Despite the hyper-partisan political landscape in Washington, on January 16, 2020 the Senate approved the USMCA trade deal. Congress had previously passed the legislation on December 19, 2019 by a vote of 385-41, and Mexico’s Senate passed the legislation on June 19, 2019 by a vote of 114-4. That leaves only Canada’s Parliament left to ratify the successor to NAFTA — which may not be as straightforward as once expected.
That’s because the Canadian government is currently led by the Liberal Party, which has a minority of seats in the House of Commons (a.k.a. Parliament). For those unfamiliar with the Westminster system, this basically means that the Liberal Party — which was in power during the extensive and often thorny negotiations that brought about the USMCA — does not have enough votes to unilaterally ratify the new trade deal. As such, it must “reach across the aisle” and get support from at least 13 Parliamentarians from other parties; namely the Conservatives (right-leaning), the New Democrats (left-leaning), or the Bloc Quebecois (based in the Canadian province of Quebec, and mandated to exclusively focus on promoting legislation that benefits Quebec).
However, those who have been eagerly waiting for the trade uncertainty to end — everyone from cross-border shoppers buying organic kratom, to giant logistics and manufacturing companies — can probably afford some cautious optimism, given that there are likely enough votes among the pro-business Conservatives to push the USMCA through the Canadian parliament sometime during 2020.
While NAFTA was not wholly beloved in Canada — particularly across labor groups — the USMCA is even less popular. Among the most vocal opponents is the country’s small, yet politically powerful dairy producers who have historically benefited from strong protective quotas (which Canadians call “supply management”) to keep U.S. dairy producers from tapping into the lucrative Canadian market valued at $16 billion annually. While these protective quotas still exist in the USCMA, they have been significantly weakened — fulfilling a longstanding Trump campaign promise. Another major change is the sunset clause, which calls for the USMCA to expire 16 years after trilateral ratification. However, to avoid trade chaos, the deal is subject to review every six years, at which time the three countries can mutually agree to extend it if they wish. Considering that it took more than two years to negotiate the USMCA, it’s hard to imagine that any potential extensions will be any less complicated, confrontational or controversial. Time will tell, and we’ll be watching closely.
Following the agreement, President Trump tweeted: “Late last night, our deadline, we reached a wonderful new Trade Deal with Canada, to be added into the deal already reached with Mexico. The new name will be The United States Mexico Canada Agreement, or USMCA. It is a great deal for all three countries, solves the many……”
The US has been fighting trade wars on several fronts this year, including placing tariffs on steel and aluminum imports from Mexico and Canada, as part of Donald Trump’s America First policy. Tariffs on cars are also threatened.
The hundreds of pages of the agreement were released on October 1 and contain updated arrangements for Canada’s dairy industry and measures aimed at shifting lower-paid car jobs from Mexico.
On dairy, US farmers will have access to 3.5% of Canada’s $16 billion-a-year dairy market.
On cars, Canada and Mexico have a quota of 2.6 million cars they can export to the US as a protection for their car industry if the US imposes a 25% global tariff on car imports.
In addition, 40% of car parts of vehicles produced in the USMCA area must be made in areas of North America, paying wages of $16/hour.
On the lumber (or wood) industry, Canada secured protection from US anti-dumping tariffs through the preservation of a dispute-settlement mechanism.
The US made a deal with Mexico in August, but relations with Canada over the trade pact had become increasingly strained in recent weeks.
The Trump administration set September 30 as a deadline for Canada to strike a deal.
A protectionist policy under the Trump administration has seen the US forge ahead with individual trade deals, rejecting bigger multi-lateral trade agreements and posing a challenge to decades of global free trade.
As part of this policy President Trump has also launched a trade war against China, which has already hurt companies and could curb global economic growth.
Mexican government says it is willing to discuss the North American Free Trade Agreement (NAFTA) with President-elect Donald Trump.
The NAFTA came into effect between the US, Canada and Mexico in 1994 when Bill Clinton was president.
The pact created one of the world’s largest free trade zones by reducing or eliminating tariffs on most products.
It was meant to benefit small businesses by lowering costs and reducing bureaucracy to facilitate buying and selling abroad.
Mexican Economy Minister Ildefonso Guajardo said his country would try to explain the “strategic importance” of the deal for the region to Donald Trump, who has heavily criticized it.
Image source Wikimedia
Canadian PM Justin Trudeau also said he was open to talks.
Donald Trump has called the pact as the worst trade deal the US has ever signed.
His strong protectionist sentiments on the campaign trail helped to win support in areas that were formerly manufacturing centers. Donald Trump has pledged to bring back US jobs lost to globalization.
Mexico and Canada fear losing access to the US market, on which they heavily depend.
The Mexican peso hit a record low following Donald Trump’s unexpected election victory and fell again on November 10 after recovering slightly.
Foreign Minister Claudia Ruiz Massieu said Mexico was willing to aim to “modernize” NAFTA with a Trump government and Canada, but also ruled out renegotiation.
Justin Trudeau said it was important to be open to discussion on trade deals.
No date has been set for talks but Mexico’s President Enrique Pena Nieto has said he and Donald Trump have agreed to meet, possibly before the latter’s inauguration in January.
Aside from attacking NAFTA, Donald Trump has also heavily criticized the Trans-Pacific Partnership (TPP), a hugely ambitious deal signed between 12 countries that Mexico hoped to use to modernize NAFTA and expand its trade with Asia.
Ildefonso Guajardo said that in the event the TPP is not ratified by the US Congress, signatories should consider trying to implement the rest of the agreement without it.
President-elect Donald Trump has also angered Mexico by saying he would make it pay for a wall he wants to build on the shared border in order to keep out illegal migrants.