U.S.-Mexico-Canada Trade Agreement: Likely Impact on the U ...

1 United States International Trade Commission TradeAgreement: Likely Impacton the Economy andon Specific IndustrySectors(with Errata) April 2019 Publication Number: 4889 Investigation Number: TPA 105-003 Commissioners David S. Johanson, Chairman Irving A. Williamson Meredith M. Broadbent Rhonda K. Schmidtlein Jason E. Kearns Catherine DeFilippo Director, Office of Operations William Powers Director, Office of Economics Jonathan Coleman Director, Office of Industries Address all communications to Secretary to the Commission United States International Trade Commission Washington, DC 20436 TradeAgreement: Likely Impacton the Economy andon Specific IndustrySectorsApril 2019 Publication Number: 4889 Investigation Number.

2 TPA 105-003 This report was prepared principally by Co-Project Leaders Serge Shikher, and Mihir Torsekar, Deputy Project Leader Modeling Coordinator Mitchell Semanik, Peter Herman, Office of Industries Lesley Ahmed, Ren e Berry, Pedro Cardenas, Robert Casanova, Arthur Chambers, David Coffin (chapter 3 lead), Brian Daigle, Eric Forden, Diana Friedman, John Giamalva (chapter 5 lead), Brad Gehrke, Natalie Hanson, Robert Ireland, Tamar Khachaturian, Amanda Lawrence, Katherine Linton, Ang lica Marrero-S nchez, Daniel Matthews (chapter 4 lead), Elizabeth Nesbitt, Sabina Neumann, Erick Oh, Sarah Oliver, Joann Peterson, Jennifer Powell (chapter 6 lead), Jessica Pugliese, George Serletis (chapter 7 lead)

3 , Al lison Thompson, Karl Tsuji, John VerWey, and Isaac Wohl Office of Economics Saad Ahmad, Tamara Gurevich, Alexander Hammer, Ross Hallren, Lin Jones, Caroline Peters, Wen Jin Yuan, Marinos Tsigas, and Heather Wickramarachi Office of Analysis and Research Russell Duncan, David Lundy, and Laura Thayn Office of the General Counsel Andrea Casson, William Gearhart, and Brian Soiset Office of Tariff Affairs and Trade Agreements Arun Butcher and Donnette Rimmer Content Reviewers Andrew David and Alexander Hammer (chapters 8 and 9 lead) Statistical Reviewer Jeremy Wise Editorial Reviewers Judy Edelhoff and Peg Hausman Administrative Support Byron Barlow, Trina Chambers, Hau Nguyen, and Monica Sanders Under the Direction of David Riker, Chief, Research Division, Office of Economics James Stamps, Chief, Advanced Technology and Machinery Division, Office of Industries For the United States International Trade Commission, Trade Agreement: Likely Impact on the Economy and on Specific Industry Sectors, investigation no.

4 TPA 105 003, USITC Publication 4889, April 2019. In the Executive Summary, on page 17, in table , import percentages have been corrected foragriculture, manufacturing and mining, and services to , , and percent, respectively. In Chapter 2, on page 45, in table the total imports from the world for agriculture,manufacturing and mining and services have been changed to , , and percent,respectively. In Chapter 3, on page 81, in table , the sum of all labor value content calculations have beencorrected; hypothetical figures were removed in the Expenditure column for Total, Engine,transmission, or battery assembly, and R&D and IT costs.

5 In the LVC calculation column, thepercent for Engine, transmission, or battery assembly was changed from 10 percent to 5 percentand the percent for R&D and IT costs was changed from 5 percent to 10 percent. In Chapter 4, on page 95, in table , crude petroleum is now reported and the all other energy numbers have been changed accordingly. On page 109, the sentence which previouslycorresponded to footnote 227 has been deleted, as has the text in the footnote. On page 110, texthas been deleted from footnote 233. In table on page 111, the following changes have beenmade:oCotton and manmade fiber apparel currently , change to apparel currently , change to and manmade fiber fabrics and made-ups currently , change to and manmade fiber yarn currently , change to note c has been revised.

6 In chapter 5, on page 118, in table , imports of alcoholic beverages from ROW has beencorrected; on page 119, in table has clarified that USMCA language on dairy TRQs is new in theagreement; on page 123, the values reported for infant formula, cheese, whey products, andyogurt have been corrected; on page 131, exports of alcoholic beverages to Canada has beencorrected; on page 134, the application of dispute settlement to SPS provisions has been corrected; In chapter 6, on page 148, in table , the second row on retransmission of programming hasbeen removed. In Chapter 9, on page 250, in table , clarifying language regarding the three types of prohibitednon-c ommercial assistance has been added to the third row of the USMCA provision column;clarifying language regarding injury to domestic industry was added to the forth row of the sametable; on page 264, in table , a new row was added regarding additional transparency.

7 This isnow reported in the third row of the table. In Appendix E, on page 315, in table , total imports from the world reported for agriculture,manufacturing and mining, and services have been corrected for each of the four columns. In Appendix F, on pages 327 28, in table , total imports from the world that are reportedfor agriculture, manufacturing and mining, and services have been changed for each of the threecolumns. On page 330, table , the total imports from the world for agriculture,manufacturing and mining, and services have been corrected for each of the three 21, 2019 ERRATAT able of Contents United States International Trade Commission | 1 Table of Contents Abbreviations and Acronyms.

8 9 Executive Summary .. 13 Overview of Assessment .. 15 Economy-wide Assessment .. 15 Broad Sector Assessments .. 16 Overview of the Agreement .. 17 Industry-specific Provisions of USMCA .. 18 Manufactured Goods and Energy Products .. 18 services .. 21 Agricultural Goods .. 22 Assessment of Crosscutting 23 International Data Transfers and 23 Investment .. 24 Labor .. 25 Intellectual Property Rights .. 25 Chapter 1 Introduction .. 27 Purpose .. 27 Scope of Analysis .. 27 USMCA Agreement Overview .. 28 Analytical Approach .. 29 Organization of the Report .. 30 USMCA Regional Economic Overview .. 30 Gross Domestic Product .. 30 Trade in Goods and services .

9 32 Bibliography .. 35 Chapter 2 Economy-wide and Broad Sectoral Effects of Quantified Provisions .. 37 Introduction .. 37 Modeling Coverage .. 38 Extensions to the Commission s Modeling .. 41 Estimated Economy-wide Impact of the USMCA .. 43 Aggregate Effects of USMCA .. 43 Effects of USMCA on Different Types of Workers .. 45 Analytical Framework for the Economy-wide Analysis .. 50 Provisions Altering Current Policies or Standards .. 50 Provisions That Reduce Policy Uncertainty for International Data Transfer, Cross-border services , and Investment .. 52 U. Trade Agreement2 | Economy-wide Model .. 58 Modeling of Labor .. 60 Review of Related Literature.

10 62 Bibliography .. 64 Chapter 3 Automotive, Steel, and Aluminum Products .. 69 Overview .. 69 Automotive Industry Overview .. 69 Automotive Trade with Mexico and Canada .. 72 Summary of Key Automotive, Steel, and Aluminum Provisions .. 74 Labor Value Content (LVC) .. 79 Rules of Origin for Steel and Aluminum Purchases .. 81 Impact of USMCA on Automotive and Related Sectors .. 81 Quantifying Industry-level Effects .. 83 Estimated Effects Based on the Model .. 85 Literature Review .. 88 Bibliography .. 90 Chapter 4 Other Manufactured Goods and Natural Resources and Energy Products .. 93 Overview .. 93 Manufactured Goods, Natural Resources, and Energy Trade with Canada and Mexico.