This article was originally published in Global Trade Magazine on March 29, 2019
By Candace Sider, Vice President, Government & Regulatory Affairs
The fate of free trade in North America is hanging in the balance.
That sentiment would have been true 18 months ago when negotiations of NAFTA began. It would have been true six months later when the parties failed to meet their self-imposed first deadline. It would have been true last October when it appeared the U.S. was prepared to sign a bilateral deal with Mexico and exclude Canada. And it’s still true today as the agreement gets lost in the fracas of politicking in Washington.
The impending release of the U.S. International Trade Commission (ITC) report, which provides members of Congress with in-depth analysis of the potential economic impact of the proposed United States-Canada-Mexico Agreement (USMCA), may very well have minimal impact in swaying Congressional opponents of the deal.
According to a recent report in Politico, the ITC’s analysis is likely to suggest the USMCA will have a negligible impact to U.S. GDP, which won’t serve as a bulwark against complaints by House Democrats that the agreement is short on enforcement mechanisms for its labor provisions. If that weren’t threatening enough, Ottawa has now suggested it may not ratify the USMCA unless Washington removes the Section 232 tariffs on aluminum and steel imports.
Yet, regardless of the ongoing warfare on Capitol Hill and the potentially uninspiring data in the ITC report, the reality is that at this point in time the ratification of the USMCA is the best possible option. The handful of alternatives available will only serve to further destabilize confidence in and certainty around the future of trade within North America.
Renegotiation
Democrats have been demanding stronger enforcement of the USMCA’s labor provisions. These demands are in keeping with the party’s longstanding complaint that NAFTA offered Mexico’s low-wage, low-regulation economy a leg up on attracting manufacturers. While the USMCA’s new labor provisions are intended to address this, Democrats argue the agreement lacks teeth in ensuring Mexico holds up to its end of the agreement.
However, creating an enforcement mechanism means going back to the negotiating table, something none of the parties are interested in doing, particularly since it took a great deal of intense negotiation over more than a year to come up with the agreement that’s currently on the table. It’s quite likely Canada and Mexico will demand significant concessions in exchange for a stronger enforcement mechanism, which may negate some of the agreement’s other benefits.