December 2019 | Carlo Dade

A version of this commentary was published in the Latin America Advisor

Trade & Investment Centre Director Carlo Dade was invited to respond to the following question:

The United States, Mexico and Canada on Dec. 10 signed amendments to the trilateral deal reached last year to replace the North American Free Trade Agreement. The U.S.-Mexico-Canada, or USMCA, pact now includes mechanisms to settle labor and environmental disputes and ensure compliance with labor standards, issues over which U.S. Democratic lawmakers had concerns. The latest changes also shorten intellectual property protections for biologic drugs, but legal protections for technology companies, which Democrats had tried to remove, remain in the deal. What are the most important amendments made to the USMCA? How will the changes affect the three North American countries, and which sectors are set to gain or lose the most from them? Is ratification in the U.S. Congress now guaranteed, and how soon can the USMCA’s approval be expected?

Ratification of the new North American trade agreement (referred to as such or “the new NAFTA” in Canada) will not be an issue north of the border, even with a minority government. In Canada, trade agreements are approved not by Parliament, but by an Order in Council of the Governor in Council, which translated into American English means by a vote of Cabinet. While the agreement is submitted to Parliament and must sit there for 21 days, Parliament is not required to vote on the treaty and any vote it may take is advisory, non-binding, and cannot be considered a confidence motion that would cause a government to fall. After 21 days, the Governor in Council (Cabinet), is free to issue the order to have the treaty come into force. If the agreement requires changes to domestic law, that is a separate matter.

With the US AFL-CIO backing the agreement and agricultural interests other than the protected dairy lobby on side, it is hard to find opposition in Canada except for perfunctory opposition from the dairy and supply managed sectors and academic critics of some of the intellectual property measures. Canada largely won in this agreement by not losing. Parts of the cattle industry, which is as cross-border as the auto sector, faced a potential 10 per cent U.S. tariff if NAFTA tariff cuts were eliminated. The auto sector gained protections from US section 232 national security tariffs on autos and even the dairy and other supply managed sectors gained by giving access to only a measly 3.5 per cent of their protected market, or about twice Prince Edward Island’s share of the national dairy market. (PEI is about the size of two good-sized counties in Wisconsin). One big loser though were firms that depend on movement of people to support trade in services. The new agreement failed to update the over 20 year-old provisions in NAFTA leaving North America and especially U.S.-based companies less competitive than those with access to new trade blocs like Canada-EU and Canada/Mexico-CPTPP. But the biggest loss was in Canada and Mexico failing to gain greater protection from idiosyncratic unilateral tariff threats from the U.S. president beyond a 60-day grace period. Without that protection, the agreement only offers certainty until the president’s next tweet. Issues over labor enforcement are seen as U.S.-Mexico issues, and Canadians largely just want this whole episode/nightmare to end.

Carlo Dade is Director of the Trade & Investment Centre at the Canada West Foundation