The US, Mexico, Canada Free Trade Agreement (USMCA) entered into force on July 1st. After a quite complex negotiating process, heavy criticism of NAFTA, and several episodes where it seemed as though negotiations could get derailed.
Fortunately, our three countries were able to draft a comprehensive new agreement that manages to modernize what had already been a groundbreaking one under NAFTA, which in its time set the stage for trade agreements worldwide.
UMSCA covers most of the best practices started by NAFTA, and also incorporates current trade trends covered in other agreements, particularly the CPTPP (evolution of the visionary TPP).
Among the most important new components are chapters on anticorruption, e-commerce, SMEs, and competitiveness, and it also includes provisions on the energy sector which had been shunned from NAFTA.
This new framework will be key in consolidating North America as one of the world´s most competitive regions, building on the highly integrated value chains we have developed since NAFTA, some of which are among the most sophisticated in any region.
In the case of Mexico, USMCA also means two key advantages. On the one hand, it is a source of highly needed legal certainty for business, after the high uncertainty created by the negotiation; and on the other, it represents the potential for investment attraction in many new sectors.
Investment potential is even greater given the current trade war between the US and China, which is disrupting several global value chains, meaning great opportunities for Mexico to attract them to the region.
Additional to the potential for more US companies looking to Mexico for producing the supplies they now bring from China, companies from several other countries can look to Mexico to keep their US bound exports, particularly on industries like auto or aeronautics.
This potential for attracting production of various supplies, is also strengthened by the effects the long-standing pandemic we are going through is having on value chains around the globe.
However, in order for Mexico to really take advantage of these opportunities, our government needs to work hard on strengthening the rule of law. And more importantly, on avoiding the various decisions made in the last months that are not respectful of legality and make investors nervous.
But legal certainty is only one of the big challenges for Mexico to have a successful USMCA. The other big challenge brought on by the agreement is the new labor framework, and the dispute settlement mechanisms created for it.
Mexico carried out a deep and historic labor reform last year, which stemmed firstly from the 2017 Constitutional Reform, then from the ratification of Convention 98 of the International Labour Organization (ILO), and thirdly from Annex 23 of the USMCA.
With this new reform, unions must abide by much more democratic processes for electing their leaderships, but also for the negotiations of collective labor contracts.
The USMCA allows the US to present complaints against Mexico because of union wrongdoing, but the sanction goes against the company. This poses big challenges for business.
That is why we at Mexico´s Business Coordinating Council (CCE) have engaged in dialogue and collaboration with the Mexican Government. We created a Technical Labor Team, with a special advisory group of trade experts.
The objective is to help companies be prepared, via a Self-Diagnostic Toolkit presented on August 4, so that they can identify any potential risks and work on fixing them to prevent potential cases presented by the US.
But also, to work closely with the Secretariats of Economy and Labor to design joint and expedite defense strategies along with the affected companies if any cases are brough to the USMCA labor panels.
We must keep in mind that this new labor framework also means that Mexico can present cases against the US, where there are also highly questionable labor practices, particularly regarding migrant workers. One thing to think about.
At CCE, our aim is to help companies be as informed as possible on the new labor framework and its implications; but also on the full USMCA so that businesses can take as much advantage of it as possible, identifying new opportunities and markets.
On August 4 we also launched a special website on USMCA for the business community: www.ccetmec.mx, with various reports, useful links, presentations, and the videos from three webinars we held in June to help companies understand the new labor rules.
On that same website we included the self-diagnostic for companies to download it and use it at their convenience.
As Mexico´s private sector´s umbrella organization, we are fully committed to a successful UMSCA implementation that will create business opportunities, as well as inclusive growth and development for our country.
We will continue to work with our government, with our counterparts in the US and Canada, and with the Mexican business community to fully exploit the potential benefits that USMCA brings with it.
* Odracir Barquera is Executive Director for Planning at Mexico´s Business Coordinating Council (CCE) and close collaborator of The US-Mexico Foundation. The U.S.-Mexico Foundation is a binational non-profit organization dedicated to fostering bilateral cooperation and improving the understanding between the United States and Mexico by activating key people in the relationship that once were dormant. Twitter: @usmexicofound
