United Parcel Service Inc. CEO David Abney is “relieved” that the U.S., Canada and Mexico have reached a deal to upgrade the rules of their trading relationship, potentially removing a cloud of uncertainty hanging over the global economy.
“We’re very relieved; we went through a lot of anxiety,” Mr. Abney said during a luncheon discussion on “Rebooting Global Trade” hosted by the World Affairs Council of Atlanta.
Trade is the lifeblood of the Atlanta-based package giant’s international business; UPS is estimated to carry up to 3 percent of global GDP by value, with 450,000 employees all over the world delivering 20 million packages per day.
For that reason, Mr. Abney hinted that it’s been a tense few months under the Trump administration’s multi-front trade war. When World Affairs Council President Charles Shapiro and moderator Laura Dawson, director of the Canada Institute at the Wilson Center, sparred lightheartedly over their Twitter followings, the UPS executive quipped:
“When I wake up in the morning, it’s not your tweets that I’m worried about.”
USMCA, as the new pact is being called, is the result of a contentious renegotiation of the North American Free Trade Agreement, which Mr. Trump once derided as the “worst deal ever made.”
The U.S. first reached an agreement in principle with Mexico last month, with Canada reaching a last-minute deal to join a few weeks later, just before a Sept. 30 deadline.
While largely a modernization of the 25-year-old pact, USMCA does address e-commerce and other digital concerns that didn’t exist in the 1990s. It also includes substantive changes to the way disputes are handled and how key products, from cars to milk, are treated under the deal.
New rules of origin mean that cars, for example, must see 70-75 percent of their parts sourced from North America in order to qualify for tariff-free access, up from 62.5 percent in NAFTA. All parties also agreed that 40-45 percent of a car’s value must be made by workers making the equivalent of $16 per hour, a move seen as discouraging auto makers from moving to Mexico’s lower-wage factories.
USMCA also includes a “sunset clause” that will require the parties to put a new agreement in place after 16 years, with reviews to be undertaken every six years.
Mr. Abney, a long-time champion of free trade, said at the very least the deal has averted broader uncertainty and the prospect of customs bottlenecks at U.S. borders.
“If we didn’t have this trade deal, trade was not going to stop, but it would have had extensive delays compared to where we are today,” he said in conversation Ms. Dawson.
He noted, however, that UPS couldn’t be “completely comfortable” until the new deal enters into force through ratification pact by the legislatures of all three countries.
The pact can’t go to a vote in the U.S. until early 2019, post mid-term elections, thanks to a mandatory 90-day waiting period after the president notifies congress of his intent to enter a new trade deal.
Mexican lawmakers will vote on the pact under new President Andres Manuel Lopez Obrador, who takes office Dec. 1. Canadian Prime Minister Justin Trudeau, meanwhile, has faced some criticism for concessions to the U.S.
For his part, Mr. Abney said trade agreements are invaluable for small businesses, which may not have the resources to navigate the red tape of doing business globally.
He welcomed a recent move by Canada to raise the “de minimus” value of goods exported through private couriers from $25 to $100, meaning that small companies can sell and ship a product priced up to that threshold without triggering onerous trade documentation requirements.
That frees up customs officials to focus their efforts on higher-value shipments that could come with more pronounced security threats.
“All shipments are not created equal; not all of them have the same risk,” he said.
Mr. Abney said he has no problem with the goal of ensuring China plays by fair global trading rules, but he worries that a tit-for-tat trade war endangers supply chains and could lead to problems for American investors in China.
A better solution than tariffs would be to facilitate more U.S. exports to China, he said.
“We think the answer is more trade from the U.S. to China, not decreasing trade from China to the U.S.”