Making Sense of USMCA, Boardroom Shakeup, and Better Late Than Never
Here’s What You Need To Know
Last week, the U.S., Canada, and Mexico announced an agreement on NAFTA 2.0, which will be known as the United States-Mexico-Canada Agreement, or USMCA. Even though the announcement of this agreement has been overshadowed by other machinations in Washington, this new trade agreement and its details will have a long-term impact on a range of economic activity across North America and the world. To help you understand whether USMCA is a great victory or a return to protectionism, here is what we know about it thus far:
- So, What Exactly Does The Agreement Substantially Change? We all know Trump loves to put on a show, and with a huge focus on the name change, many have been left wondering if the re-naming is just that or if there is substantive change in the deal. One area of substantive change is in the auto industry. USMCA increases the percentage of North American-made auto parts required to qualify for zero tariffs, mandates a $16 minimum wage for factory workers (tripling the average wage in Mexico), and exempts Canada and Mexico from future American auto tariffs. Another key area of substantive change is that the agreement reduces Canada’s protection of its dairy market, opening the market to more American dairy imports and reducing restrictions on American producers marketing cheese and wine in Canada. Other changes include a push to expand labor unions in Mexico, as well as improved intellectual property protections for American pharmaceutical companies. If ratified, the agreement has a 16-year “sunset” clause, is subject to review every six years, and most of the provisions would go into effect in 2020.
- What Is The Good, The Bad, And The Ugly? The good is that USMCA seems to have America winning in the auto, dairy, and wine industries, in addition to its wins in copyright protection. The bad is that those new car provisions might increase the eventual cost of cars for consumers, and despite having gained added trademark and patent provisions, big business – not just U.S. automakers – will likely have an increased cost of complying with the new agreement and will have lost the Chapter 11 investor dispute settlement mechanism that companies have used to sue the Canadian government in the past. Perhaps the most ugly part of the agreement is that it does not eliminate possible retaliation for Trump’s steel and agricultural tariffs, which have negatively impacted American jobs and economic growth. All in all, many are saying USCMA is not “a wonderful new trade deal” as Trump would have us believe, but rather a fine deal that will have no measurable effect on economic, wage, or job growth.
- What Do We Not Yet Know? Trump may have started his victory lap a little too soon. While the three countries have come to an agreement, USMCA must get Congressional approval before it can take effect, as well as approval from national legislatures in both Canada and Mexico. The deal will likely not be voted on in the U.S. until 2019, and with midterms coming up, Trump may no longer have the support to pass the deal. If it does pass, only time will tell if it addresses some of the criticisms of NAFTA and spurs new economic growth, or if it trends to a continuation of the current regulatory framework.
Regardless of its future, Trump can now tout a win going into midterms, and his outgoing Mexican counterpart can point to a legacy achievement while his Canadian counterpart can show his constituency just how hard his negotiators fought for Canadian interests. For corporate interests, the announcement of USMCA removes some of the uncertainty hanging over trade policy since the Administration came into office, yet the disruption in politics that has now come to trade policy seems as though it will remain for the foreseeable future, which will pose new political risks for American companies operating globally.
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SHAKEUP IN THE BOARDROOM
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A shakeup is happening in California boardrooms. SB 826 was signed into law and is the first state-mandated gender quota for corporate boards, requiring one female on a company’s board of directors by the end of 2019, two women on a five-member board by 2021, and at least three women on a board of six or more. Equal opportunity for all is an admirable goal, but like most overregulation, the law brings complications of its own, including questions as to whether it will actually do more harm than good.
The most robust research on the impact of such quotas is from Norway, which has required 40 percent of board seats to be female since 2008, and led to “younger and less experienced boards” and a “deterioration in operating performance.” Regardless of this data and the adverse effects that may stem from this quota, companies can expect that pressure for similar laws will follow California’s lead and be propagated in other states, and that the discussions in the public arena surrounding such laws will contribute to heightened political and reputational risks for corporate interests that could face backlash if perceived as not supportive of the regulations.
BETTER LATE THAN NEVER
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The Senate is finally entering the 21st century in at least one way. Tucked into last month’s government spending bill was a provision requiring Senate candidates to file their campaign financial reports electronically, which House of Representatives and Presidential campaigns have been required to do since 2001.
Supporters are calling this a win for transparency, making political money disclosures more accurate and easier to access. E-filing will also reportedly save taxpayers $1 million every year. It will now be easier than ever for voters, reporters, and opponents to investigate a candidate’s campaign financials and “follow the money,” gaining insights into who funders are and what that may mean for policymaking should the candidate win.
GONE WITH THE WIND?
Achieving policy and business objectives in the public arena doesn’t simply happen by chance. Instead, it takes a broad, concerted effort, as well as a deep understanding of the oppositional forces you’re up against.
Recently in Texas, one energy company found this truth out the hard way when it had to stop plans to build two large wind farms on the Texas-Oklahoma state line. The company’s plans were criticized by anti-wind farm activists, politicians, fighter pilots from nearby Sheppard Air Force base, and researchers from a local university. If the company had done the right research early in its process, it could have looked into the common threads tying these stakeholders together: a local landowner and oil investor, who likely coordinated the network of opposition, and who the company could have engaged early in an attempt to address any legitimate concerns he may have had before enabling a broad public affairs effort against it.
In any endeavor, it is critical to be deeply informed on the landscape of interests and stakeholders that could potentially engage on a given issue. When you proactively do so, you understand what you are up against, the concerns and issues motivating the opposition, and what may be done to gain the social permission needed to achieve your objectives.
FAKE ADS IN THE HOMESTRETCH
There are 24 days until election day 2018, and now is a good time to remind our readers that things are not always as they seem, especially when it comes to political ads on social media. A good example of this is a series of political ads attacking Republicans, which have been traced to Tierney Lawrence, a Democratic law firm in Colorado. Under the guise of four newly incorporated limited liability companies, with names such as “Right Call Media LLC” and “Smashbutton Media LLC,” the law firm is running crude ads attacking Republican Party policies, donors, and candidates, as well as other crude ads – one of which hails the physical appearance of a Democratic lawmaker.
The firm’s four companies have purchased more than 2,000 ads, used various Facebook pages, and have gone to extraordinary lengths to conceal identities and motives. As we enter the homestretch before midterms, it is more important than ever to dig a little deeper to obtain an information advantage that will help you discern the true nature of what you see online.