The U.S. Mexico Canada Agreement provides a new acronym USMCA which has no flow compared to NAFTA. I would have been happier had they called it NAFTA II or some other creative name, none the less, we’re stuck with USMCA, sounds like YMCA if you remember that song.
It appears from an initial reading of the Agreement that the U.S. has secured many of the goals that it’s set out to achieve. There is a slight tightening in the country of origin requirements for autos, wages are required to be more comparable between the three countries, in the auto industry, the Class 7 Milk Program will be eliminated reducing the overall protections offered to Canadian dairy farmers and Pharma benefits from the strengthening of intellectual property rights. We will need to await further review and interpretation to see if there are any surprises. The preservation however of the basic concepts behind NAFTA in terms of the movement of goods between the three countries without the payment of duties remains intact and from my perspective is the most important ”no change”. The tweaks that have been applied to the Agreement are certainly going to be significant, but not as earth shattering as the destruction of the basic concept would have been. All in all, the President can claim victory.
There are two related issues that are of significance to Canada that remain outstanding, the aluminum and steel tariffs which were not resolved in this negotiation.
The process going forward includes a 60 day period for comment and potential changes and the obvious need if one reads the document for substantial clean up in terms of inserting Canada, grammar, language, punctuation, etc. since this was done in a rush late Saturday night, the 30th of September. The Agreement at this point is a handshake, as it will not be signed for at least 60 days.
The prognosis for the Agreement being passed in the U.S. is tenuous because: it will be taken up in the new Congress in 2019 which may be more heavily populated by Democratics who lean left and further away from free trade; Republicans are drifting as they become Populist and are leaning away from free trade; and there are always surprises as any Agreement is vetted. Many commenters believe the current Congress is 80 or so votes short and the new Congress could be 110 or more votes short.
The Mexican Congress is likely going to approve it. The Canadian Parliament’s response is somewhat more difficult to gage as many Canadians that I talked to in the last few days indicated that they felt that the Trudeau government had if you will, dropped the ball and gave the farm away (literally). This is going to be further impacted by the election of a center right government in Quebec having ousted the Liberals and the Liberals have also suffered a defeat in the Province of Ontario. Will Prime Minister Trudeau have the political strength to push the Agreement through?
If we assume President Trump will stand by this Agreement, as we go forward, then what options does he have. There are two pieces of the puzzle that relate to Canada that I think are extremely important. I would hypothesize that he will not immediately eliminate the tariffs imposed on Canada’s steel and aluminum industries. He will hold those in his pocket (something straight out of the art of the deal) and wait to see the outcome in all three countries before deciding how to proceed. One might argue that as a matter of good faith, he should eliminate the tariffs on steel and aluminum as he could always reimpose them if the deal did not move forward in a manner that he feels is appropriate. The largest negotiating club that he has however is the fact that he can still, if this Agreement is not approved, reject any new proposals and tear up NAFTA. As I indicated earlier on in this piece, I believe the Agreement is reasonable and leaves in place the basic structure that we should all be concerned about and that is goods made in the U.S., Canada and Mexico will remain duty free as they pass between our Borders. Could the agreement have been better? I’m sure it could but, this is the Agreement we have and one that I think should be approved.
This is a process that I predict will go on for many months, well into 2019. We will keep you posted as this process moves along.
Mr. Owens is a former member of Congress representing the New York 21st, a partner in Stafford Owens in Plattsburgh, NY and a Senior Advisor to Dentons to Washington, DC.
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