Today, July 1, 2020, the North American Free Trade Agreement is no longer. For those of us who live in the United States, ”NAFTA” has now become the United States-Mexico-Canada Agreement, or “USMCA.” Our Canadian colleagues will refer to it as “CUSMA”; our Mexican associates as “T-MEC.” No matter the name, free trade continues across the borders between the United States, Canada, and Mexico.
First advanced by President Ronald Reagan in the 1980s, the original NAFTA of 1994 was the product of negotiations initiated by President George H.W. Bush and completed by President Bill Clinton. Controversial from the start, NAFTA was narrowly approved by the U.S. Congress in November 1993 and entered into force on January 1, 1994.
Since NAFTA took effect, trade among the three countries has expanded exponentially. U.S. trade with Canada and Mexico quadrupled, from less than $300 billion in 1993 to over $1.2 trillion in 2018. More than one third of total U.S. exports are destined for Canada and Mexico. Trade in steel products between the U.S., Canada, and Mexico also increased, more than doubling since NAFTA entered into force.
Despite the deepening supply chains across North America (or perhaps because of them), NAFTA has continued to be a lightning rod for opposition to free trade over its 25+ year lifespan. Calls to end or amend the agreement have been a constant part of the political landscape. In 2016, then Presidential candidate Donald Trump cited the renegotiation of NAFTA as his number one priority to protect American workers. Within months of his swearing in, formal negotiations to “modernize” the NAFTA began.
At the onset of the 2017 negotiations, the North American steel industry identified its key objectives for upgrading NAFTA. First and foremost, the industry advocated for strengthening the rules that determine whether steel-containing goods receive duty-free treatment when traded within North America. The industry’s objective was to encourage North American manufactured goods to be built with North American steel through strengthened “rules of origin.”
As the leading steel provider to the North American automotive market, ArcelorMittal’s primary focus during the negotiations has been on the origin rules that apply to our franchise auto business. Under the NAFTA, a vehicle made in North America wholly of foreign steel might still qualify for duty-free treatment. There were no incentives to use locally produced steel.
The new Agreement significantly enhances the automotive rules of origin and sets higher regional value content requirements for vehicles and key automotive parts.
Our commercial objective of growing our North American auto steel business aligned well with the Trump Administration’s determination to incentivize investment, production, and employment in the U.S. automotive sector. The new Agreement significantly enhances the automotive rules of origin and sets higher regional value content requirements for vehicles and key automotive parts.
Key elements of the USMCA automotive rules of origin that directly impact the use of steel include:
- An increase in the regional value content requirement for passenger vehicles and light trucks to 75%.
- Higher regional value content requirements for automotive components.
- A requirement that 70% of the value of auto producers’ steel and aluminum purchases originate in North America.
- A first-of-its-kind labor value content rule -- 40-45% of a vehicle must be produced by employees earning an average of $16 per hour. Steel used in an automobile may contribute to that content requirement.
A study by the Office of the United States Trade Representative (USTR) on the economic effects of the agreement on the automotive sector found that within five years, USMCA will create $34 billion in new automotive manufacturing investments in the United States and $23 billion in new annual purchases of U.S.-made automotive parts. These new investments will require more North American steel and ArcelorMittal looks forward to supplying that steel to our automotive customers.
After lengthy Congressional consideration, the USMCA was overwhelmingly approved by the U.S. Congress earlier this year. In contrast to NAFTA’s narrow approval in 1993, USMCA passed the Senate by a vote of 89 to 10 and the House of Representatives by a vote of 385 to 41. Only time will tell if this strong bipartisan vote for the USMCA will put to rest the decades-old controversy around free trade in North America, however it may be named.
