You can do a deal with China or the US but not both
by George Magnus / October 8, 2018 / Leave a comment
Trump at a USMCA press conference. Photo: Sipa USA/SIPA USA/PA Images
In spite of what had been a deterioration in relations between the US and both Canada and Mexico, all three countries signed a new agreement last week. Subject to ratification, it will replace the North American Free Trade Agreement (NAFTA), against which President Trump campaigned vociferously. Known by an unwieldy acronym, USMCA (US, Mexico, Canada Agreement) is not all that much more than a rebranding of NAFTA, and yet there is more to it than meets the eye, not least for Brexit Britain.
Looking simply at the trilateral agreement, it is a reminder that in trade negotiations size matters a lot. While many of the changes introduced into USMCA are cosmetic, there are new clauses relating to modern industries and intellectual property, and the US is a clear beneficiary of new arrangements stipulating rules of origin in the auto sector. Three quarters of the value of a car will have to be produced in North America in order for it to be imported duty-free. The US also gained in respect of access to Canada’s dairy market, and in several other areas, including investor dispute settlement rules. It also succeeded in establishing national security as a pretext for levying punitive tariffs, which it did earlier this year with respect to steel and aluminium.
Canada proved to be a feisty negotiator and was able to claim some headway, for example in retaining bi-national panels to adjudicate on decisions to impose duties and penalties, and Mexico, with whom the US reached agreement first, was insistent that Canada was party to the final agreement. The US, though, was the biggest and most powerful party and was able to secure most of what it wanted.
Ratification in Ottawa and Mexico City isn’t expected to be a problem, but it might prove trickier in Washington, especially if the composition of the Congress changes materially in the elections next month. There could be important procedural or even substantive differences between the White House and a more Democratic Congress over the withdrawal from NAFTA and approval of the USMCA.
Yet, the wider significance of the USMCA is rather less about technicalities, and altogether more interesting. It concerns two sets of relatively innocuous provisions in two of the last three chapters in the 34-chapter document, and is fundamentally about China, not trilateral trade per se.
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