deals with how the internet and e-commerce applies and updates to intellectual property rules.

For small- and medium-sized businesses, he said, one of the biggest changes is the reduction in red tape and documentation. Whereas companies once had to get a certificate of origin for their products, he explained, now “they can just send it,” though companies still ought to pay attention to their paperwork.

“The entire deal is completely renumbered. None of your forms, when this comes in, will work,” he said. “There’s a lot of good in here. You’ll just need to certify origin on your purchase order.”

Those sorts of changes, Ujczo said, will have a large impact on smaller businesses as they will have to dedicate less time to navigating the system.

“There’s nothing sexy or sensational about it, but the tyranny of small differences we had in North America led to death by a thousand cuts,” he said. “We’ll heal those wounds and get our companies back to doing what they do best.”

For the Mahoning Valley, two of the biggest areas addressed in the U.S.-Mexico-Canada Agreement are the automotive industry and the chemical and polymers sector. For auto manufacturing, the new trade deal stipulates that vehicles produced in North America must have at least 70% of the steel and aluminum used in them come from the three member nations and 75% regional value content ­­– that is, products from the U.S., Mexico or Canada – on parts used in transmissions, chassis, motors, gears, batteries and suspensions, up from NAFTA’s 62.5%.

In addition, the USMCA also requires that workers earning at least $16 per hour produce at least 40% of automotive content. For pickup trucks, the threshold is bumped to 45%.

The deal won’t guarantee that General Motors’ Lordstown Complex will be saved – “There are other forces at play there,” he said – it does strengthen the argument for investing in American plants over those abroad.

“Mexico got really good at attracting investments. It was one of the best around because of cheap labor,” he explained. “The companies will start looking for who can supply that product from Mexico and elsewhere to meet that 40%.”

For manufacturers with sites in Mexico, Ujczo predicted that business will “hear a lot about labor in the coming year.

“These are the greatest concessions Mexico has made on labor to date, really dealing with unions,” he said. “You need to completely redo how you do HR and negotiations because there’s new rules there.”

In the chemicals and polymers field, new regulations could bolster development in the area, especially as Royal Dutch Shell gets closer and closer to bringing its ethane cracker plant in Monaca, Pa., online.

“Every trade deal after NAFTA had better ways of handling it. Our rules under NAFTA were you had to trace every molecule and figure out where it came from,” he said. “Here, it’s about the mixing, where you’re mixing and not where everything came from.”

Such changes will be a boon for Ohio businesses, said Mousa Kassis, export assistance director of the Ohio Small Business Development Center at Youngstown State University, especially those dealing with Canada.

Some 40% of Ohio exports in 2017, about $19 billion, are sent to Canada, along with another $6.4 billion on Mexico. Topping the list of products to the two countries were transportation equipment at $7.9 billion, chemicals at $2.9 billion and machinery at $2.7 billion, while primary and fabricated metal products ranked fourth and sixth on the list, respectively.

“It’s great. It’s a win-win. We’re glad it happened because there was a lot uncertainty in the last year, year-and-a-half,” Kassis said. “It was unsettling in the business community in terms of investment, trade, exchange, employees and so on.”

With much the negotiations complete, what remains is ironing out the language – some parts of the U.S.-Mexico-Canada Agreement were lifted wholesale from the Trans-Pacific Partnership and name that deal instead of the USMCA, Ujczo said with a laugh – and having the governments of all three nations approve the deal.

Mexico is expected to be the first to approve it, doing so by Nov. 30, the day before president-elect Andres Manuel Lopez Obrador takes is sworn in. Canada is expected to follow afterward. The United States, however, will have it before Congress in March at the earliest and even that is a long shot, Ujczo explained.

The timetable for the deal was “done backwards” in that it requires a vote within 30 days of coming before Congress but gave no time period for getting there in the first place. With the new Democratic majority in the House of Representatives, the proverbial can could be kicked down the road. And with other items on their agenda, it appears that ratifying the deal will be an issue for 2020, the attorney said.

“For the time being, we’ll maintain the status quo,” he said. “But the rest of the world isn’t sitting around. There’s an imperative as the business community. We will never get a better deal from Mexico and Canada. This is the best you could possibly get because there are a lot of political circumstances that caused Mexico and Canada to cave.”

Once in place, the deal is a long-term agreement. The United States, Canada and Mexico will each reassess the deal after six years and then will be able to commit to another decade or, if they’re unsatisfied, decide to pull out of the deal, which would give them 10 years to do phase it out. At the very least, it’s in place for 16 years.

“We still have to go through the regulatory process, which will take about a year,” he said. “Your company needs to be constantly aware of changes.”

Pictured: Dan Ujczo, an international trade attorney at Dickinson Wright, highlighted the changes put that will be put in place by the U.S.-Mexico-Canada Agreement.

Published by The Business Journal, Youngstown, Ohio.