At the very last minute a replacement to the North American Free Trade Agreement (NAFTA) was born. The new deal between the United States, Mexico and Canada (USMCA) retains most of the provisions from its predecessor. But is it just NAFTA with a fresh coat of a paint or a radically different and improved pact as US President Donald Trump once promised?
Trade was the cornerstone of the billionaire's anti-establishment campaign before he took office. Trump alleged that deals like NAFTA benefit only the so-called global elite, but he can renegotiate them to serve ordinary Americans. To this degree one of his first official acts was to quit the 12-country Trans-Pacific Partnership (TPP).
That pact, in many ways, was envisioned as an upgrade of NAFTA, because it included both Canada and Mexico. More importantly however, TPP was supposed to be a tool for the United States to fight against China's growing trade influence in the Asia-Pacific region – a goal that President Trump also shares.
Despite US withdrawal, the 11 remaining countries managed to salvage TPP. They revised the deal, taking out the provisions that the US pushed for, and changed the name to CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership).
Meanwhile in mid-2017 trilateral talks started on NAFTA. The Trump administration expected a new agreement by the end of the year, but the schedule has started to slip. Initially US officials complained about Mexico, but in the end it was Canada who put up a fight. Ottawa has waited until the very last minute, to accept the revised agreement, ahead of a self-imposed deadline of September 30.
It should come as no surprise, that Canada was able to resist US pressure. Even if the talks were to fail, they had the trade pacts to fall back on. Most important was their Comprehensive Economic and Trade Agreement (CETA) with the EU. The deal had already been provisionally in force since September 2017, removing the tariffs of 98% of industrial products traded. The yet to be applied CPTPP also strengthened Canadian Premier Justin Trudeau’s negotiating hand.
It should then come as no surprise that Ottawa’s key demand was met: NAFTA’s Chapter 19 (the dispute resolution processes) remained intact. This provision allows countries to fightback against tariffs that they consider unfair. Mexico was also against the watering down of Chapter 19, but was ready to let it go for the sake of the deal.
The two countries also managed to secure a side agreement which largely protects them against the threat of US car tariffs. And they also successfully vetoed a short sunset clause, that would have required USMCA to be renegotiated every five years. The final agreement pushes the deadline to 16 years.
However both Canada and Mexico had to make some concessions. Ottawa had to open its dairy markets for US imports. Mexico also had to agree to recognise workers' right to collectively bargain. They also could not convince the US to scrap its aluminium and steel tariffs. In addition, Washington profits the most from the extended terms of copyright, and longer protection period for certain expensive original pharmaceuticals. The US President also claimed victory on car parts, because the new pact mandates that 75% of a vehicle's parts must be made in North America, up from NAFTA’s 62,5%. However as a Bloomberg Opinion analysis pointed out, this change only affects a few car models.
Experts in general do not see USMCA as a triumphant trade deal as Trump say it is. While a lot of its content is new compared to NAFTA, but many of its elements were lifted from the now-defunct TPP.
Still, markets welcomed the fact that the trilateral talks were a success. There were some fears that the seemingly protectionist US President would rip up NAFTA without a replacement. Instead USCMA shows that Trump does have the ability to compromise on some issues and make a deal – albeit not an entirely new one.