The new USMCA deal is radically different from the deal that first brought the three countries together under the North American Free Trade Agreement (NAFTA) in 1994.
The USMCA adds new regulations to digital trade, makes changes in point of origin rules that determine what products can be traded across borders without tariffs, and rewrites labor enforcement mechanisms. Supposedly, it will boost the U.S. auto and agricultural industries, according to The Hill.
However, with the ongoing coronavirus pandemic affecting the economies of all three nations, resulting in a deep recession, according to Reuters, April goods trade flows – normally about $1.2 trillion annually – have been brought to the lowest monthly level in a decade.
“I’m sure glad it was renegotiated,” Senate Finance Committee Chair Chuck Grassley (R-Iowa) said Tuesday, referring to the NAFTA deal USMCA replaced.
“I’m not sure that I agree with the president that it was the worst agreement ever, but it needed to be renegotiated, and part of it’s because things like the digital economy was never an issue 30 years ago,” he added.
Growing tensions threaten the deal
Not all is well with the start of the trade deal. The Trump administration recently threatened to slap tariffs again on imports of Canadian aluminum. And starting the USMCA in July, rather than four months later – as originally planned – will be very expensive for Canada’s dairy sector — and perhaps for the taxpayers who ultimately will compensate farmers for it, according to CBC Canada.
Meanwhile, Senate Minority Leader Chuck Schumer and others are already worried that Canada will try to avoid its commitments to open up its tightly controlled dairy market to U.S. producers.
Business leaders have already sent a message to Trump, urged the three countries to resist imposing tariffs “and other barriers or measures that will undermine the objectives of the comprehensive trade agreement and weaken North American competitiveness.”
“Duty-free trade will underpin the success of the agreement,” leaders of the U.S.’ Business Roundtable, Business Council of Canada and Consejo Mexicano de Negocios said in a statement.
As for Mexico and its part of the deal – U.S. Trade Representative Robert Lighthizer said last month that he already anticipates heated fights with Mexico on labor, biotechnology, intellectual property, and energy.
Trade law professor Elizabeth Trujillo from the University of Houston said that while the new labor provisions are consistent with the populist values of Mexico’s current president, complete compliance with new labor standards on the Mexican side is “unlikely.”
“The more likely scenario is that a lot of these manufacturers will just not use the new NAFTA … they’ll work outside of it,” Trujillo said. “Just pay what they have to pay [in tariffs] and not have to adjust their way of doing things to the new rules.”
All in all, things do not look very rosy for the future of the new USMCA, and there is going to be a lot of questions to be answered from all sides.
