Strengthening USMCA and North America’s economic cooperation

It is also true that agreed institutions, rules, and mechanisms are often only as good as the shared vision the countries’ leaders have of the region’s future. We firmly believe that this vision must include deeper economic collaboration beyond trade. It is important to underscore that USMCA does not stand alone in North America’s work to build prosperity and enhance our competitiveness. A good and well implemented USMCA can facilitate good outcomes on a broader competitiveness agenda. However, the three North American neighbors must continue to take steps individually, bilaterally, and trilaterally to improve competitiveness.

USMCA cooperation to facilitate trade and investment

Small- and medium-sized enterprises (SMEs)

Among the common criticisms made towards NAFTA was the lack of specific provisions to foster SMEs involvement in transborder trade and investment. Although intra-firm trade has already improved—and can further improve North American competitiveness by building more efficient production and commercial networks—fostering additional SME participation in USMCA must remain a priority.⁵ This is particularly important because of the economic and job potential that tens of thousands of SMEs from all three countries already play in USMCA commerce, and because of the role SMEs can play as enthusiastic stakeholders in defining USMCA priorities and supporting the agreement going forward.

The USMCA recognizes the fundamental role of SMEs in maintaining dynamism and enhancing competitiveness of their respective economies. The agreement seeks closer cooperation to identify opportunities for SMEs to engage in international trade across North America. USMCA’s SME chapter sets specific objectives and creates an SME Committee which must convene an annual dialogue. The first USMCA SME Dialogue was convened in April 2022 in San Antonio, Texas.⁶ A second dialogue was held in September 2023 and covered such topics as the experiences of women-owned businesses in North American trade; digitalization of SMEs and e-commerce; SME financial inclusion in export financing; and processes and procedures for exporting within the USMCA region.⁷ The potential is enormous for fostering greater SME participation in the USMCA and sharing benefits more widely across the continent. According to the U.S. Chamber of Commerce, small businesses represent 97% of U.S. exporters and approximately 32% of known export value, as well as creating millions of new jobs. The new SME dialogue is aimed at better understanding and incorporating the needs of these vital smaller enterprises in USMCA’s implementation which will hopefully help promote better economic results and also help overcome the stigma that some saw in NAFTA of favoring large enterprises.

A broader competitiveness agenda within USMCA

Advocates of NAFTA and USMCA rightly tout the impressive increase in trade over the last three decades. Nevertheless, the USMCA’s importance lies not only in the growth of trade flows, but also in enabling the development of shared production networks and reliable supply chains. In this regard, it is also important to consider that stronger networks and supply chains in North America can enhance economic competitiveness. The need to strengthen the competitiveness of North America given global competition underscores the importance of USMCA’s Chapter 26, which provides the basis for a cooperation framework to improve regional competitiveness and establishes a Competitiveness Committee (CC) which is charged with producing a work plan.

Although a series of meetings have taken place, to date, no comprehensive specific workplan has been made public. The committee’s visible work has mostly focused on workforce development issues and on a process for cooperation during emergency situations that affect North American trade flows, including by establishing a joint understanding of critical infrastructure priorities in North America. These are certainly important topics, and work on them should be commended; however, it seems that to date, the three governments are relying more on existing bilateral mechanisms and the NALS process to work on a comprehensive competitiveness agenda, rather than using the USMCA CC more vigorously.

The CC can, however, serve as a strong catalyst to develop and implement additional measures that will enhance cooperation on key elements of North American competitiveness, especially by addressing issues where coordination, cooperation, and aligned policies and practices are needed among all three countries, and where bilateral cooperation alone is likely to fall short. Unfortunately, to date, the work of this committee has been opaque and has lacked stakeholder engagement. Additionally, its staffing is not fit for this broader purpose. For example, in Canada, the lead is the Foreign Ministry’s Assistant Deputy Minister for the Americas, while the CC’s file is led by a Deputy Assistant U.S. Trade Representative.

This is a missed opportunity. The CC could serve as the forum in which the three countries foster ideas and initiatives to further expand economic integration and the ability to compete in the global marketplace. But to be effective, this committee should be structured in a way most likely to ensure interdepartmental coherence and expertise. Also, it would benefit from an ongoing transparent and public agenda informed by private sector input. It will also likely require expanded staff and interagency participation to take on its potential wider agenda.

Digital trade

Collaboration on digital trade policies holds tremendous promise to boost trade across North America, considering the growing prevalence of digital technology and services in most economic sectors in all three countries. This potential should only grow with the deployment of artificial intelligence (AI).⁸ USMCA commitments on ruling digital trade are some of the most extensive sets of commitments. As the U.S. International Trade Commission wrote, “The Commission estimates that USMCA is likely to have a significant, positive impact on the many U.S. industries that rely on cross-border data flows and digitally enabled trade, including e-commerce.”⁹ To date, however, there has not been notable progress, and reports flag U.S. internal debates over digital policy. The USMCA countries, however, should give priority to using USMCA as a foundation to create the world’s most advanced digital marketplace. Progress could be pursued under USMCA’s Competitiveness Committee.

Workforce development

The North American workforce still suffers from long-standing skills gaps and mismatches, which will weigh heavily as the region works to build resilience in its supply chains, deploy new technologies, and meet the challenges of global competition.¹⁰ USMCA’s Competitiveness Committee has begun a dialogue on workforce development and undertaken several events in 2022-2023.¹¹ Simultaneously, the tripartite semi-conductor ministerial meetings in May 2023 also highlighted the need for collaborative workforce development efforts in the semiconductor sector, as did the September 2023 HLED.¹²

To support this work over the next two years, within the USMCA context, trade ministers could lead efforts to identify and track successful examples of private and public collaboration to strengthen USMCA value chains. This could include, for example, showing how companies are investing in worker reskilling and upskilling and identifying successful approaches that are encouraging companies to collaborate with educational institutions, trade unions, sub-federal governments, and others to better align curricula with the evolving labor market needs and better connect graduates to the labor market.

The three governments could also work to create tri-national spaces and mechanisms that share best practices across the continent on partnerships that bring together business, academic, and government actors to better train and skill workers to dealing with technological change and the changing workplace in ways that enhance North America’s ability to compete successfully.

Such efforts could produce agreement on pilot programs where the national governments could partner with businesses, labor groups, academia, and local governments to foment workforce capacity building in sectors with important chunks of USMCA trade.

Emergencies affecting trade

On emergency preparedness, in February 2023, the USMCA partners established a special subcommittee to enable timely cooperation during emergencies, recognizing the serious disruptions that arose during the COVID-19 pandemic.¹³ Officials should agree and present proposed areas for action (e.g., identification of sectors essential during an emergency, procedures for coordinating responses, and plans for practice exercises).

Labor mobility

Close to the workforce development agenda lies the topic of improving labor mobility, which is mentioned in the 2021 NALS declaration but only in the context of supporting development and dealing with migration in the western hemisphere.¹⁴ USMCA’s Chapter 16 addresses temporary entry of businesspersons and professionals and creates a Temporary Entry Working Group which must meet once a year. Chapter 16 is naturally restricted to specific categories of temporary entry of businesspersons and professionals through the nonimmigrant (TN) visas offered by the United States. However, as of today, there is little information on the meeting of the working group and any initiatives taken to promote the mobility of professionals among the three countries, something that would enhance overall regional competitiveness. A recent study by the Bush Institute suggests how, as employers fail to find the workers they need, nonimmigrant programs, such as the TN visa also known as the USMCA visa, can play an important role in getting willing workers into open jobs, particularly where there are shortages.¹⁵ In the case of Mexico, the United States–Mexico Foundation has produced a series of studies raising awareness on how to benefit from and improve the framework to provide temporary work visas, including ones to entrepreneurs and “digital nomads.”¹⁶

Regulatory cooperation

Enhanced regulatory cooperation should be a high priority going forward. The U.S. has tried to make progress on regulatory cooperation bilaterally with Canada and Mexico over the years but with limited results. More progress was made with Canada during the Obama Administration than with Mexico. But those dialogues largely faded away during the Trump Administration years. However, the chapters in USMCA open new possibilities for important regulatory collaboration across North America.

Progress could facilitate commerce while protecting consumers. As the Office of the U.S. Trade Representative Katherine Tai put it in 2022, “good regulatory practices are fundamental to transparent governance and fair trade.”¹⁷ In USMCA, however, not much progress is evident to date under Chapters 12 and 28, which address improved regulatory cooperation. The three governments are not actively using the Committee on Good Regulatory Practices called for under Chapter 28, for example. That committee could serve as a central coordinating body for enhancing dialogue, collaborating on more standard Regulatory Impact Assessments (RIAs), improving transparency, and setting priorities for enhancing collaboration in areas not specifically addressed in USMCA. The agreement’s Chapter 12 contains key sectoral annexes covering chemical substances, cosmetic products, information and communication technology (ICT), energy performance standards, medical devices, and pharmaceuticals. These are all areas where “enhancing regulatory compatibility,” as included in the Annex 12-B of the USMCA, could bring many benefits. This should be a focus area over the next two years.

Border infrastructure

Infrastructure is a central component of North American competitiveness, particularly since it allows trade to move safely and efficiently. One such example is port of entry infrastructure. Another is the World Trade Bridge, located in the Laredo’s region at the U.S.–Mexico border, which handles around 17,000 trucks daily¹⁸ and in recent years was ranked as the busiest U.S. commercial port of entry. Similarly, the Detroit¹⁹-Windsor Ambassador Bridge handles around 8,000 trucks on a daily basis.²⁰

Wait times at ports of entry has hindered overall regional competitiveness and can result in significant costs. The Texas–Mexico Border Transportation Master Plan 2021 estimated that delays at the U.S.–Mexico border amounted to approximately a cumulative $2.7 billion loss in GDP for the United States and Mexico in 2019.²¹ Similarly, recent studies produced by the Arsht Latin American Center have shown how reduced wait times along the border would increase trade, economic activity, and job creation on both sides of the border.²²

Each country has its own internal challenges to address and existing infrastructure to modernize. The U.S. has made a significant investment in its infrastructure through major pieces of legislation and allocation of substantial funding. It has encouraged Canada and Mexico to undertake its own initiatives to supplement bilateral and trilateral collaboration.

In 2010, the 21st Century Border Management Initiative was created between the United States and Mexico. This mechanism has served as the primary forum to address border infrastructure. Its steering committee has held annual plenary meetings spanning three Mexican and U.S. presidential administrations. They last met in December of 2022 and adopted the “2023 Action Plans to guide bilateral border-related efforts, many of which support initiatives identified through the U.S.-Mexico High-Level Economic Dialogue and U.S.-Mexico High-Level Security Dialogue.”²³ It would make great sense to have an annual border ministerial gathering to assess progress and for the NALS to agree on a set of tripartite border objectives where common planning, norms, and sharing of best practices could support a more competitive North America.

North American Leaders’ Summit (NALS)

When the Biden administration came to power in 2021, it reinstated the “Amigos Summit.” Historically, the trilateral meeting—an integral part of the SPP founded in 2005 under President Bush—was initially held every year. However, when the SPP became inactive in 2009, meetings became more sporadic, skipping years 2010-2011, 2013, and 2015. However, during the 2014 and 2016 NALS meetings, leaders agreed to substantial action agendas, which was then followed by a long hiatus under then President Donald Trump. President Andrés Manuel López Obrador hosted the last summit in January 2023 with Canada set to host its neighbors in 2024. This restarted the practice of inviting the private sector to meet with the government on the margins of the trilateral meeting. The three leaders approved an ambitious action agenda, which officials from the three governments are charged with implementing.²⁴

These summits are essential for four main reasons: One, they help build trust and personal rapport between the leaders. Second, they provide an opportunity to address irritants before they further damage the relationship. Third, they create the conditions for a renewed commitment to the trilateral partnership. Lastly, they generate an impetus for new continental initiatives that can help the three countries deal with global challenges (e.g. climate change/ environment), shared challenges (e.g. transnational crime/drug smuggling, migrations), and building more competitive and resilient economies (e.g. key supply chains such as semiconductors and critical minerals supplies for emerging technologies). The last two NALS produced broad and substantive workplans focused on each of these areas. The 2023 agenda refined and reduced the number of topics covered in 2021.²⁵ The current agenda outlines the key areas the three governments need to focus on and address, and the next NALS should give an indication on whether progress is possible—or if additional prioritization is needed. In 2023, the three governments held a very substantial ministerial meeting on semiconductors which included private sector involvement and a North American Drug Dialogue.²⁶

Given their positive impact, moving forward with the NALS should be seen as an integral part of the three leaders’ priorities. The practice of inviting stakeholders should be continued by Canada and the United States as it provides an opportunity for crucial consultation and collaboration.

It is therefore important for the effectiveness of both the USMCA and NALS that the three governments improve their communication on the substance and value of their ongoing work relevant to these topics. One of the great shortcomings of NAFTA was the lack of understanding among the U.S. public of the value and importance of the trade and investment relationships and networks built across the continent that were supporting millions of jobs. Successive U.S. administrations did not do a good job of informing the public about that value added from the trade agreement and related work. Now with USMCA and the other cooperative engagements underway, the three governments should be more transparent about the ongoing work and improve its public-facing messaging that explains the connection between USMCA (as well as NALS and bilateral cooperation) and its economic benefits. This is particularly important for an increased awareness of the benefits of USMCA, given the upcoming review of the USMCA in 2026.

Summary recommendations

The North American partners must use the time between now and the 2026 USMCA review to focus on solving problems and developing the potential evident in USMCA, especially energizing efforts following 2024 elections by garnering renewed public support and making this a priority issue to the three governments. In this regard, government could consider the following recommendations:

1. Begin preparing for the 2026 review immediately and identify how to measure success. This can be done by engaging stakeholders and legislatures and establishing national objectives and strategies.
2. Work on USMCA should be framed in the context of the North American competitiveness agenda reflected in the NALS and taken up in the HLED and U.S.-Canada bilateral engagements. The last NALS was held in January 2023, and leaders approved a substantial work agenda.²⁷ To convey seriousness, the three North American leaders should hold a summit before the electoral season takes off in the U.S. and Mexico.
3. The work of USMCA’s Competitiveness Committee (CC) should reflect the broader competitiveness agenda and realize the CC’s potential role to innovate and initiate activities to improve the continent’s competitiveness within the USMCA framework.
4. Immediately resolve outstanding disputes by using procedures outlined in the USMCA and respect any dispute settlement findings.
5. Energize work that will enable North America to use USMCA’s digital trade chapter to build the world’s most advanced digital marketplace. Overcome U.S. policy divisions on how to proceed on digital trade. Let the region be the example for further work in this area around the world.
6. Expand the dialogue with SMEs and their participation in USMCA’s commerce. Find ways to measure and highlight progress toward SME involvement in continental trade.
7. Complete and practice emergency action procedures to deal with cross border emergencies in coordination with efforts to modernize physical, digital, and communications infrastructure around the border.
8. Demonstrate and highlight progress on building more modern and efficient borders.
9. Expand outreach to stakeholders and the public, addressing misunderstandings, educating on USMCA’s importance, and partnering in preparation for the 2026 review.
10. More seriously engage with CEO dialogues and urge the private sector and other stakeholders to increase efforts to highlight the value of USMCA and the North American competitiveness agenda.