Rooting for Canada and Mexico in the TPP
Takeaways
We explain how teaming up with our neighbors in the TPP could:
- Help boost U.S. exports;
- Make regional trade more efficient;
- Support the “re-shoring” of production to North America; and
- Provide important opportunities to update and modernize NAFTA.
A typical Mexican export contains twenty times more American content than a typical export from Europe to the United States.1 This is one reason why America should celebrate–not bemoan–the fact that Canada and Mexico have joined in negotiating for a Trans-Pacific Partnership (TPP) trade deal. Because trade among our three nations is vast, and our businesses are highly integrated, the United States often wins when our Canadian and Mexican neighbors succeed in global markets. Concluding a strong and fair TPP trade agreement would enable America to tap into fast-growing Asian markets and would support stronger U.S. economic growth. Additionally, the TPP would enhance trade with America’s two closest neighbors and provide a key opportunity to upgrade and modernize the North American Free Trade Agreement (NAFTA).
Canada, Mexico, and the Trans-Pacific Partnership
In October 2012, Canada and Mexico joined the United States and eight other countries2 in negotiating for a groundbreaking, high-standard Trans-Pacific Partnership trade deal.3 The United States has enthusiastically welcomed our North American neighbors to the TPP talks.4
But how does adding Canada and Mexico to the TPP help the United States? Didn’t we already open up trade with Canada and Mexico under NAFTA? And won’t their addition to the TPP simply help Canada and Mexico expand into lucrative Asian markets–perhaps at America’s expense?
America’s current trade with our North American neighbors is vital to the U.S. economy, supporting an estimated 14 million American jobs.5 Together, the United States, Canada, and Mexico form the world’s largest and most dynamic trading bloc:
- Every day, $3 billion in goods crosses America’s borders with Canada and Mexico. This astounding two-way trade is valued at over $1.1 trillion annually, and accounts for almost 30% of America’s total trade in goods.
- Canada is the #1 destination for U.S. exports. America’s $292 billion in annual exported goods to Canada equals the combined value of all our goods exports to Japan, the United Kingdom, Germany, Brazil, the Netherlands, and Hong Kong.
- Mexico is America’s #2 export destination. Our $216 billion in goods exports to Mexico is double the value of our exports to China (our #3 export destination), three times our exports to Japan, and four times our exports to the United Kingdom.6
Working together in the TPP could help the United States, Canada, and Mexico further build on this success, supporting increased trade and good jobs for America’s producers and workers.7 We highlight below four reasons why expanded teamwork with our closest neighbors in the TPP could be good for the United States.
Together in the TPP: Four Advantages for the United States
1. Launching Pads for American Exports
When our neighbors in Canada and Mexico make things, they frequently use a high percentage of inputs that are “Made in the USA."8 One study, for example, estimates that 40% of the content of Mexico’s exports to the United States is originally from America. Similarly, Canada’s U.S.-bound exports are an estimated 25% U.S. content. By contrast, other countries tend to use much less American content. Only 4% of the content of China’s exports to the United States, for example, is American.9
Value of U.S. Content in U.S. Imports from Select Economies10
Because Canadian and Mexican products often contain such high levels of U.S. content, America wins when Canada and Mexico boost their exports to the rest of the world.11 The TPP would enhance the ability of Canada and Mexico to act as global export platforms for more American content in two important ways.
First, the TPP would open major new markets for exports from Canada and Mexico, especially in East Asia. Canada, for example, currently has no free trade deals in the East Asian region. The TPP would open up six significant countries in the region to Canadian exports (and American content), including Malaysia, Singapore, and Vietnam.12
Second, under the TPP, more exports from Canada and Mexico would qualify for preferred access to foreign markets. Mexico, for instance, already has an extensive roster of free trade agreements, but its exports often don’t qualify for tariff preferences under these non-U.S. deals because they contain so much U.S. content. American content would count under TPP origin rules, enabling Mexico (and Canada) to sell more of their products (with more U.S. content) to our TPP partners.13
Flying American Content to the World
Canada’s Bombardier makes business and commercial aircraft for customers around the globe. Its planes contain an extensive array of “Made in the USA” systems, parts, and technologies–sourced from over 2000 U.S. suppliers. Bombardier’s new CSeries aircraft, for example, incorporates systems from such U.S. suppliers as C&D Zodiac (seating and interiors), Kidde (fire systems), Hamilton Sundstrand (power systems), and Rockwell Collins (avionics.)14
2. Greasing the Skids for Regional Trade
Canada, Mexico, and the United States don’t just make things–they make things together. NAFTA enables our countries to use highly integrated supply chains to co-produce–and sell to the world–an astonishing array of “Made in North America” products, from cars and cookies, to engines and electronics, and pasta and planes.15
North America’s shared production is deep and extensive. Cars co-produced by Canada and the United States, for example, contain parts and subassemblies that have crossed the border an average of six times. One-third of all U.S.-Canada trade is intra-company trade–Ford selling to Ford or GE selling to GE.16 And over 40% of U.S.-Mexico trade is between companies in the same industry.17
But the flow of North American commerce is hardly seamless. Even under NAFTA, border barriers18 and regulatory differences19 still cause serious “chokepoints” that raise the cost and reduce the efficiency of trade in the region. And the highly integrated nature of North America’s economy only magnifies the negative impacts of these chokepoints. For instance, frequent border crossings impose an estimated $700 per vehicle penalty on the integrated co-production of cars in North America.20
Cross-border Meltdowns
Indiana-based Hoosier Gasket had a searing experience with border barriers–when summer heat and long border delays combined to warp an entire shipment of gaskets destined for manufacturers in Mexico.21 Because of different food rules, General Mills runs separate production lines for Cheerios sold in Canada and the United States, and Campbell’s sells soup in different-sized cans in the two markets.22
In recent years, the United States, Canada, and Mexico have significantly boosted joint efforts to reduce border and regulatory barriers.23 The United States and Canada, for example, are pursuing 29 initiatives that would eliminate unnecessary differences in rules and ensure that regulators are on the same page as they develop new standards in areas like nanotechnology.24
This shared experience makes Canada and Mexico natural partners with the United States in negotiations to facilitate the flow of trade among the TPP’s eleven partner countries–economies that have a combined GDP of almost $21 trillion. And the TPP’s strong emphasis on “holistic” approaches to efficient supply chains will not only help expedite trade at our common borders, but will better link North America’s integrated economies to business opportunities in the Asia-Pacific region.25
3. “Re-shoring” Production
As wages and costs in countries like China continue to rise, businesses are looking at a broad matrix of factors in deciding where to locate or re-locate production. These factors include transport and energy costs, proximity to markets and suppliers, skilled workers, legal enforcement, supply chain efficiency, and infrastructure.26 When judged on this broader basis, “re-shoring” to America makes increasing economic sense–both for producers and for the overall U.S. economy.27
Co-producing products in the United States, Canada, and Mexico can be a particularly effective “re-shoring” strategy–one that takes advantage of our region’s overall competitive advantages, while strongly supporting U.S. production and jobs.
U.S. and international companies, for example, increasingly see Mexico–with its skilled workforce, improving infrastructure, and relatively higher levels of legal protection–as a better long-term alternative than China for locating production facilities.28 And, because of Mexico’s proximity and close integration with U.S. supply chains, more production in Mexico creates greater opportunities for U.S-based suppliers of parts and components and their U.S. workers.29
Cooperating with Canada and Mexico through the TPP could help to reinforce these important trends. The TPP’s emphasis on trade facilitation would make North American supply chains more efficient and make North America a more desirable location for production. At the same time, the TPP would open growing, new Asian markets to an array of North American-made products. And, with the addition of Canada and Mexico, it would be easier to develop strong TPP origin rules that would promote production and jobs in North America.30
Driving North American
North America’s growing, integrated auto sector is increasingly exporting to the world–shipping Jeeps from Ohio and Toyotas from Indiana. Honda recently announced that it is poised to become a net exporter from North America, as its U.S., Canadian, and Mexican plants increasingly sell globally. New trade deals like the TPP can help drive this trend. After the United States concluded its recent trade deal with South Korea, for instance, companies including Ford, Honda, and Toyota ramped up exports of U.S.-built cars to Korea.31
4. A Facelift for NAFTA
Negotiating in the TPP with Canada and Mexico also allows the United States to address nettlesome trade issues that still exist under NAFTA. These include:
- Canadian “supply management” rules that severely limit the ability of U.S. farmers to export dairy, chicken, eggs, and turkey to Canada;
- Barriers caused by Canada’s intellectual property (IP) laws and IP enforcement, as well as its local content quotas for Canadian TV and radio; and32
- Mexico’s failures to protect and enforce certain U.S. IP, its limits on telecom access and foreign investment, and its anticompetitive business practices.33
The TPP talks also offer the opportunity to upgrade NAFTA’s side agreements on labor and the environment by adopting strong and enforceable labor and environment rules, such as those included in the U.S.-Peru Free Trade Agreement.34
Raising these and other issues in the context of the TPP talks could provide new avenues–and potential new allies and possible new trade-offs–to help the United States to tackle difficult trade issues with Canada and Mexico. Progress on these fronts could further boost U.S. exports to our neighbors and advance global adoption of high-standard trade rules.
Conclusion
In the past, it was often easy to measure the benefits of trade. Producers and workers in Country A would make a finished product from local inputs and export it to Country B. In today’s global economy, however, trade is much more complex. Exports like cars, electronics, processed foods, and financial services are frequently co-produced in multiple countries and can contain extensive “embedded” content from producers around the world.35
It’s vital to keep this modern reality in mind when evaluating the importance to the United States of Canada’s and Mexico’s participation in the TPP. Because of their proximity and extensive integration in regional supply chains, when Canada and Mexico succeed in global markets, America often wins too.
Our three countries are also integrated by two decades of common experience under NAFTA and shared political and commercial values.36 And working together, the United States, Canada, and Mexico could create momentum for further expanding the TPP–and advancing our shared desire to extend strong and fair trade rules throughout the broader Asia-Pacific region.37
For these reasons–and many others–it’s good for the United States to have our North American neighbors as negotiating partners in the TPP.
Endnotes
Robert Koopman, William Powers, Zhi Wang, and Shang-Jin Wei, “Give Credit Where Credit is Due: Tracing Value Added in Global Production Chains,” NBER Working Paper No. 16426, September 2010, revised March 2011, Table 5. Accessed February 8, 2013. Available at: http://www.bea.gov/about/pdf/NBER%20working%20paper_1.pdf.
Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam.
For detailed information on the TPP, its objectives, and benefits to the United States, see Office of the United States Trade Representative, “TPP Information.” Accessed February 13, 2013. Available at: http://www.ustr.gov/tpp.
United States, U.S. Diplomatic Mission to New Zealand, “U.S. Trade Representative Kirk Welcomes Mexico and Canada as a New Trans-Pacific Partnership Negotiating Partner,” June 18-20, 2012. Accessed February 1, 2013. Available at: http://newzealand.usembassy.gov/mexico.html.
“NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth, and Jobs,” Report, U.S. Chamber of Commerce, 2012, p. 1. Accessed February 5, 2013. Available at: http://www.uschamber.com/reports/nafta-triumphant-20-years-assessing-two-decades-gains-trade-growth-and-jobs.
Third Way calculations derived from United States Census Bureau and Bureau of Economic Analysis, “U.S. International Trade in Goods and Services: December 2012,” February 8, 2013. Accessed February 8, 2013. Available at: http://www.census.gov/foreign-trade/data/.
For America’s dynamic small businesses, Canada and Mexico are the top two export destinations, while Canada is the top trading partner for 36 states. See United States Chamber of Commerce, p. 1; See also Wayne C. Thompson, Canada 2012: The World Today Series, Stryker-Post Publications, Lanham, MD, 2012, p. 178, print.
A recent landmark OECD/WTO analysis underscored that Canada and Mexico incorporate a high level of foreign (particularly U.S.) value-added in their exports to the world, especially in exports of machinery, electrical equipment and transport equipment. “OECD/WTO Trade in Value Added (TIVA) Database: Canada.” Accessed February 6, 2013. Available at: http://www.oecd.org/sti/industryandglobalisation/TiVA%20Canada.pdf; See also “OECD/WTO Trade in Value Added (TIVA) Database: Mexico,” Accessed February 6, 2013. Available at: http://www.oecd.org/sti/industryandglobalisation/TiVA%20Mexico2.pdf. This analysis, which included the value of embedded services, found that almost 20% of Mexico’s global exports of electrical and optical equipment was U.S. content and that over 16% of the content of Canada’s global transport equipment exports was American. “WTO-OECD Database on Trade in Value Added,” 2013. Accessed February 8, 2013. Available at: http://www.wto.org/english/res_e/statis_e/miwi_e/tradedataday13_e/oecdbrochurejanv13_e.pdf.
Robert Koopman, William Powers, Zhi Wang, and Shang-Jin Wei, “Give Credit Where Credit is Due: Tracing Value Added in Global Production Chains,” NBER Working Paper No. 16426, September 2010, revised March 2011, Table 5. Accessed February 8, 2013. Available at: http://www.bea.gov/about/pdf/NBER%20working%20paper_1.pdf.
Robert Koopman, William Powers, Zhi Wang, and Shang-Jin Wei, “Give Credit Where Credit is Due: Tracing Value Added in Global Production Chains,” NBER Working Paper No. 16426, September 2010, revised March 2011, Table 5. Accessed February 8, 2013. Available at: http://www.bea.gov/about/pdf/NBER%20working%20paper_1.pdf.
The OECD/WTO analysis of value added in trade reveals, for example, that American content accounts for $1 of every $5 in Mexico’s global exports of electrical equipment and $1 of every $6 in Canada’s global exports of transport equipment. Third Way analysis based on “WTO-OECD Database on Trade in Value Added.”
World Trade Organization, Regional Trade Agreement Information System Database. Accessed February 7, 2013. Available at: http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx.
World Trade Organization, Regional Trade Agreement Information System Database. See also “Bringing NAFTA Back Home,” The Economist, October 28, 2010. Accessed February 7, 2013. Available at: http://www.economist.com/node/17361528.
“About Us,” Bombardier. Accessed February 7, 2013. Available at: http://www.bombardier.com/en/corporate/about-us. See also “USA: Suppliers,” Bombardier. Accessed February 7, 2013. Available at: http://us.bombardier.com/us/aerospace_suppliers.htm, and “Bombardier C Series-Program Supplier Guide.” Airframer. Accessed February 7, 2013. Available at: http://www.airframer.com/.
“NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth, and Jobs,” Report, U.S. Chamber of Commerce, 2012, p. 11-13. Accessed February 5, 2013. Available at: http://www.uschamber.com/reports/nafta-triumphant-20-years-assessing-two-decades-gains-trade-growth-and-jobs; See also “OECD/WTO Trade in Value Added (TIVA) Database: Canada.” Accessed February 6, 2013. Available at: http://www.oecd.org/sti/industryandglobalisation/TiVA%20Canada.pdf; See also “OECD/WTO Trade in Value Added (TIVA) Database: Mexico,” Accessed February 6, 2013. Available at: http://www.oecd.org/sti/industryandglobalisation/TiVA%20Mexico2.pdf.
Jayson Myers, “From Neglect to Negligence: How the U.S. Treats its Biggest Customer and Why Americans Should Care,” BNA International Trade Reporter, August 11, 2011. Accessed February 6, 2013. Available at: http://mb.cme-mec.ca/download.php?file=grp0bluz.pdf. Another 30% is trade by first- or second-tier suppliers selling to manufacturers or distributors; See also “NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth, and Jobs,” Report, U.S. Chamber of Commerce, 2012, p. 11-13. Accessed February 5, 2013. Available at: http://www.uschamber.com/reports/nafta-triumphant-20-years-assessing-two-decades-gains-trade-growth-and-jobs; See also “OECD/WTO Trade in Value Added (TIVA) Database: Canada.” Accessed February 6, 2013. Available at: http://www.oecd.org/sti/industryandglobalisation/TiVA%20Canada.pdf; See also “OECD/WTO Trade in Value Added (TIVA) Database: Mexico,” Accessed February 6, 2013. Available at: http://www.oecd.org/sti/industryandglobalisation/TiVA%20Mexico2.pdf.
Christopher E. Wilson, “Working Together: Economic Ties Between the United States and Mexico,” Report, Woodrow Wilson International Center for Scholars, November 2011, p. 18. Accessed February 6, 2013. Available at: http://www.wilsoncenter.org/sites/default/files/Working%20Together%20Full%20Document.pdf.
Especially in the years since 9/11, complex information requirements, higher fees, and inspection delays have slowed the flow of commerce between the United States, Canada, and Mexico. “Trade & Travel Patterns at the Canada-U.S. Border: Policy Implications,” Report, Border Policy Research Institute, Western Washington University, Winter 2009. Accessed February 12, 2013. Available at: http://www.wwu.edu/bpri/files/2009_Winter_Border_Brief.pdf. See also Jayson Myers. A recent landmark analysis of border barriers and supply chains underscored that border barriers are often be far more costly than even high tariffs. “Enabling Trade: Valuing Growth Opportunities,” Report, World Economic Forum in collaboration with Bain & Company and the World Bank, 2013. Accessed February 13, 2013. Available at: http://www.weforum.org/reports/enabling-trade-valuing-growth-opportunities.
Differences and duplications in rules can impose large burdens on regional trade. Even small differences in regulations can significantly drive up the cost and complexity of inter-NAFTA trade–without advancing the protection of health, safety or the environment.
Jayson Myers, “From Neglect to Negligence: How the U.S. Treats its Biggest Customer and Why Americans Should Care,” BNA International Trade Reporter, August 11, 2011. Accessed February 6, 2013. Available at: http://mb.cme-mec.ca/download.php?file=grp0bluz.pdf.
Assistant Secretary of Commerce Michael Camuñez, “Realizing the Economic Strength of Our 21st Century Border: Trade, Education, and Jobs,” Opening Remarks, September 24, 2012. Accessed February 12, 2013. Available at: http://trade.gov/press/speeches/2012/camunez-092412.asp.
Ilene Grossman, “U.S., Canadian officials seek to harmonize rules that raise the cost of doing cross-border business,” The Council of State Governments–Midwest, February 2012. Accessed February 13, 2013. Available at: http://www.csgmidwest.org/policyresearch/0212uscanadatrade.aspx.
“United States-Canada Beyond the Border,” Action Plan, December 2011. Accessed February 13, 2013. Available at: http://photos.state.gov/libraries/canada/303578/pdfs/us-canada-btb_action_plan.pdf. See also United States, The White House, Office of the Press Secretary, “Declaration by The Government of the United States of America and The Government of the United Mexican States Concerning Twenty-First Century Border Management,” Press Release, May 19, 2010. Accessed February 13, 2013. Available at: http://www.whitehouse.gov/the-press-office/declaration-government-united-states-america-and-government-united-mexican-states-c.
Canada-United States Regulatory Cooperation Council, “Progress Report to Leaders,” December 2012. Accessed February 13, 2013. Available at: http://www.whitehouse.gov/sites/default/files/docs/pco_bnet-30471-v38-rcc-progress_report_-_dec_2012_final.pdf.
Adam Salerno, “Supply Chain and Trade Facilitation in the Trans-Pacific Partnership,” Free Enterprise, May 9, 2012. Accessed February 13, 2013. Available at: http://www.freeenterprise.com/international/supply-chain-and-trade-facilitation-trans-pacific-partnership. See also Brock R. Williams, “Trans-Pacific Partnership (TPP) Countries: Comparative Trade and Economic Analysis,” Report, Congressional Research Service, January 29, 2013. Accessed February 13, 2013. Available at: http://www.fas.org/sgp/crs/row/R42344.pdf.
Tazmin Booth, “Here there and everywhere,” The Economist, January 17, 2013. Accessed February 12, 2013. Available at: http://www.economist.com/printedition/specialreports.
These and other factors underlie recent decisions by major American firms like Apple, Dow, and GE to move some of their production back to the United States. “Reshoring manufacturing: Coming home,” The Economist, January 19, 2013. Accessed February 11, 2013. Available at: http://www.economist.com/news/special-report/21569570-growing-number-american-companies-are-moving-their-manufacturing-back-united.
Tim Johnson, “As China’s wages climb, Mexico stands to win new manufacturing business,” McClatchy Newspapers, September 10, 2012. Accessed February 12, 2013. Available at: http://www.mcclatchydc.com/2012/09/10/167930/as-chinas-wages-climb-mexico-stands.html. See also World Trade Organization, Regional Trade Agreement Information System Database. See also “Bringing NAFTA Back Home,” The Economist, October 28, 2010. Accessed February 7, 2013. Available at: http://www.economist.com/node/17361528.
Assistant Secretary of Commerce Michael Camuñez, “Realizing the Economic Strength of Our 21st Century Border: Trade, Education, and Jobs,” Opening Remarks, September 24, 2012. Accessed February 12, 2013. Available at: http://trade.gov/press/speeches/2012/camunez-092412.asp; Christopher E. Wilson, “Working Together: Economic Ties Between the United States and Mexico,” Report, Woodrow Wilson International Center for Scholars, November 2011, p. 18. Accessed February 6, 2013. Available at: http://www.wilsoncenter.org/sites/default/files/Working%20Together%20Full%20Document.pdf.
“In TPP, U.S. Automakers Face Balancing Act in Proposing Rules of Origin,” Inside U.S. Trade, October, 19, 2012, p. 7.
Patrick Olsen, “Auto exports from U.S. on upswing,” USA Today, April 2, 2012. Accessed February 12, 2013. Available at: http://usatoday30.usatoday.com/money/autos/story/2012-04-02/honda-usa-plant-anniversary-marysville/53957210/1. See also Alan Ohnsman, “Honda Plans to Become Net Exporter from North America,” Bloomberg Businessweek, December 6, 2012. Accessed February 12, 2013. Available at: http://www.businessweek.com/news/2012-12-05/honda-plans-to-become-net-exporter-from-north-america; See also United States Department of Commerce, “Growth Trends in U.S. Vehicle Exports,” 2012. Accessed February 12, 2013. Available at: http://www.trade.gov/mas/manufacturing/oaai/build/groups/public/@tg_oaai/documents/webcontent/tg_oaai_003833.pdf.
Office of the United States Trade Representative, “2012 National Trade Estimate Report on Foreign Trade Barriers,” pp. 53-60. Accessed February 7, 2013. Available at: http://www.ustr.gov/about-us/press-office/reports-and-publications/2012-1. See also “Stakeholders Urge USTR to Address Dairy Access, IPR with Canada in TPP,” Inside U.S. Trade, September 14, 2012, pp. 20-21.
Office of the United States Trade Representative, “2012 National Trade Estimate Report on Foreign Trade Barriers,” pp. 263-267.
United States-Peru Trade Promotion Agreement, Entered into Force February 1, 2009, Chapters 17 and 18. Accessed February 7, 2013. Available at: http://www.ustr.gov/trade-agreements/free-trade-agreements/peru-tpa. See also “Wyden Seeks Support for Letter Backing Strong TPP Environmental Rules,” Inside U.S. Trade, September 14, 2012, pp. 11-12.
“WTO-OECD Database on Trade in Value Added,” 2013. Accessed February 8, 2013. Available at: http://www.wto.org/english/res_e/statis_e/miwi_e/tradedataday13_e/oecdbrochurejanv13_e.pdf.
Although the United States, Canada, and Mexico will certainly have their share of disagreements in the TPP negotiations, they hold similar views on many key TPP issues, including environmental protection, innovation, state-owned enterprises, and facilitating small-business trade. “TPP Countries Aiming to Table Remaining Proposals Soon, USTR Says,“ Inside U.S. Trade, January 11, 2013, pp. 1, 20-22. See also “U.S., TPP Partners Working on Environmental Cooperation Language,” Inside U.S. Trade, January 25, 2013, pp. 1, 16-17.
“Submission of Comments to the Office of the United States Trade Representative on Canada’s Expression of Interest in the Proposed Trans-Pacific Partnership Agreement,” Council of the Americas, January 13, 2012. Accessed February 13, 2013. Available at: http://www.as-coa.org/articles/submission-comments-office-united-states-trade-representative-canadas-expression-interest; See also “Submission of Comments to the Office of the United States Trade Representative on Mexico’s Expression of Interest in the Proposed Trans-Pacific Partnership Agreement,” Council of the Americas, January 13, 2012. Accessed February 13, 2013. Available at: http://www.as-coa.org/articles/submission-comments-office-united-states-trade-representative-mexicos-expression-interest.
Subscribe
Get updates whenever new content is added. We'll never share your email with anyone.