WHAT USMCA MEANS FOR SMALL BUSINESSES & DIGITAL TRADE
Recently, the United States, Mexico, and Canada updated the North American Free Trade Agreement (NAFTA) to create the new USMCA, or United States-Mexico-Canada Agreement. The new agreement will purportedly create a more balanced environment for trade, support high-paying jobs for Americans, and stimulate the North American economy.
With USMCA going into effect on July 1, 2020, here are some things you need to know:
WHAT IS USMCA?
The United States-Mexico-Canada Agreement (USMCA), is a reboot of the North American Free Trade Agreement (NAFTA) that has governed trade between the U.S. and its neighbors since the mid-90s.
NAFTA represented a significant milestone for both U.S. and world history as it was not only the the first time two developed nations entered into a trade agreement with an emerging market country, it was also the largest free trade agreement in the world, with combined GDP over $20 trillion. By removing trade barriers and eliminating tariffs, NAFTA has increased the investment opportunities for all three nations over the past 26 years.
As a reiteration of NAFTA, USMCA contains many of the provisions from the original agreement. As such, sectors such as manufacturing will see very little change with the adoption of USMCA; although some trade economists believe that certain economic sectors, such as the automotive and dairy industries, may see an incremental boost from the deal.
However, the most notable aspect of the new agreement relates to its addendums regarding e-commerce, digital services, and intellectual property, which have greatly expanded since NAFTA’s original negotiation.
The inclusion of a dedicated Small and Medium-Sized Businesses (SMEs) chapter within the USMCA—alongside other provisions throughout the agreement that are beneficial to SMEs—marks the first time that small businesses have been noted in a U.S. trade agreement.
Their inclusion is not surprising, considering that the SBE Council has reported that small to mid-sized businesses play a large role in trade with both Mexico and Canada. In fact, according to the U.S. International Trade Administration, 59.9% of the firms that export to Canada and 57.7% of the firms that export to Mexico have less than 20 employees. Similarly, 43% of businesses that import from Canada and 57.6% of the businesses that import from Mexico are small businesses.
The USMCA’s chapter on SMEs creates a new framework for international trade between the three nations that is projected to increase SME trade and provide more investment opportunities. The inclusion of a new informal shipment level of $2,500 is expected to benefit SMEs as express shipments under that amount will benefit from reduced paperwork. Furthermore, the requirement calling for the online publication of laws, regulations and other documentation for customs clearance is expected to streamline the export process and minimize errors.
The chapter also provides a new forum for continued dialogue surrounding SME participation in international trade with Canada and Mexico which should allow business owners to provide information to government officials on further modernization of the agreement.
20 years ago, the word Internet didn’t even exist. Since then, the internet sector has become fundamental to the U.S. economy, supporting over 3 million American jobs across all industries. Recognizing this development, the USMCA contains provisions that will have significant implications for emerging tech and protect the U.S.’s position as the global leader in digital trade.
First, the new agreement will protect the free flow of information across borders. As we have seen after the outbreak of COVID-19, the free movement of information is the foundation of American commerce, allowing everything from cloud computing (howdy, remote offices) to seamless digital transactions (*tips hat to online grocery shopping*). The new provisions within the USMCA not only recognize the governments’ responsibility to protect users’ personal information, they also ensure the continued safe data transfer throughout North America.
Further, the new agreement builds off the Trans-Pacific Partnership (TPP)’s information protection clauses and protects against threats to encryption and source code integrity by prohibiting the mandatory disclosure of proprietary source codes and algorithms as a condition for market access. These provisions ensure the continued safety of technological innovations, which could become compromised or vulnerable to theft with the disclosure of proprietary information.
Finally, critical parts of e-commerce, such as user reviews and ratings, will be protected by robust intermediary liability protections, which will allow businesses and consumers to communicate and engage online while enabling platforms to moderate posts to their own websites.
Another fundamental change within the world economy is marked by the increasing overlap between goods, services, and intellectual property. According to the U.S. Department of Commerce and the U.S. Patent and Trademark office, IP-intensive industries support at least 45 million U.S. jobs and contribute more than 38.2% of U.S. GDP. In fact, over 80 U.S. industries—including software publishers, auto and video equipment producers, and radio and television broadcasters—rely on patents, copyright, or trademark protections. Therefore, the revised USMCA also includes elements of the U.S.’s innovation-oriented copyright protection laws, which strengthen intellectual property rights.
On a basic level, including safe harbors that provide clear protection to intellectual property means that the USMCA ensures that consumers will continue to have access to online content, such as streamed music and video services, as the providers will not need to worry about piracy. On a deeper level, the implications of the new agreement are far more profound. For instance, the USMCA strengthens civil and criminal protections for trade secrets and mandates patent-term extensions for unreasonable patent office and regulatory delays.
Overall, the implementation of the USMCA is expected to have a positive impact on American business. Real GDP is anticipated to rise to $68.2 billion, and the new agreement is expected to create roughly 120,000 jobs. The largest impact will undoubtedly come from the new rules surrounding international data transfer and e-commerce, as these were not a part of the previous NAFTA agreement. The USMCA will have a significant effect on the way SMEs conduct business and could carry the U.S digital trade industry into a new era.