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Op-Ed: Why the new NAFTA is good for business in Houston

Laura Murillo is president and CEO of the Houston Hispanic Chamber of Commerce.

At the end of September, Canada joined the U.S. and Mexico into a proposed trade pact that will replace the quarter-century-old North American Free Trade Agreement. The new agreement comes after several years of political wrangling and President Donald Trump’s promise to tear up “ the worst trade deal ever made.” The new deal – the United States-Mexico-Canada Agreement (USMCA) – fulfills a campaign promise and modernizes an agreement that was beginning to show its age without making material changes to the core tenants that made NAFTA successful.

Indeed, it is the fact that the USMCA is more refresh than rewrite that makes it good for business.

Since its ratification in 1994, NAFTA has been an economic catalyst for North America, Texas and the greater Houston region.

According to a study from the Wharton School, overall trade between NAFTA countries increased from $290 billion in 1993 to more than $1.1 trillion in 2017 due to NAFTA. More than six million jobs depend on U.S. trade with Mexico and Canada. NAFTA is also responsible for a positive impact on U.S. GDP. According to the Peterson Institute for International Economics, the U.S. has seen a $127 billion increase in GDP yearly due to NAFTA.

For Texas, the positive effects of NAFTA have been unmistakable. Trade between the NAFTA countries represents half of Texas' yearly exports, amounting to more than $1 trillion in yearly economic activity. Texas also generates $178 billion in annual trade with Mexico, which has also been a key contributor to the growth of the bustling Port of Houston. As of 2017, Texas exports more than $100 billion in goods annually to the other two NAFTA nations.

Houston's geographical location and its status as the energy capital of the world have made it one of the greatest beneficiaries of NAFTA. According to the U.S. International Trade Administration, Houston has been the nation's top exporter since 2013. Because of NAFTA, Mexico has solidified its position as the Houston region's top trading partner, representing more than $16.8 billion in trade annually. Trade with Canada on the other hand, represents more than $1 billion in annual economic activity, making it a critical trading partner for the region.

These factors underscore the trepidation that existed across the business community when the future of NAFTA seemed uncertain. So, it is welcomed news that the changes found in the USMCA are mostly on the margins, largely leaving NAFTA intact. The other good news is that the USMCA does make some positive – albeit modest – changes to the old agreement.

The most significant improvements include new provisions that protect workers across the North American continent. As part of the negotiations, Mexico has agreed to implement laws that will give workers the right to real union representation, provide labor protection laws to migrant workers, and protect women from workplace discrimination. The USMCA also mandates that automakers manufacture 40 to 45 percent of their motor vehicles in facilities where workers are earning at least $16 an hour. These provisions are particularly significant for the Mexican worker, who on average earn well below that hourly wage.

The USMCA also modernizes NAFTA by introducing stronger intellectual property protections, and new provisions that address the realities of a digital economy not covered under NAFTA. Stronger protections for businesses engaging in commerce online and the opportunity for each country to establish personal information protection laws are both welcome changes.

Finally, the USMCA is the first trade agreement to include a sunset provision. The new agreement will terminate 16 years after the date of its ratification, unless the three countries agree to renew it for another 16-year term. To encourage the review process, the USMCA also establishes a schedule of meetings between the three parties, which begin six years after ratification. These provisions will help ensure that the USMCA reflects the realities of modern trade and preclude it from becoming outdated – a key criticism of NAFTA.

While many experts argue that the changes made to NAFTA do not go far enough, a far-reaching rewrite would have left the business community in an uncertain position. Although the agreement must be ratified by the legislative bodies of all three countries, the USMCA represents a strong first step in preserving and strengthening NAFTA – an agreement that has had incomparable positive economic effects on the U.S., Texas and the Houston region for more than two decades.

Laura Murillo, the guest author of this article, is president and CEO of the Houston Hispanic Chamber of Commerce.

As published by the Houston Business Journal