Quantifying the USMCA as Amended
Paper presented at the GTAP Annual Conference, Warsaw, 19-21 June 2019
50 Pages Posted: 26 Jun 2019 Last revised: 4 Mar 2023
Date Written: February 15, 2020
Abstract
This study develops a quantitative analysis of the impact of the United States-Mexico-Canada Agreement (USMCA), originally signed on 30 November 2018, and amended by the Protocol of Amendment signed in Mexico City on 10 December 2019. The USMCA provides a major overhaul of the North American Free Trade Agreement (NAFTA) based largely on the Trans-Pacific Partnership (TPP) text. It introduces only minor changes to market access, intensifies trade and investment diversion, increases uncertainty by weakening the institutional framework of the NAFTA, and seeks to shift the net benefits of the NAFTA towards the United States.
The evaluation of the USMCA is developed using simulations on a computable general equilibrium (CGE) model, based on a dynamic specification of the Global Trade Analysis Project (GTAP) model, modified to directly represent goods and services trade conducted through foreign affiliates, as well as on a cross-border basis, and to reflect the impact of liberalization of FDI. The impact of the USMCA is assessed against a baseline that reflects an in-force NAFTA. These results are compared to the impacts of NAFTA lapsing to infer the difference between the USMCA and a “hard” NAFTA exit scenario.
The policy shock generated by the USMCA is unusual in that it has little traditional tariff liberalization and has many features that promise to be restrictive of trade. We evaluate non-tariff measures based on the extent to which the USMCA reduces/increases the parties’ scores on indexes measuring restrictiveness of regimes for goods, services, and investment. For goods, we examine possible improvements upon the WTO Trade Facilitation Agreement (TFA) commitments as measured by the OECD’s Trade Facilitation Indicators (TFI). For services, we consider the liberalization implied by the services commitments evaluated on the basis of changes to the parties’ scores under the OECD’s Services Trade Restrictiveness Index (STRI). For investment, we consider the changes implied against the parties’ scores on the OECD’s Foreign Direct Investment Restrictiveness (FDIR) index. For services and investment, we consider the value of binding market access commitments.
Major modelling challenges include quantifying the impact of the changes in the rules of origin for the automotive and textiles and apparel sectors, incorporating the implications of the USMCA regimes for intellectual property and the digital economy, and taking into account the heightened uncertainty about market access to the United States. An over-arching issue is how to treat the policy signals from the various linkages of the USMCA with other features of US trade policy, including the Trump Administration’s identification of national security with domestic re-industrialization.
Keywords: USMCA, CGE, uncertainty, rules of origin, value of bindings
JEL Classification: F02, F13, F15
Suggested Citation: Suggested Citation