Published
April 29, 2024
For decades, the U.S. Chamber has been proud to lead the charge as the U.S. business community’s chief proponent of closer trade and investment ties with our hemispheric neighbors. This includes the passage of free-trade agreements with key partners in the Americas from Canada to Chile, as well as trade preference programs with the Caribbean Basin and Andean nations—and hosting the CEO Summit of the Americas in 2022 in partnership with the White House.
Thanks to these landmark U.S. initiatives, American companies today enjoy formidable investment ties across the region, directly employing nearly 3 million people and indirectly supporting employment for two to three times as many. U.S. trade with the hemisphere—approaching $2 trillion annually—fosters additional job creation, economic development, and rising living standards.
In this context, the Americas Act, introduced by Senators Bill Cassidy (R-LA) and Michael Bennet (D-CO) and Representatives María Elvira Salazar (R-FL) and Adriano Espaillat (D-NY), offers a mix of creative and helpful ideas to improve U.S. trade and investment ties in the Americas—together with some proposals that are clearly problematic. The Chamber is optimistic that eliminating the harmful proposals and leaning in on its pro-trade and pro-growth elements can yield a viable and positive piece of legislation.
Nearshoring to the Americas
First, the Americas Act aims to support nearshoring, a goal toward which the U.S. government has lent considerable rhetorical support to date. While nearshoring is overwhelmingly a private sector venture, the bill proposes to create a “Build Americas Unit” within the U.S. International Development Finance Corporation (DFC). It would increase the DFC’s borrowing authority from $60 billion to $90 billion to expand its capabilities. The bill would eliminate current restrictions on DFC activities in upper-middle-income countries in the Western Hemisphere (a category that includes much of Central and South America and the Caribbean).
Such an expansion of the DFC’s reach would put U.S. government resources—backing private sector investments—behind a push to promote nearshoring in ways that haven’t been attempted to date. The expansion of lending authority would be essential to ensure that such a change doesn’t undermine the DFC’s mandate to assist lower-income economies first.
The bill also proposes to provide up to $70 billion in loans and grants to companies considering nearshoring. While mounting U.S. fiscal deficits make such a proposal challenging, the good news is that a Chamber report in the wake of the 2022 Summit of the Americas, entitled Supply Chain Strategies and Nearshoring Opportunities in the Americas, has already provided a roadmap for policy reform in key Latin American and Caribbean markets that will facilitate nearshoring investments.
As the report indicates, the chief impediments to nearshoring vary by location, but they often involve policy questions that governments can address without subsidies to industry. Among these are the imperatives of improving transportation and logistics networks, upskilling the local workforce, and perhaps most importantly, shoring up governance, enhancing the rule of law, and combating criminal groups. Thus, the bill’s focus on advancing e-governance and digitalization is also promising as a means to address regional shortcomings in transparency while simultaneously offering tools to enhance economic formalization and inclusion.
Properly addressing the above will require a tailored approach to each country’s unique challenges. Success in this endeavor would incentivize the private sector to make nearshoring investments—without heavy public outlays. It’s an outcome that would also help achieve the bill’s laudable goal of enhancing U.S. presence in Latin America and the Caribbean in a way that counters China’s growing geopolitical and economic influence.
Free Trade Expansion
Second, the bill’s section entitled “Free Trade Expansion” has a number of positive features, including its proposal to renew Trade Promotion Authority (TPA). TPA outlines the negotiating bargain between the legislative branch—which the Constitution endows with authority over U.S. trade and tariff policy— and the executive branch—which is empowered to negotiate with foreign governments—to seek new market-opening trade agreements. The U.S. business and agriculture community strongly supports TPA renewal: American leadership on international economic policy is hobbled by its absence.
Helpfully, the bill would extend to Ecuador and Uruguay preferential access to the U.S. market for select goods through the Caribbean Basin Trade Partnership Act (CBTPA), with the excellent goal of eventually establishing two-way free-trade relations with those two countries. The Chamber strongly supports that long-term objective and the notion of trade preferences as a bridge to that goal. Some in Congress have expressed concern that such a move may disadvantage Caribbean Basin beneficiaries, but some review of product coverage would hopefully allow such concerns to be accommodated.
The Pitfalls of USMCA Accession
Next, the bill proposes to create an avenue—currently non-existent—for other countries in the Americas to accede to the U.S.-Mexico-Canada Agreement (USMCA). The overwhelming view among trade policy professionals involved in U.S. trade negotiations over recent decades is that the countries named by the Americas Act as ready candidates—Ecuador and Uruguay—would find a surer path to free trade with the U.S. through bilateral negotiations. Such a path offers more benefits and fewer obstacles.
Why is USMCA expansion problematic? In many ways, the USMCA is a bespoke suit that won’t fit the U.S. trade relationships with countries such as Ecuador and Uruguay. For example, it is doubtful that meaningful trade could even be conducted between the U.S. and these two countries under the USMCA’s highly prescriptive rules of origin for the automotive and textile/apparel sectors (which the current administration seems inclined only to make more restrictive in the future).
The same applies in spades for countries that already have free-trade agreements (FTAs) in place with the U.S. For U.S. investors in those countries, the USMCA could be a step backward as it provides weaker intellectual property and investment protection than the comprehensive, high-standard FTAs negotiated in the 2000s (such as DR-CAFTA). The unfortunate plight of Alabama-based Vulcan Materials demonstrates in real-time the pitfalls of USMCA’s severely reduced protection for investors in Mexico.
In addition, the role of Canada and Mexico in a USMCA accession negotiation could be a wild card: While they are friends and allies of the U.S., Canada, and Mexico already have their own separate FTAs with most of the countries of the Americas, so their interests in such a negotiation don’t always align with those of the United States.
Inviting Trade Wars?
Finally, the most significant problem presented by the Americas Act lies in its proposal to overturn the WTO terms (referred to in the bill as the General Agreement on Tariffs and Trade, the WTO’s foundational agreement) under which the U.S. trades with allies and partners in Europe, Asia, Africa, and elsewhere. Three-quarters of all U.S. trade is conducted under these terms, which were negotiated over a dozen rounds between 1947 and 1994.
The openness and certainty of U.S. trade relationships with other WTO members have delivered dynamic growth, job creation, and income gains in the three decades since Congress passed the latest version of these tariff commitments into law in 1994. Overturning them would risk launching a tariff war with many of our closest allies and partners: in fact, most of the world (all but the 20 countries where the U.S. has a free-trade agreement in place). The livelihoods of the 41 million American workers whose jobs depend on trade would be at risk.
The mistaken idea that such a move would generate tariff revenue may be behind such a proposal, but it wouldn’t play out this way. Trade wars depress economic growth—and tax revenues. A bill intended to improve U.S. trade relationships with our neighbors in the Americas should not do so by launching a trade war on Europe, Africa, and Asia as part of the bargain.
What Else Can Be Done?
There are other ideas that can be tapped to expand U.S. trade in the Americas. For example, the recently completed trade protocols with Brazil, Ecuador, and Taiwan provide a template for USTR to bring regional FTAs up to USMCA’s standard in those areas where it’s clearly superior. This includes trade facilitation, good regulatory practices, and anti-corruption measures. This could be done through the administration’s Americas Partnership for Economic Prosperity trade pillar, prioritizing like-minded trade partners like Costa Rica, the Dominican Republic, and Panama.
The same could be true for digital trade, where USMCA set a high bar and helped level the playing field for small businesses. However, the Biden Administration has recently reversed longstanding U.S. support for digital trade rules. Inexplicably, USTR has done so even though USMCA’s strong digital trade rules have delivered significant benefits—at no identifiable costs—during the nearly four years that the agreement has been the law of the land in North America. Staunch bipartisan opposition in the Senate to the Administration’s capitulation on digital trade, including from Americas Act sponsor Sen. Cassidy, could be leveraged to advance legislation that at once does away with this harmful executive action and strengthens the Americas Act itself.
In addition, showing some new flexibility on DR-CAFTA’s rules of origin (e.g., on its “short supply list”) could ease red tape and help Central America and the Dominican Republic compete with Asia. Unfortunately, USTR also appears inflexible on this front.
The Bottom Line
On one point, we are all agreed: When it comes to nearshoring, trade-led economic growth, and inclusive economic development in Latin America and the Caribbean, strengthening U.S. trade and investment ties represents a real opportunity. On the Americas Act, legislators should refine their work, keep its good ideas, and reject elements that would put our prosperity and global trade relationships at risk.
About the authors
John G. Murphy
John Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy and regularly represents the Chamber before Congress, the administration, foreign governments, and the World Trade Organization.
Neil Herrington
Neil Herrington is senior vice president for the Americas Department at the U.S. Chamber of Commerce. His portfolio includes executive management of the department’s programs, councils, and hemispheric policy initiatives. Herrington also serves as president of the U.S.-Cuba Business Council, the U.S.-Colombia Business Council and the U.S.-Argentina Business Council.
