The U.S. coatings industry also enjoys a strong trade position, both within North America and globally. In 2018, the U.S. exported coatings products valued at $1,854,597,978 to Canada and Mexico, with $1,143,219,742 of that total going to Canada and $711,378,236 to Mexico. These figures are comprised of a mix of waterborne³, solventborne⁴, and miscellaneous coatings products⁵ that are sold to both Canadian and Mexican consumers, as well as industrial and commercial users and manufacturers. While the U.S. market did import coatings products from Canada and Mexico as well, trade in coatings products resulted in a positive trade balance of $1,375,484,491 in transactions within the former NAFTA framework (these include a positive trade balance of $753,860,064 with Canada and $621,624,427 with Mexico).⁶

As noted, the coatings products traded in the North American trade agreement region include both decorative paints used by consumers or painting contractors, along with coatings that are used as intermediate goods within in the manufacturing setting. Particularly important to the paint and coatings industry is the North American market for the manufacturing of motor vehicles. U.S. manufacturers, along with their global competitors, assemble cars, light trucks, and heavy vehicles at multiple locations in the United States, Canada, and Mexico. The complex supply chains that support this manufacturing activity involve Tier 1 and Tier 2 suppliers within the North American trading bloc and elsewhere. This trade in intermediate goods works in both directions, with U.S. suppliers selling to Canadian and Mexican manufacturing plants, and vice versa. This North American interdependence has been noted by the Brookings Institute, which observed that, “advanced manufacturing in many states greatly depends on imports of parts and components from Canada and Mexico. Michigan’s automotive industry has long relied on suppliers in Canada and Mexico who provide 61 percent of Michigan’s total intermediate imports.”⁷

From the perspective of the U.S. coatings industry, trade within the former NAFTA bloc has proven highly beneficial. U.S. coatings producers have been successful in exporting into the Canadian and Mexican markets, to both Canadian and Mexican manufacturers and consumers, with the NAFTA area accounting for nearly two-thirds of the industry’s exports and almost all of the net global trade surplus.⁸ As such, ACA believes that USMCA ratification would potentially avoid new Canadian or Mexican trade barriers that hinder these currently beneficial trade flows, particularly those involving coatings used as an input into the manufacturing process.

Considering the large coatings export volumes to Canada and Mexico, and the resulting positive trade balances, failure to approve USMCA would likely adversely affect American manufacturers of coatings.

The USMCA changes the rules of origins, so that a good is classified as “originating” if it is:

• Wholly obtained or produced entirely in the territory of USMCA parties;
• Produced entirely in the territory of USMCA parties using non-originating materials that satisfy a product-specific rule of origin;
• Produced entirely in the territory of USMCA parties exclusively from originating materials; or
• Conferring origin based on a percentage of regional value content.

This change will provide significant relief for industry, since the previous NAFTA requirements placed a considerable administrative burden on manufacturers who had to solicit supporting NAFTA certificates from suppliers of raw materials.

The NAFTA ISDS provisions are altered, as follows:

• Investors must “exhaust local remedies” by first filing complaints in courts/administrative tribunals of the host state and waiting 30 months before initiating arbitration (unless such action would be “obviously futile or ineffective’);
• Investors may only bring claims alleging a:
  • Breach of national treatment: no longer violations of national treatment with respect to the establishment or acquisition of an investment;
  • Breach of most-favored-nation treatment: no longer violations of the minimum standard of treatment; or
  • Direct expropriation: no longer claims alleging indirect or regulatory expropriation.

The USMCA requires countries to maintain a roster of 30 ISDS panel members to resolve disputes. And, if a dispute covers a WTO requirement, it can be brought there (USMCA contains provisions outside WTO rules, so only a USMCA panel can resolve them). Notably, the USTR has said that the deal “is not meant to allow panel blocking;” rather, the United States could use Section 301 tariffs (meant to address unfair trade barriers) to enforce the USMCA.

USMCA provides for the following:

• Strict enforcement against counterfeit or pirated goods;
• Enhanced trademark protection (including extension to sounds and scents);
• Civil and criminal penalties for trade secret theft;
• Copyright protection for author’s life plus 70 years, and other countries’ copyrights must be fully recognized (Canada will increase its term from 50 years). Agreement would also ensure data could be transferred across borders;
• Companies cannot be required to share source code and algorithms; and
• Internet platforms cannot be held liable for hosted third-party content, other than for intellectual property enforcement.

These provision aim to open cross-border communication and better facilitate e-trade.