Nafta’s successor, USMCA, was a groundbreaking deal that defied critics with the speed of its approval, its ability to modernize and improve on one of the world’s largest trade agreements, and its commitment to addressing investment, labor and environmental concerns. The pact was a key point of discussion during Katherine Tai’s Senate confirmation hearing and ensuring compliance with the deal undoubtedly will be a major focus of her tenure if approved as U.S. Trade Representative.
One of USMCA’s key objectives is to level the playing field for businesses in North America and provide the kind of certainty that allows investment and innovation to flourish. If implemented correctly and responsibly, USMCA has the potential to stimulate the U.S., Mexican and Canadian economies at a time when they need it most, as the three nations face a long and painful recovery from the pandemic.
That’s why it’s so disappointing to see protectionist and heavy-handed proposals starting to emerge and gain traction in Mexico, including one to protect Mexican movie production at the cost of U.S. filmmakers by requiring a minimum local content quota for audiovisual programming. These proposals would harm Mexico’s economy and its consumers, while threatening to weaken the benefits of USMCA by violating the spirit and letter of the agreement.
The quota would force digital content providers in Mexico to ensure that 15 percent of their catalogue is produced domestically and independently of the platform itself. With content requirements, the thinking goes, streaming platforms such as Netflix and Disney+ are more likely to invest in locally-produced content—programming that preserves local culture and provides jobs for the domestic entertainment industry.
In reality, the content quota would undermine incentive for investing and innovating in local productions and would hurt consumers. The proposal would benefit Mexican companies that have existing local content libraries and reduce the amount of new and innovative content available to viewers.
The quota would force streaming companies to license pre-existing content, which would do little to stimulate local production. And with free and fair competition under assault in Mexico, content providers would pull back on investments. In fact, a July 2020 study by political scientist Raul Katz and economist Juan Jung shows countries with local-content quotas experience a contraction in local production over time.
Meanwhile the quota would force streaming companies to reduce the size and diversity of their catalogues as they cut down on fresh, in-demand international programs and add outdated domestic reruns. And since the quotas apply only to digital subscription providers, there is a real possibility that viewers won’t even watch the local shows and movies in their catalogue.
The proposal would also violate USMCA by favouring Mexican streaming companies that already produce content in Mexico. This could encourage other industries to run afoul of the trade pact, limiting its positive impact and potentially threatening its standing. And taking such an action just as President Biden and Tai are developing their overall trade strategy would potentially harm efforts to bolster relations with the United States.
Unfortunately, the proposal is not the only one to potentially run afoul of the USMCA. The Mexican administration has repeatedly insisted in introducing legislation that would undermine the agreement: an additional bill attempting to impose a quota on digital platforms was presented last year, and there remain proposals to rescind or weaken the autonomy of Mexican agencies that regulate energy, pharmaceuticals, and telecommunications. USMCA calls for regulators to remain independent.
Taken together, these proposals provide a disincentive for investment, hurt Mexican consumers, and threaten to undermine U.S.-Mexico trade relations—leaving everyone worse off. And that is a program nobody wants to watch.