United States – Mexico – Canada Agreement (USMCA)
Over NAFTZ opposition, two unfair and punitive restrictions on FTZs in the North American Free Trade Agreement (NAFTA) were carried over into the USMCA and its implementing legislation. NAFTZ is supporting efforts to require the International Trade Commission (ITC) to conduct a comprehensive study on the effects of these and other tariff policies resulting from free trade agreements.
Export Restrictions – NAFTA included a restriction that required FTZ manufacturers to pay U.S. duties on any non-originating (i.e., non-North American) components in products being exported to Canada and Mexico. This restriction is contrary to one of the main intended benefits of the FTZ program – promoting U.S. exports by not imposing any domestic duties on components of products manufactured in an FTZ that are subsequently exported. Unfortunately, the USMCA text also incorporated the NAFTA export restriction on FTZs.
Rules-of-Origin Restrictions – NAFTA’s implementing legislation included a restriction that prevented FTZ manufacturers from using the agreement’s rules-of-origin provisions to make their products more cost-competitive with Canadian and Mexican products in NAFTA markets. Despite strong opposition by NAFTZ and a bipartisan Senate group of FTZ supporters, this restriction was eventually inserted in the 2020 USMCA Implementation Act through a “technical correction” following intense pressure by the Trump Administration’s U.S. Trade Representative.
By limiting the ability of FTZ manufacturers to export products duty-free to Canada and Mexico and denying them the benefits of the of the USMCA’s rules-of-origin provisions to make those products more cost-competitive with Canadian and Mexican products in the North American market, these restrictions will continue to hinder the ability of U.S. FTZs to achieve their full potential to advance the program’s goals and enhance U.S. manufacturing.
Next Steps: Proposed International Trade Commission (ITC) Study – NAFTZ will continue to work with congressional allies to address these issues in the 117th Congress. The first step is building support for a legislative initiative led by Sen. John Cornyn of Texas, directing the ITC to conduct a study of the adverse impact on FTZs as a result of domestic and foreign tariff policies under U.S. free trade agreements and to recommend ways to redress those impacts. Senator Cornyn’s bill is expected to be introduced soon and we expect a similar measure will follow in the House of Representatives. We are hopeful that strong bipartisan support for these bills will convince the Biden Administration’s new USTR, Ambassador Katherine Tai, to support the ITC study.
Read the Fact Sheet on USMCA Rules-of-Origin for FTZs