Canada, Mexico and U.S. trade accord satisfies chemical industry

The Mexican Senate voted on Dec. 12 107-1 to approve the Protocol Modificatory to the Free Trade Agreement with the U.S. and Canada.

Image by Valdas Miskinis from Pixabay

Petrochemical companies in the three countries expect the Canadian and United States legislatures would also approve the changes sometime in early 2020.

The Mexican Senate ratified one accord on environment cooperation and customs verification with the U.S. and a second with Canada about the Chapter of Environment. Both include labor related matters.

Senator Gustavo Madero said that the signing gives “confidence” because the United States and Canada make up 80% of Mexico’s foreign trade.

Madero proposed a special commission to observe the economic impact from the approved modifications. Senator Napoleon Gomez said the ratification should dissipate “worries of Mexican businesses” about the implementation of the country’s Labor reform approved in May.

The Mexican Congress only needed to vote on the latest changes because it had ratified the re-negotiated and updated trade accord in June.

View of the Mexican chemical industry

“Progress was achieved in rules related to place of origin, regulatory coordination and investment protection,” Mexico’s National Association of the Chemical Industry said.

Companies now can choose from as many as ten possibilities to determine a product’s origin, with several options available such as the point where a chemical reaction takes place.

The accord will ease commerce, cut administrative costs, and give certainties to the “application and compliance” of rules, said Aniq, the Spanish language acronym of this organization set up in 1959 and with 258 members.

Mexico endured a petrochemical trade deficit in 2018 of $8.5 billion, about $1.3 billion deeper than in the previous year. It was the biggest deficit in four years, according to a March report by Mexican newspaper El Economista.

Petrochemical imports in Mexico in 2018 were $9.6 billion, up $1.2 billion on year while exports fell 7%, or $97 million, to $1.1 billion.

According to El Economista, this is due to the underperforming chemical subsidiary of state oil company Pemex. The subsidiary's current production is 60% less than a decade ago.

U.S. vote soon expected

The Mexican Senate was the first of the three countries to ratify the accord announced on Dec. 10 by the U.S. Speaker of the House of Representatives, Nancy Pelosi.

The American Chemistry Council president Chris Jahn said on Dec. 10 the council was “strongly encouraged by the Speaker’s announcement of a potential agreement that would codify important improvements to USMCA and possibly fast-track its passage in Congress.”

The accord would help “take advantage of integrated supply chains with our two largest trading partners,” he added. “It enhances regulatory cooperation, facilitates digital trade and modernizes chemical rules of origin,” the ACC said.

The Association of American Railroads (AAR) said the accord provides “much needed certainty.” International trade accounts for 42% of U.S. railroad freight in carloads and intermodal units, it said.

More than 35% of rail revenue is directly associated with international trade, the AAR said.

Both the chemical council and the railroad association asked for a ratification as soon as possible, preferably before the 2019 year-end holidays.

Senate Majority Leader Mitch McConnell on Dec. 10 told reporters on Capitol Hill the USMCA vote will occur “after the (presidential impeachment) trial is finished in the Senate.”

U.S. chemicals exports were $140 billion in 2018, or 10% of all U.S. exported goods, according to the ACC. Chemical exports are projected to expand over 5% annually through 2024.

Exports of chemicals linked to shale gas will reach $30 billion by 2025 with 40% destined for Canada and Mexico, the ACC said.

About 44% of all U.S. chemical exports to Canada and Mexico are intracompany transfers, while 64% of all chemicals imports from Canada and Mexico are between related parties.

Of 542,000 U.S. nationals employed in chemistry, 30% are in export-dependent jobs, including 46,000 U.S. chemical jobs that depend on trade with Canada and Mexico, ACC figures showed.

Canadian chemical industry to further study

The Chemistry Industry Association of Canada (CIAC) said on Dec. 12 that “further study is needed to assess the final arrangements agreed.”

“Common environmental and labor standards between our North American counterparts are vital,” it said.

The accord “will deepen the integration that exists in the chemicals supply chains” and attract investment, said Bob Masterson, president of the CIAC.

The Canadian association estimates the size of the Canadian chemistry industry at C$52 billion. The industry anticipates at least C$10 billion in investment in chemical projects in coming years.

The new accord replaces the North American Free Trade Agreement that went into effect on Jan 1, 1994. The accord aims to keep free of custom duties a region made up of 321 million U.S. nationals, 121 million Mexicans and 36 million Canadians.

The annual GDP of the United States of $19.4 trillion compares with $1.7 trillion for Canada and $1.2 trillion for Mexico.

North American chemical companies have long sought changes to ease trade and supported negotiations.

By Renzo Pipoli