By: Karina Oms
The ratification of the USMCA (United States-Mexico-Canada Agreement) promises to provide increased access to the American, Canadian, and Mexican markets, and strives to improve business environments for all three of the parties involved. Many United States business groups are relieved that President Trump attained a trilateral deal with Canada and Mexico, especially one with so many trademark and patent protections benefitting U.S. businesses. However, there are several concerns regarding U.S. corporate tax rates and the effect that they may have on the future of U.S. businesses’ as well as the environmental regulations that sufficiently prevent the fostering of climate change.
The United States is a big winner in the USMCA in many regards, however, the USMCA fails to address corporate tax rates and the effect they have on U.S. businesses remaining within U.S. borders.[1] The top marginal U.S. federal corporate income tax rate is 21 percent, while state and local governments tax corporate income at varying rates, such that the typical top marginal rate on a corporation doing business in all 50 states is 25.84 percent.[2] The United States still holds one of the highest corporate tax rates in the world, and the USMCA should have provisions to create a more inviting business environment by providing lower corporate taxes to U.S. businesses.
The USMCA also left out another major factor involving all three countries: climate change. The words climate change never once appear within the 31 pages of the deal’s environmental section.[3] The agreement seemingly gives polluting transnational companies more favorable rights than governments and citizens. This agreement fails to hold large oil, gas, and other massive pollution contributors accountable for the damage they cause to communities. While the agreement recognizes the problem of air pollution, it contains no specific measures to reduce it.
Free trade is critical in keeping our economy in the United States as dominant as it has been globally for so long. Preserving duty-free or low-duty market access between the United States, Mexico and Canada, two of the United States’ largest trade partners is vital. The USMCA is an improvement from NAFTA in several ways, including creating rules for e-commerce for eliminating barriers of free-flowing information between the three countries.[4] This in turn removes unnecessary costs hindering trade and improves the customer experience of several different products in all three states as well. In addition, labor laws in Mexico have improved substantially.[5] New provisions voted in by Mexico’s lower house of Congress include the approval of a labor law reform aimed at ensuring workers can freely vote for their union representation and contracts.[6]
The USMCA lacks in several important regards. Firstly, the agreement should discuss the U.S.’s high tax rates and find ways to make having a business’ headquarters in the U.S. versus Canada. While Canada’s corporate taxes are on a province-by-province basis, the Canadian federal government charges a 15 percent corporate tax.[7] Although the United States, under the Trump administration, has lowered the United States’ corporate tax rates, they are still higher than what the Canadian federal government charges its companies located within its borders. Additionally, businesses headquartered outside of Canada are required to pay income tax on the profits earned from Canadian operation, but if your business does not have a permanent establishment, then profits are not subject to Canadian income tax.[8]
With Canada and the United States sharing a border, speaking the same language, and having many cultural similarities, many businesses may begin migrating over the border. Likewise, total business tax costs in Canada are the lowest in the G-7 (a group consisting of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) and up to 46 percent lower than those in the United States.[9] Further, the U.S. and Canada have a long-standing tax treaty that makes cross-border commerce fairly straightforward. The USMCA may pose an even bigger issue than it solves by not addressing United States corporate tax rates.
Secondly, if this trade agreement moves forward and is ratified, citizens in all three countries must continue our fight to protect the very food, air, and water our communities need to survive, as the USMCA does little to prevent the encouragement of climate change from U.S, Canadian, and Mexican companies and manufacturers. Chapter 24 of the agreement puts an emphasis on USMCA parties cooperating to protect and conserve the environment and requires each country to maintain an environmental impact assessment process that covers issues related to protecting the ozone layer, protecting the marine environment from ship pollution, improving air quality, preventing the loss of biodiversity, preventing, detecting and controlling invasive alien species, protecting and conserving marine species as well as promoting sustainable forest management. However, there is no mention of climate change at all in the agreement, something critics of the USMCA have been troubled about.
Optimistically, the U.S., Canada and Mexico agreed to promote corporate social responsibility, responsible business conduct and to adopt and implement voluntary best practices of corporate social responsibility that are related to the environment.[10] The agreement states that USMCA’s environmental provisions are designed to allow each party the discretion to decide how best to allocate its environmental enforcement resources, however, the parties agreed to work together to better protect the environment and promote sustainable development.[11]
