August 27, 2018

Canada must join U.S., Mexico for compact to gain traction, groups say

NRF, Teamsters laud U.S.-Mexico agreement, but say three is a necessary crowd.

By DC Velocity Staff

The preliminary agreement reached today between the U.S. and Mexico still faces several hurdles to passage, namely an insistence from retailers and organized labor that any new compact be trilateral in nature and include Canada.

The agreement would normally need to be ratified by two-thirds of the U.S. Senate, though in some cases an international agreement can be approved by Congress or just by the President through an executive order if it is determined to fall within his constitutional powers to take such action.

    The Canadians, who have been at odds with the Trump administration over various trade issues and whose Prime Minister, Justin Trudeau, has been the sporadic target of Trump's tweet-driven barbs, were not party to the agreement. According to published reports, efforts are being made to bring Canada into the fold as early as the end of this week, thus keeping the trilateral relationship that has been in place since the original North American Free Trade Agreement (NAFTA) took effect at the start of 1994. However, President Trump has never been a fan of multilateral agreements, preferring to negotiate bilateral pacts with trading partners.

To the National Retail Federation (NRF) and the Teamsters union, two groups with seemingly little in common, any new agreement that doesn't include Canada is a non-starter.

"Coming to terms with Mexico is an encouraging sign, but threatening to pull out of the existing agreement is not," said NRF President Matthew Shay. "NAFTA supports millions of U.S. jobs and provides hardworking American families access to more products at lower prices. To preserve these benefits and protect complex, sophisticated and efficient supply chains, the administration must bring Canada, an essential trading partner, back to the bargaining table and deliver a trilateral deal."

In a separate statement, Teamster President James P. Hoffa said that Canada "must be part of the agreement. The interests of all North American workers must be included as part of any trade agreement that is ultimately approved."

Hoffa, like Shay, lauded today's announcement as a positive first step towards improved trade relations. Most observers believe that NAFTA needs to be updated to bring it into the current continental and global business environment. Most, however, are opposed to scrapping it in favor of separate bilateral agreements.

A 7-page fact sheet published today by the U.S. Trade Representative (USTR) contained little as it related to transportation. The one highlight was changes in the "de minimus" value of shipments under which threshold U.S. exporters could avoid customs duties and taxes, as well as burdensome compliance requirements. Under the new agreement, Mexico raised the threshold from $50 to $100. Canada's de minimus threshold is just $20, meaning U.S. exports above that level must meet Canada's duty regime and comply with significant paperwork regulations.

In its fact sheet, USTR said the change will benefit small to medium-size U.S. exporters that often lack the financial wherewithal to meet the tax and duty burdens, and the resources to bear the increased compliance costs. U.S. express carriers that typically transport most of lower-valued goods will also benefit through lower costs and improved efficiency, USTR said.

The U.S.' de minimus threshold stands at $800, one of the highest in the world. The highest is in the country of Georgia, where goods' value of under $1,302 per shipment is exempt.


One observer called this a "face-saving" gesture, saying the size of the increase is minimal. Another took a different view, saying any action that reduces an exporter's compliance costs or time-consuming requirements is a positive step, even if the dollar amounts seem small. Both asked not to be identified.

The USTR fact-sheet makes no mention of changes, if any, to the original rules that opened up the cross-border trucking market beyond a long-standing border commercial zone to Mexican carriers. The Teamsters, which did not comment beyond the statement today, have long opposed the provision, saying it would allow in unsafe Mexican carriers whose labor costs are well below those of U.S. truck drivers.

However, it is believed the language has done little to affect the cross-border trucking landscape because of Mexican carriers' fear of liability arising from civil lawsuits, and because Mexican carriers are prohibited from hauling freight between points within the U.S. after dropping off their domestic loads.

 The U.S. imported $294.2 billion in Mexican goods in 2016, according to USTR figures. The U.S. imported $278.1 billion from Canada in 2016, the agency said.

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