WASHINGTON/MEXICO CITY/OTTAWA (US/MEXICO/CANADA) – The trade pact between the United States, Canada and Mexico got a revamp, taking effect on Wednesday. Though intended to create a protective shield for North America to boost the region’s competitiveness, loopholes have started reflecting in the foundation.
With the deal setting in, the Trump administration is posing a threat to Canada with newly introduced aluminum tariffs, and a prominent Mexican labour activist has been jailed, emphasising concerns about crucial labour reforms after changing e 26-year-old North American Free Trade Agreement. The risk of disagreements among the three trading partners is growing, analysts say.
The US-Mexico-Canada Agreement encapsulates tighter North American content rules for autos, refined protections for intellectual property, prohibitions against currency manipulation and new rules on digital commerce which were not prevalent when NAFTA was launched in 1994. The agreement, however, was criticised by the US President Donald Trump saying it was the “worst trade deal ever made.”
The coronavirus has all three countries entangled in a deep recession, reducing their April goods trade flows – normally about $1.2 trillion annually – to the lowest monthly level in a decade.
“The champagne isn’t quite as fizzy as we might have expected – even under the best of circumstances – and there’s trouble coming from all sides,” said Mary Lovely, a Syracuse University economics professor and senior fellow at the Peterson Institute for International Economics in Washington. “This could be a trade agreement that quickly ends up in dispute and higher trade barriers.”
Issues dogging USMCA include hundreds of legal challenges to Mexico’s new labour law spearheaded by President Andres Manuel Lopez Obrador to make sure that workers can freely organise and unions are given full collective bargaining rights.
A ruling against it would harm Mexico’s ability to deliver on provisions aimed at ending labour contracts agreed without worker consent that are piled in favour of companies and has kept wages chronically low in Mexico.Democrats in the US Congress had insisted on the stronger labour provisions last year before granting approval. This had prompted a substantial renegotiation of terms first agreed in October 2018. The arrest of Mexican labour lawyer Susana Prieto in early June has fueled US unions arguments that Mexican workers’ rights are not being sufficiently protected.
“I remain very concerned that Mexico is falling short of its commitments to implement the legislative reforms that are the foundation in Mexico for effectively protecting labor rights,” U.S. Representative Richard Neal, chairman of the House Ways and Means Committee, said on Tuesday, adding that USMCA’s success “truly hinges” on its new labor enforcement mechanism.
U.S. Trade Representative Robert Lighthizer has said he will file dispute cases “early and often” to enforce USMCA provisions, citing Mexico’s failure to approve U.S. biotech products..
That could lead to increased tariffs on offending goods, such as products from individual factories where labour violations are found.
Carlos Vejar, a former Mexican trade negotiator, said it was in the country’s interest to uphold pledges made to boost unions and put an end to child labour.
“If Mexico isn’t mindful of this, there will be cases against Mexico, and Mexico will lose them,” Vejar said.
ALUMINUM TARIFFS REDUX, AUTOMOTIVE BURDENS
The US national security tariffs on imported steel and aluminum – including from Canada and Mexico – were a major stumbling block during USMCA negotiations until a deal for exemptions was agreed on last year. However, now, domestic producers’ request to bring back the 10% duty on Canadian aluminum to counter a “surge” of imports across the northern border is taken into consideration by the USTR.
Canadian Prime Minister Justin Trudeau on Monday told reporters that these would hurt both countries and result in a rise in materials’ costs for US manufacturers.
Another source of disputes could be the energy sector, where the main U.S. oil and gas lobby has already complained that recent actions by Mexico favoring state oil company Pemex violate protections for private investors carried over from NAFTA.
Canada has also voiced concerns about the new Mexican rules formally threatening investment in renewable energy.
USMCA will impose new compliance burdens on the region’s automotive manufacturers as the coronavirus will drastically affect consumer spending and auto production. Vehicles’ minimum North American content rises to 75% from 62.5% within three to five years. Automakers must also bring about 40% of their vehicles’ content in “high wage” areas – effectively the United States and Canada.
A study conducted by US International Trade Commission study found this would attract more auto parts production to the United States, but may bring restraints on US vehicle assembly and increase prices, thereby limiting the choice in cars for consumers. The same panel found that post 15 years, the deal would add $68.5 billion annually to the US economic output, thereby creating 176,000 jobs compared with a NAFTA baseline.
(Photos syndicated via Reuters)
This story has been edited by BH staff and is published from a syndicated field.