October 2, 2018
USMCA: The New North American Trade Deal
By Valentina Sader
With the announcement of the United States-Mexico-Canada trade agreement, President Donald Trump has fulfilled his campaign promise of revamping NAFTA. Katherine Pereira Associate Director with the Adrienne Arsht Latin America Center began the call by stating that it is unlikely, however, that the US Congress will approve the new deal before the November midterm elections.
Jason Marczak Director at the Adrienne Arsht Latin America Center listed changes to critical sectors, namely the auto and dairy industry, as well as aspects of the deal that remained intact, such as Chapter 19, as the most significant updates of this modernized trilateral deal. For him, a bilateral deal between the United States and Mexico only would have been harmful to North American relations. Overall, Mr. Marczak said “on Sunday night, as the deal was announced, I thought I could actually hear the champagne bottles popping in Ottawa, Washington, and Mexico City.”
Valeria Moy Director, México, ¿Cómo vamos? and Nonresident Fellow with the Adrienne Arsht Latin America Center was not as optimistic about the deal, as it received mixed reviews in Mexico. For some, this trade deal does not allow for more trade, which was a key point for Mexico. Ms. Moy argued that the wage clause that aims to raise wages in the auto industry to $16/hour in Mexico is irrelevant, as Mexico will not abide by such increase in the near future. However, the majority of people believe that the country did not lose as much as it could have lost renegotiating NAFTA.
Daniel Schwanen Vice President at the C.D. Howe Institute discussed the Canadian perspective of the trade agreement. Expected to have greater competition in the dairy industry, as Wisconsin alone has more cows than all of Canada, Mr. Schwanen says that Canada faced the ultimatum of “sign[ing] or [their] auto industry risks being devastated, […] [which] would mean tens, if not hundreds of thousands of jobs at stake … in Ontario,” the center of Canadian’s auto industry.
On a more international note, Mr. Oosterveld, C. Boyden Gray Fellow on Global Finance and Growth; Director, Global Business & Economics Program believes that the preservation of Chapter 19 is a clear win for the global rule-based order. Mr. Oosterveld says that “these kinds of rules and these kinds of provisions prevent the dominant economy, in a trade deal, from imposing its rule over time on other partners in the trade deal, and […] as a result, ensure more fair outcomes for all partners in a trade agreement over time.”
Mr. Oosterveld viewed this as a success since the countries were able to modernize the trade deal, but stated that the contentious nature of the negotiations negatively affected the bilateral diplomatic relations, particularly the United States relations with both Canada and Mexico. He hopes that the countries can recover and move forward to more constructive conversations in other areas beyond trade.
Another contentious topic in the negotiating progress of the USMCA was the sunset clause. According to Jason Marczak, a trade deal that would only last five years, as originally proposed, would not promote investment. Mr. Oosterveld added that investors prefer tariffs over the uncertainty of whether tariffs will exist at some point in the near future. The 16-year time spam that was agreed under the USMCA, being reviewed within 6 years, is thus, a big win for Mexico and Canada.
In the medium and long-term horizon, Mr. Schwanen believes changes for the auto sector industry will actually negatively impact consumers, as prices will probably rise, given greater competition. He also discussed the possibility of a domino effect to future American and Canadian trade agreements, particularly the Canada-EU trade deal, after the removal of the investment dispute settlement mechanism from the USMCA. Mr. Oosterveld mentioned the Trump administration’s strategy with regards to trade, by leaving the steel and aluminum tariffs are still in place as leverage for future negotiating purposes among the United States, Mexico, and Canada.
Moving forward on the ratification process of this deal, Mr. Schwanen believes that there should be no worry about this deal passing in the Canadian parliament. Similarly, Ms. Moy stated that despite Mexico not having a timeline for an agreement to be ratified, the ratification process should likely be the easiest of them all, as she believes passing USMCA “is in the interest of the current administration and the new administration that this takes off on December 1st.” In the United States, as Mr. Marczak explained, the results of the November mid-term elections will impact how the negotiating process and the deal itself are seen in Congress. Mr. Marczak believes a potential vote would not happen before next summer.
Test your USMCA knowledge here: http://www.atlanticcouncil.org/blogs/new-atlanticist/quiz-is-nafta-back-from-the-dead