M&R Capital Management is an asset management firm headquartered in New Jersey that provides investment advisory services to individuals, endowments, and businesses. Keeping pace with global economic updates is essential to successfully navigating the markets through all conditions, and M&R Capital Management frequently contributes to publications covering international trade. Below, the firm discusses trending business news related to the USMCA.
Following the dissolution of NAFTA, the USMCA came into effect in 2020, tying together the economies of the United States, Mexico, and Canada in a trilateral trade agreement. Since then, M&R Capital Management reports that the agreement has largely proceeded as planned, with all three parties following its requirements. Nonetheless, there have been a handful of cases that have inflamed tensions.
In recent months, the United States, Mexico, and Canada have acted in ways that the others claim has breached parts of the USMCA. From dairy to automobiles and clean energy, each country is prepared to answer for their side of the agreement in the upcoming proceedings.
In this article, M&R Capital Management explores some of the intricacies of the USMCA and discusses three recent news stories that illustrate how each side is dealing with and trying to measure the level of compliance of the other members.
Canadian Dairy Blocks U.S. Imports
M&R Capital Management explains that following its first settlement panel, a recent USMCA dispute tribunal found that the Canadian dairy market was in violation of the USMCA due to protectionist policies meant to limit imports from the United States. Prior to the ruling, the Canadian market had been propped up by preferential quotas that limited U.S. dairy producers’ access to the Northern market.
The ruling also found that by restricting Canadians’ access to U.S. dairy, the Canadian population was held hostage to higher prices on all dairy goods. Rather than marketing the U.S. goods directly to the Canadian market, low-tariff imports were simply offloaded to processors or rebranded as domestic goods and sold at higher rates.
The Canadian government was given 45 days to comply with the ruling and, if they fail to comply, risks massive tariffs from the United States. M&R Capital Management reports that during the original USMCA negotiations, the U.S. specifically won access to 3.5% of the Canadian dairy market but, following Canada’s continued use of a quota system, now argues that Canada has reneged on its commitments.
A spokesperson for the Canadian trade minister has come out saying that Canada is actively working with the United States but cannot comment on when the changes will come into effect.
Mexico’s President Claims New Power Bill Won’t Affect USMCA Despite Concerns
Following years of corruption in its power sector, the Mexican government hopes to restore some normalcy and fairness to its power market by strengthening state control over the industry. M&R Capital Management explains that for years, the industry was dominated by a few private enterprises rigged for profit rather than benefiting the wider Mexican population.
Yet, despite its efforts to tamp down on corruption and improve its industry, Mexico has come under fire from the United States, which claims Mexican state power relies too heavily on fossil fuels. The U.S. fears that deeper reliance on oil and fossil fuels would undermine USMCA commitments to cleaner renewables and scare off potential investments from China and outside sources.
M&R Capital Management says that despite concerns from U.S. climate envoy, John Kerry, the President of Mexico, Andres Manuel Lopez Obrador, claims that the new bill will not affect the USMCA in any way. For now, it seems as if the details of the new bill will fall to lawmakers within the Mexican congress.
Canada and Mexico Join Forces in Automotive Dispute Against U.S. USMCA Interpretation
M&R Capital Management reports that Canada and Mexico have teamed up to request a dispute panel against the United States in an attempt to resolve ongoing conflicts over automotive rules of origin (ROO) regulations. The original ROO agreement was meant to strengthen the North American automotive industry but both Canada and Mexico have found it nearly impossible to follow the U.S.’s strict interpretation.
According to the original regulation, vehicles must contain 75% locally originating parts but, according to Canadian and Mexican claims, the U.S. interpretation makes it nearly impossible for a vehicle to consist of that high a percentage of USMCA originating materials.
According to the agreement, car parts are divided into core, principle, and complementary parts. As long as core parts are made of at least 75% originating materials, they are supposed to qualify as USMCA originating parts. However, under US interpretation, the permitted 25% shouldn’t be included in the vehicle’s total regional value content score.
This undermines Mexican and Canadian exports and forces them to abandon outside inputs. Both nations will seek clarification and more flexible regulations at the tribunal.
Final Thoughts
Although it builds on rules drafted through NAFTA, the USMCA is still a young trade agreement. For the time being, it appears that all three nations are working hard to address each other’s complaints and work towards mutual economic unity. Check in again to find out how these ongoing tribunals unfold and learn more about the USMCA.
All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. Information is based on data gathered from sources that we believe are reliable. However, we do not guarantee the accuracy or completeness of this information. This information should not be used as the primary basis for investment decisions, nor is it advice meeting the specific investment needs of any investor.
