USMCA through the Lens of Smart Manufacturing
Keith B. Belton
One way to interpret a trade agreement is through the lens of new, emerging products and services. Nations favor trade agreements that benefit their domestic economy while also frustrating the aims of their strategic competitors across the globe.
And so it is with the U.S.-Mexico-Canada Trade Agreement (USMCA), which, if adopted, would replace the 1994 North American Free Trade Agreement (NAFTA). A careful reading of the new agreement reveals a distinct US approach to smart manufacturing—the integration of sensors, controls, and software platforms to optimize performance at the production unit, plant, and supply chain levels.
This digitalization within and across supply chains is widely perceived to be the future of manufacturing. It is heavily influenced by information governance—that is, norms of behavior for the collection, management, and disposition of information. These norms can be determined by markets and through laws and regulations. Critical components of information governance for smart manufacturing include technical standards, cybersecurity, privacy protection, digital trade flows, and the regulation of artificial intelligence (AI).
Nestled within the 1,800 pages of the USMCA are numerous provisions that will impact, directly and indirectly, the digital transformation of manufacturing. These provisions reflect (1) support for the market-driven approach favored by the U.S. and (2) opposition to other approaches, particularly those favored by China and the EU.
Support for a Market-Driven Approach
The U.S. approach to smart manufacturing can be described as market-driven with a reticence toward government-imposed mandates or restrictions. Such an approach is thought to favor entrepreneurship and technological innovation—a source of comparative advantage for the United States.
Several of the USMCA provisions would expand this US approach to Mexico and Canada. These provisions address international standards, digital trade, and good regulatory practices. Table 1 provides a succinct summary.
International standards are requisite for smart manufacturing. For example, interoperability of sensors and devices across supply chains requires common language—standard protocols for communication. Such standards embody intellectual property and are often referenced by domestic regulation—thereby creating winners and losers. Standards have created non-tariff trade barriers (e.g., the standard for electrical prongs in the EU versus the USA).
With respect to international standards, the US prefers that the private sector lead in standards development for smart manufacturing and that standards be developed through a consensus process involving all stakeholders. USMCA Chapter 11 (Technical Barriers to Trade, or TBT), which builds on the World Trade Organization’s TBT agreement, includes commitments to ensure that domestic standards (1) are based on international standards (Article 4), (2) are developed to ensure mutual recognition by each Party (Article 4), and (3) are developed in a transparent manner with opportunities for input (Article 7).
Table 1. USMCA Reflects US Preferences for Smart Manufacturing