US, Mexico, Canada – Make the Trade Deal, Finally

Flags pictured during another round of NAFTA talks involving the USA, Mexico and Canada Photo: Reuters

#306 Almost a year after being ‘agreed to’,  one of the World’s largest trading blocks, Canada, the United States and Mexico, have finally agreed to a trade deal, called the US - Mexico - Canada Agreement ('USMCA') after considerable revisions. In spite of Donald Trump hailing it as far superior to the old NAFTA ('North American Free Trade Agreement'), a far more precise name for those that prefer such things, USMCA is known in the more informed circles as NAFTA 2.1, the un-revised version being NAFTA 2.0’; its substantially the old NAFTA but with much needed updating.

The NAFTA re-negotiations were frequently heated but eventually, a deal was signed in December 2019. Canada ratified it this April. Photo: AP

In essence USMCA is an updated version of the old NAFTA that was put in place decades ago, proposed by President Ronald Reagan in 1980, negotiated during Senior Bush’s time, and finally signed (after much debate and amendments) by President Clinton on December 8th, 1993. NAFTA came into effect in January 1994.

The old NAFTA was about 25 years in effect, and in spite of its shortcomings, it had created a lot of wealth and jobs for all the three countries that were signatories to it. NAFTA was not perfect, but for its time, it was one of the most visionary and forward looking trade agreements, but it needed to be amended.

Trump assailed the old NAFTA as the ‘worst deal ever’, as is his habit of calling any agreement put in place by anyone else - it is always the ‘worst ever’ -  but NAFTA became the template, to varying degrees, for most of the subsequent free trade deals to come, globally.  

House Minority Leader, Nancy Pelosi, speakings with reporters in Washington - Photo: Washington Post

The USMCA negotiated by Trump’s team (NAFTA 2.0) has been re-worked extensively by the House Democrats, and Nancy Pelosi has taken justifiable pride in stating that the amended USMCA (NAFTA 2.1) is a trade agreement that is far superior in addressing worker’s rights, environmental protections, and enforcement provisions than the original negotiated by Trump’s team - and it’s an agreement that will in all likelihood pass all three Legislatures, which the previous version did not.

USMCA essentially builds on NAFTA, and addresses the shortcomings of the original, especially when it came to protecting worker rights and jobs in the US and Canada versus lower cost, and the lower worker’s and environmental protection standards in Mexico, by setting of minimum wages requirements, basic collective bargaining rights for the workers and better environmental protections.

So while the Tri-Country trading block is governed by ‘free trade’ agreement principles, yet the new revised USMCA recognizes the need to protect workers and jobs in all three countries, rather than to just let cost versus benefits strictly decide the location of jobs, and the standards and rights of those jobs.

For Canada, and the US, this was critical to protect their labour markets from the trend to relocate manufacturing to lower cost countries.

The other major change in the revised USMCA is the ‘Dispute Settlement’ mechanisms.

In the old NAFTA, countries could block the formation of Arbitration Panels to try and settle disputes arising from perceived contraventions of the trade agreement. In the revised USMCA, in the event of the filing of a complaint of one country against the other, Arbitration Panels will form automatically, for the effective resolution of any disputes that may arise between the trading partners.

Also the revised USMCA pushes back on the proposed clause that would have allowed drugs manufacturers to extend their ability to block generic versions of their proprietary formulas from coming into the market for 10 years. In the revised version, this period of exclusivity for the original drug, is set for 8 years.

Additionally, there have been a number of clauses that have been agreed to in the revised USMCA that protect various endangered species, of flora and fauna, and their crucial and sensitive habitats. These clauses are agreed to by only those countries that directly impact these species, and these habitats.

Canada's Deputy PM, Chrystia Freeland, acknowledges the applause of her Mexican counterparts after signing a new protocol to amend the North American trade agreement in Mexico City. Photo: Associated Press

For the most part and from all accounts, the Representatives of the three countries are happier with the revised version of the new USMCA (or NAFTA 2.1) and expect it to be ratified by their respective governments fairly quickly.

The full texts of the USMCA have not yet been made available, therefore the details of the Agreement are yet to be fully known, and the agreed-to USMCA still has to be ratified by the Legislatures of all three countries, but as mentioned above, it is expected that the revised version meets the general approval of all.

The Democrats in the US House of Representatives are responsible for most of the changes to worker’s rights and protections, the greater protection of the environment in general, and the protection of sensitive habitats and the species, from the original draft, and thereby this version of the USMCA is a more progressive trade agreement.

For the US, this is a good trade agreement as it does give the American workers better protections than the old NAFTA, and it gives American farmers a little more access to the Canadian dairy market, from about 1% to about 3.6%, and it gives Americans manufacturers some more market share into Canada and Mexico in some other areas.

As the auto industry is one of the largest to be shared by Canada, the US and Mexico, USMCA covers various aspects of the auto manufacturing inputs such as steel, aluminium and other manufactured parts of the vehicles, extensively, as to their source and composition, in determining whether they qualify as made in the allowable jurisdictions for the purposes of qualifying the vehicles to be tariff free under USMCA. All in all, the new Agreement protects the collective auto industry in the three countries by insuring a certain high percentage of input of materials and labour are sourced in North America as specified in the USMCA.

Even though the amended USMCA is not exactly what Trump and the Republicans would have wanted (due to the more ‘progressive’ revisions) as it has extensive protections built into the agreement for all workers, and for the environment, and cuts back on the time the drug companies can have exclusive rights to the markets with their original drug formulas, yet the passing of this major trade agreement will allow President Trump to claim victory in this his most difficult time as he faces almost certain Impeachment in the House, as he moves towards the coming election in 2020. By at least having one major Trade Deal completed, he not only claims a victory, but it would also strengthen his hand in his contentious negotiations with the other much more difficult trade deal with China. At this time every political victory is critical for the embattled President.

US, Mexico, Canada – Make the Trade Deal, Finally - December 11, 2019