Arizona companies export an annual $9.7 billion in goods tariff-free to Canada and Mexico largely due to the North American Free Trade Agreement (NAFTA) that took effect in 1994.  

Flash forward to 2020 and the new modernized version of that accord, the United States-Mexico-Canada Agreement (USMCA), is now in place, giving Arizona more chances to reap the benefits of free trade, trade experts said Tuesday.

Top Arizona Exports to Canada and Mexico, 2017

Computer & Electronic Products ($2.1 Billion)
Electrical Equipment, Appliances & Components ($1.3 Billion)
Minerals & Ores ($1.1 Billion)
Transportation Equipment ($947.2 Million)
Machinery ($727 Million)
Agricultural Products ($536.9 Million)
Plastics & Rubber Products ($528.6 Million)
Fabricated Metal Products ($440.6 Million)
Chemicals ($386.2 Million)
Primary Metal Products ($278.8 Million)

How this new agreement impacts Arizona businesses was the topic of a panel discussion hosted by the Arizona Chamber of Commerce and Industry. The event, entitled A New Era for Trade: USMCA Implementation & Growing Arizona’s Trade Ties, detailed the changes in the new agreement that went into effect July 1. 

Four panelists, all who are involved in strengthening economic ties and trade between Arizona, Canada and Mexico, were the speakers: Zaib Shaikh, consul general of Canada in Los Angeles; Jorge Yescas, consul general of Mexico in Phoenix; Juan Ciscomani, senior adviser for regional and international affairs for the Arizona Office of the Governor; and Glenn Hamer, president and CEO of the Arizona Chamber of Commerce and Industry. 

New rules to advance world’s largest free trading block 

Among the new chapters and provisions in the USMCA lauded by the panelists were higher dollar thresholds for duty-free sales, labor reforms and higher wages for auto workers in Mexico, legally binding standards to protect the environment, protections for intellectual property, gender equity provisions, and new measures to help small- and medium-sized companies more fully access the global market. 

The new treaty also positions the three countries to come out of the pandemic in a stronger position, united together as a global competitive force, the Chamber’s Hamer said.  

“The more we use the tools of this agreement, the more prosperous all three countries will be, and the faster we’ll get out of this damage that the pandemic has caused us all,” Hamer said. 

Free trade in a region with 470 million customers 

Mexico and Canada are Arizona’s top trading partners. Canada also is the No. 1 country with direct foreign investment here. 

For North America, the USMCA represents a region with 470 million consumers and an annual marketplace of more than $1.2 trillion in trade.   

“In this time of the pandemic, as we look forward to what the agreement means to the reset and the recovery, those kinds of numbers are really meaningful,” said Shaikh, consul general of Canada, whose job is to encourage cooperation between Canada and Arizona, Southern California and Nevada. “From a Canada perspective, the USMCA is a top-notch updated modern agreement, but it also is a preservation of the North American Free Trade Agreement. There will be no new tariffs.” 

New and improved USMCA changes

The USMCA’s stated purpose is to deepen gains from trade and preserve and expand regional trade and production by further “incentivizing the production and sourcing of goods and materials in the region.”

Here are some of the most important changes in the new agreement, the panelists said:

New Rules of Origin

More stringent rules from the automotive industry. Seventy-five percent of vehicles, including electric vehicles, must be produced in North America instead of the former 62.5 percent, and 40-45 percent of vehicles are to be assembled by workers who earn at least $16 an hour.

Yescas, consul general for Mexico in Phoenix, said his country’s president and congress overwhelmingly support labor reforms including the “gradual” increase of hourly wages and “the extension of labor protections for migrant workers and the protection of women from discrimination.” 

These new rules will benefit Arizona, tilting automotive original equipment manufacturers (OEMs) toward the southern part of the U.S. and Mexico.

Arizona is well positioned, given its proximity to OEMs in Northwest Mexico like Ford in Sonora, and Toyota in Baja California, and its connectivity via I-19 to Mexico’s Highway 15 corridor, leading to the Bajío automotive cluster. Trinational electrical vehicle projects, such as the Lucid Motors factory in Casa Grande and the Nikola truck factory in Coolidge, also are well positioned to meet USMCA goals and leverage research and development and auto assembly in the U.S.

Agricultural access

The agreement preserves market access for Arizona’s agricultural industry and includes additional U.S. access to Canada’s poultry, dairy and turkey  markets. There are additional measures to improve phytosanitary inspections.

In Arizona where agriculture is a key industry, tariff-free trade is essential to the economy, said Ciscomani, who also is vice chair of the board of directors for the that has been working for 61 years to improve economic, cultural and tourism ties between Arizona and Mexico.

Yuma alone produces the vast majority of America’s green leafy vegetables in the winter months, Ciscomani said. 

“Agriculture has always been a staple for the Arizona economy so we’re excited about the advantages tariff-free trade brings to the sector,” Ciscomani said. “It did well under NAFTA and the new improvements will set it up for further expanded success.”

Higher duty-free thresholds

Minimum thresholds were increased, removing tariffs on more goods. This will allow for additional flexibility in sourcing globally while also keeping the duty-free incentive to source in North America. This also would have a positive impact on the SkyBridge project at Phoenix-Mesa Gateway Airport, a new operation that capitalizes on the U.S.-Mexico Unified Cargo Processing that expedites import and export processing times of goods.

Stronger IP protections

New protections for intellectual property extend patent protections to 10 years from eight in Canada, expand copyright protections, and broaden trademark rules to cover sound marks and scent marks. Penalties are increased for violating trade secrets or trading counterfeit goods. Custom rules for detaining illegal counterfeit goods have been modified. Internet service providers are now required to implement a “notice and takedown” system in Mexico when digital information infringes on ownership rights.

Digital Trade and cybersecurity

New provisions for digital trade such as e-books, music, software and video games include a prohibition on tariffs on digital products distributed electronically, rules for validating e-signature and e-documents, anti-spam measures, and coordinated cybersecurity measures for the three countries’ highly integrated telecommunication systems.

Small businesses will benefit for first time

For the first time in a U.S. trade agreement, the USMCA includes a dedicated chapter on small- and medium-sized enterprises (SMEs) and other provisions targeting this group including:

-Establishes information-sharing tools to help SMEs to better understand the benefits of the agreement

– Creates a committee on SMEs issues comprised of government officials from each country to ensure they benefit from the agreement

To read more about the new USMCA and its impacts in Arizona, go to: .

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As business and industry trumpet the start of North America’s new trade agreement this month, the road ahead is lined with both possibilities and challenges, experts on multinational trade said. 

All three countries now must put in the hard work required to advance the largest tariff-free trading bloc on the globe, they said.

“North America’s new regional trade agreement has the potential to propel each of the three member countries individually, and the region collectively, to the highest levels of international competitiveness,” said Duncan Wood, an internationally known specialist on North American politics and the director of the Wilson Center’s Mexico Institute in Washington D.C. 

“Now what we have to consider is how each of the three governments is going to do its job making sure we have the right regulations in place, the right legislation in place, and that we can work with business to take full advantage of this.”

Big unknowns  

COVID-19 will be one of the biggest concerns on the trek forward, said Marco López, Jr., president and CEO of International Business Solutions, Inc. (IBS), a business advisory firm that provides business development and policy direction to international and domestic organizations.

“We must start thinking and working towards a risk mitigation plan should the economy struggle to meet the new reality post-COVID19,” Lopez said. “We have to now think about the millions of American jobs that the country is losing due to the pandemic.”

Reasons to celebrate 

For now, there are many reasons to celebrate, trade experts and business advocates agree.   

Most importantly, the new deal allows for the continued tariff-free trade to continue between America, Mexico and Canada, they said.

The new agreement, the United States-Mexico-Canada Agreement (USMCA), is a reboot of NAFTA — the “grandmother of free trade” — that went into effect in 1994 and has helped create the largest free trade bloc in the world. 

Globe’s largest tariff-free trading bloc 

Since NAFTA’s inception, annual American trade with the two countries has nearly quadrupled to $1.3 trillion, and they purchase more than one-third of U.S. merchandise exports, according to statistics compiled by the U.S. Chamber of Commerce. 

Today, trade with Canada and Mexico support nearly 14 million American jobs, and nearly 5 million of these jobs are supported by the increase in trade generated by free trade. 

A win for Arizona industry 

A 2019 report by the Arizona Chamber of Commerce & Industry, the Arizona Chamber Foundation and the Arizona-Mexico Commission, found that between 2015-2017 Arizona exported $10.5 billion annually to Canada and Mexico. More than 228,000 jobs in Arizona are dependent on the annual trade and investment relationship.

Arizona is now well positioned to continue to attract new manufacturing and supply chains, Wood said. 

The introduction of digital and e-commerce into the trade agreement should strengthen Arizona and North America’s competitive edge in global markets with a new emphasis on digital trade and ecommerce, fewer barriers to trade, joint production and the strengthening of existing supply chains, experts said.

Among the benefits cited:

-Raises the “de minimis” customs thresholds under which U.S. businesses may export to Canada and Mexico with reduced paperwork and without paying taxes or duties

-Reduces red tape at the border, reduces costs, and increases predictability for cross-border transactions

-Gives preferential market access for U.S. agricultural exporters, and commitments to fair and science-based trade rules

-Opens up new market opportunities for U.S. dairy and fruit farmers in Canadian markets

-Introduces agricultural biotechnology into the agreement including support for innovation including new technologies such as gene editing

-Introduces a chapter for the first time to support expanded trade for -size businesses

Biggest challenges ahead  

Covid-19’s impact is one of the biggest challenges facing the region. With millions of people out of work, there will need to be investment by both public and private sectors to retrain them for 21st century jobs, Wood said. 

“We need to think about the skills the workforce doesn’t have or skills the people don’t want to learn,” he said.

Missed opportunity for Mexico 

Mexico is the least poised to benefit from the USMCA, Wood and other multinational trade experts said. 

President Andrés Manuel López Obrador, popularly known as AMLO, has done little to instill confidence in investors, they said. A number of his economic policies and weak relationship with the business community have been widely criticized. 

UMCA could be a missed opportunity for Mexico to attract manufacturing and supply chains, Wood said. 

“Mexico really is in such a privileged position right now and it needs to open up to the world, it needs to provide legal certainty,” he said. “It needs to provide a regulatory and legal framework whereby investors feel they are protected.”

Positive signs with leaders meeting    

A meeting between Trump and AMLO at the White House last week offered signs of a friendlier relationship. But it revealed little about Mexico’s ability to meet the demands of the new USMCA like boosting the hourly wage of auto workers and enforcing environmental standards.  

It was AMLO’s first trip during his presidency to a foreign country. In a joint public appearance to herald the USMCA. Trump said he was “honored” to have AMLO as his guest. AMLO called the meeting, the “beginning of a new stage.” 

Need for countries to work together to compete globally

While the USMCA is now in place for 16 years, it contains a new clause that allows for review every six years.

That offers an opportunity for dialogue, collaboration and action to incorporate changes, Wood said.

The is launching a series of monthly dialogues with public and private stakeholders from all three countries to identify problems so they can emerge better prepared when the USMCA comes up for review every six years, he said. 

“Now, what we have to consider is how each of the three governments are going to do their job making sure we have the right legislation in place, the right regulations in place and that we can work with businesses to take full advantage of this.”

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