Distribution trade associations and groups such as the American National Standards Institute (ANSI) are calling President Donald Trump’s signing of the USMCA a win for distribution. Here’s why:
- It creates a framework to preserve and expand trade with Mexico and Canada, two of the United States’ strongest trading partners.
- It addresses various means to achieve greater regulatory alignment, thus potentially reducing costly redundancies.
- By recognizing the WTO’s Technical Barriers to Trade Committee’s decision on international standards, it opens the door for more U.S. standards to be used internationally.
- It increases the level of transparency in the regulatory process with changes such as requiring advanced notification of regulations.
- Modernized standards for digital trade and intellectual property provisions support trade on the global stage.
- Qualified conformity assessment bodies in the U.S. should be able to apply for recognition by the Canadian and Mexican governments to certify/test, thus potentially reducing redundant certifications/tests.
Now that President Donald Trump has signed the revised United States-Mexico-Canada Agreement (USMCA) into law, CEO Kerry Stackpole feels he can finally start to move forward with objectives he and other distribution executives have been working on since the fall of 2018, when the president first announced his intent to replace NAFTA with the USMCA. With the legislation no longer sidelined by steel and aluminum tariffs and intense negotiations between lawmakers, Stackpole, head of the Plumbing Manufacturers International (PMI), is part of a large coalition of manufacturers, associations and small businesses that see the USMCA as an opportunity to gain ground on age-old battles to reduce costly inefficiencies caused by non-tariff barriers such as the misalignment of standards, bottlenecks at the border and a redundant testing and certification process.
Most U.S. manufacturing sectors (38 out of 42) and most states (46 out of 50) rank Canada or Mexico as their first- or second-largest foreign purchaser, according to the National Association of Manufacturers. Through the first 11 months of 2019, Mexico’s trade with the United States reached $567.81 billion and Canada’s reached $562.46 billion. “The volumes generated are extremely substantial,” says Stackpole, adding that PMI members are happy with the new deal because of the sheer volume linked to free trade — coupled with the security that comes with having a deal. “The U.S. is the largest provider of plumbing products into Canada and Mexico’s marketplace so anything that makes that trade relationship fairer and more open from our standpoint is a great step forward.”
Problems That Needed Solving
While many tout the benefits of cross-border trade, they can be equally vocal about the complexities that come with it. For example, the U.S. requires a different toilet ‘flush test’ than Mexico, so U.S. manufacturers that want to export toilets to Mexico must conduct multiple tests, says Stackpole. It’s a similar story in Canada, where, according to a Canadian manufacturer of plumbing products, in order to comply with all the requirements of intended marketplaces in North America, a single certification for one product is conducted as many as nine times, and inspections for those same certified products may be conducted as many as 15 times.
The duplicative certification of plumbing and heating products is costing Canadian consumers between $120 and $150 million each year, says the president of the Canadian Institute of Plumbing and Heating (CIPH), Ralph Suppa. “Canada and the United States both have well-developed regulatory agencies that develop technical standards, product certifications and implement codes,” he says. “If a manufacturer produces a product in the U.S., that requirement should be good for Canada.”
Mexico’s Norma Oficial Mexicana (NOM) certification requirements and the U.S. Harmonized Tariff Schedule or HTS codes have been a thorn in the side of foodservice equipment manufacturers and distributors. Per Mexico’s standards for electrical and electronic goods, equipment with these components can face lengthy delays at the border. Deciphering HTS codes to determine if certain products “are covered by NOM requirements has been a source of confusion for our industry,” says Charlie Souhrada, vice president of regulatory and technical affairs for the North American Association of Food Equipment Manufacturers (NAFEM). “There is very little information as to who to contact for any type of recourse or exception. Our hope is that USMCA builds a path for greater clarity that will provide for improved speed to market.”
If USMCA delivers as promised, Souhrada believes more small- and medium-size businesses will have an opportunity to sell in both Canada and Mexico. “That’s important for our members,” he says, “because more than 50% of them are small businesses with sales of $5 to $10 million annually. … What that really means is that those companies currently don’t have the resources to comply or interpret standards — let alone file the paperwork for the different trade agreements. They need trade agreements to reduce the red tape.”
Meeting with the Standards Council of Canada (SCC) as well as with Mexico’s Dirección General de Normas (DGN) for regularly scheduled meetings, the American National Standards Institute (ANSI) has been working on behalf of its members to find areas of collaboration that support greater regulatory compatibility. The group praises the passage of the USMCA.
“A June 2016 report by the U.S. Department of Commerce’s International Trade Administration estimated that 92% of U.S. exports may face foreign technical regulations that make it difficult to compete in key markets,” says Mary Saunders, ANSI’s vice president of government relations and public policy. “Our members have repeatedly told us that it adds time and direct costs when you have to pay for a duplication of testing or the certification of a product.”
Before these issues can be fully addressed, Canada must ratify the agreement. It began the process at the end of January, so it may be as long as a year before some U.S. businesses see meaningful change.
If the three countries abide by their new trade deal, here’s what distribution can expect:
More Flexibility in the Selection of International Standards
In some sectors, standards developed by the International Organization for Standardization (ISO) are preferred. “The medical devices industry, for example, relies on a lot of ISO standards, both globally and in the United States,” says Saunders. “Certain sectors see them as a positive, others see them as a negative.”
For some membes of the Air-Conditioning, Heating and Refrigeration Institute (AHRI), ISO standards have often served as roadblocks to business in other North American markets. “If we were bidding for a job and our product was competing against a product that was developed to ISO standards, that product would be given preference,” says Francis Dietz, AHRI’s vice president of public affairs. NAFTA considered ISO standards to be the only internationally-recognized standards, and that hurt us.”
Written with the intent of being less trade restrictive, USMCA’s “Technical Barriers to Trade (TBT)” chapter is an overhaul of NAFTA’s stance on standards. Building on the Trans-Pacific Partnership (TPP), it recognizes the guiding principles the WTO’s TBT adopted to help regulators determine relevant international standards.
The six principles used to define relevance include the following:
3. impartiality and consensus,
4. relevance and effectiveness,
5. coherence (to avoid conflicting international standards, duplication and overlap),
6. and development dimension (which recognizes constraints on developing countries to effectively participate in standards development).
“There are significant benefits in the passage and ratification of USMCA for U.S. manufacturers, particularly from the provisions in the TBT chapter,” says Saunders. “Adhering to those provisions should help reduce the cost of exporting for U.S. manufacturers.”
The following highlights from USMCA’s “Technical Barriers to Trade” chapter, says Saunders, provide a basis for reducing barriers to trade that result from different standards being applied by regulators in the U.S., Mexico and Canada, as well as a basis for the national treatment of conformity assessment bodies (product certifiers, testing laboratories, etc.):
- No additional principles or criteria outside of the TBT Committee Decision on international standards should be applied in order to recognize a standard as an international standard.
- Conformity assessment procedures should be equitable, expeditious and transparent, and there will be procedures in place to review complaints.
- The governments of U.S., Mexico and Canada are encouraged to cooperate with each other in appropriate circumstances to ensure that international standards, guides, and recommendations that are likely to become a basis for technical regulations and conformity assessment procedures do not create unnecessary obstacles to international trade.
- Qualified conformity assessment bodies in the U.S. should be able to apply for recognition by the Canadian and Mexican governments to certify/test products to government requirements, thus potentially reducing costly and redundant certifications/tests.
- Each party commits to treat testing and certification bodies located in the territory of another party no less favorably than it treats conformity assessment bodies located in its own territory. Treatment under this paragraph includes procedures, criteria, fees and other conditions relating to accrediting, approving, licensing or otherwise recognizing conformity assessment bodies.
A New Emphasis on Good Regulatory Practices and Transparency
New to the USMCA, “The Good Regulatory Practices” chapter defines what it deems to be a good regulatory practice and includes obligations related to the planning, design, issuance, implementation and review of regulations. It encourages “regulatory compatibility and regulatory cooperation where appropriate,” and includes provisions on increasing transparency in the regulatory process, such as requiring trading partners to publish an annual list of regulations they plan to implement. “Chapter 28 is important,” says Saunders, “because it will give manufacturers and service providers early information on any changes in regulations in Canada and Mexico.”
The USMCA’s intent is to make trade less burdensome but some critics question whether “The Good Regulatory Practices” chapter’s framework for regulatory provisions is too far-reaching and predict that its “obligations” could result in more red tape. Highlights of Chapter 28 include the following:
- Government bodies must provide public guidance or mechanisms that encourage its regulatory authorities to develop regulations that are based upon information that is reliable and of high quality.
- A list of regulations expected to be adopted or proposed must be published annually.
- Any new regulation being considered must go through a notice and comment period before being enacted.
- A new three-country coordinating entity, the Committee on Good Regulatory Practices, will be created to monitor implementation and operation of regulatory practices.
Resources to Streamline Cross-Border Processes
Bottlenecks at the border, in the form of confusing fees and paperwork, outdated and burdensome documentation requirements, redundant security programs and disjointed regulations, “add huge costs and delays to the supply chain,” the Metals Service Center Institute (MSCI) said in comments it submitted to the Office of the U.S. Trade Representative. “Small- and medium-sized fabricators and manufacturers are especially impacted by these border issues and often lack the resources or experience to effectively deal with customs, border systems and other regulations.”
The same goes for foodservice equipment manufacturers, says NAFEM’s Souhrada, who hopes that changes in the new trade agreement will result in more procedural uniformity, and clarity when it comes to rules and processes — particularly concerning HTS codes. “Interpreting them has been a full-time job,” he says. “They are extremely complicated and they don’t have a [categorical] match with commercial foodservice equipment and supplies, making it difficult to use them to fill out the right paperwork to get products to market or import the components needed to make a finished good.”
The USMCA’s Chapter 7, which deals with customs and trade facilitation, introduces a range of new provisions to address these concerns and other inefficiencies. Below are a few highlights:
- Provisions to improve efficiency include single-location border inspections, use of electronic submissions of customs forms and greater transparency in customs regulations and procedures.
- The creation of a standing cross-border committee to address issues.
- Rules and processes will be published online, including current customs duties, taxes, fees and charges it imposes on or in connection with importation, exportation, or transit.
- Extra penalties for self-reported correction of errors or misclassification would be eliminated.
- U.S., Mexico and Canada must maintain measures that support consistency and predictability for traders throughout its territory in the application of its customs procedures, including determinations on tariff classification and customs valuation of goods. These measures may include training of customs officials or issuing documents that serve to guide customs officials. If an inconsistency in the application of its customs procedures, including determinations on tariff classification or customs valuation of goods, is discovered, the party shall seek to resolve the inconsistency, if practicable.
- A risk management system must be in place to focus inspection activities on high-risk goods and simplifies the release and movement of low-risk goods.
“The USMCA really does offer some unique opportunities to enhance trade,” says PMI’s Stackpole. “There’s development in the e-commerce space, provisions added to strengthen intellectual property protections. We all recognize that countries do things differently, but our goal is to seek harmony, reduce duplicative testing and certification, and minimize costs.”