On November 30, after more than a year of negotiations, the leaders of Mexico, the United States and Canada signed off on the text of a new deal to replace the North American Free Trade Agreement (Nafta), to be known as the United States-Mexico-Canada Agreement (USMCA) in the United States and T-MEC in Mexico.
The signing was largely ceremonial, as the legislatures of all three countries need to ratify the deal before it can formally take effect. While the agreement looks certain to be passed in Mexico and Canada, its passage through the U.S. Congress – with Democrats now in control of the House of Representatives – could be rocky. Perhaps anticipating some obstruction by the rejuvenated Democrats, President Donald Trump has already resorted to some of his classic bully-pit rhetoric in a bid to force Congress’ hand to swiftly approve a deal that he has called “the single greatest agreement ever signed” and one that will “send cash and jobs pouring into the United States and into North America.”
Returning from the signing that took place during the G20 summit in Buenos Aires, Trump suggested that he is ready to quickly “terminate” Nafta, forcing Congress to either accept the deal in a short space of time – without major adjustments – or return the country to pre-Nafta trading conditions.
Legal experts disagree whether Trump has the constitutional power to withdraw from Nafta without the new deal having been approved by Congress. Meanwhile, Democrats appear unmoved by the president’s threats, and are taking issue with key parts of the text.
Rep. Nancy Pelosi, along with other leading Democrats, has called for a re-examination of the labor and environmental protections written into the agreement, while many analysts believe some House Democrats will try to derail the deal for no other reason than to deprive Trump of a “win.”
Despite Trump’s comments, U.S. Trade Representative Robert Lighthizer has said he will work with Democrats to make any necessary adjustments.
Another problem is that the new agreement is also garnering opposition from some Republicans. A few have questioned the clauses that mandate minimum wage rates, as well as placing quotas on imported vehicles. Many Republicans fear the agreement will diminish free trade, heralding in an era of managed trade, something that is diametrically in contrast to their principles.
Some Republicans are also upset at a section in the text that beefs up workplace protections for LGBT people. In a letter to the White House, conservative lawmakers wrote: “A trade agreement is no place for the adoption of social policy. It is especially inappropriate and insulting to our sovereignty to needlessly submit to social policies which the United States Congress has so far explicitly refused to accept.”
The language in the agreement pledges all three countries to support “policies that protect workers against employment discrimination on the basis of sex, including with regard to pregnancy, sexual harassment, sexual orientation, gender identity.” Any changes to this text are likely to be strongly opposed by Canadian Prime Minister Justin Trudeau, a fierce supporter of rights for LGBT people.
Impact of deal
Many analysts have charged that “Nafta 2.0” contains little more than cosmetic changes from the original agreement, and has simply been an exercise to coincide with Trump’s “America First” platform. (Significantly, the United States now comes first in the name of the agreement.) Nonetheless, the trade agreement is 24 years old and certainly needed updating for the digital age, especially in the area of e-commerce.
Exactly how the deal will positively impact the U.S. economy, however, is up for debate. Almost three-quarters of 57 business, financial and academic economists consulted by the Wall Street Journal said there would be no change to economic growth as a result of the new trade agreement. Nor would the trade balance be significantly affected. Most analysts agree that the requirement that 40 percent of the content of automobiles made in the three-nation region will have to be produced by workers earning more than US$16 an hour (way above the Mexican minimum wage) will make cars more expensive in the United States, while others suggest that U.S. competitiveness will be reduced as a result of the new deal. Neither do other touted gains for the United States add up to much, say some economists. For example, Canada’s agreement to give U.S. producers access to up to 3.6 percent of its dairy market translates to about US$70 million in revenue – a mere 0.00003 percent of total U.S. exports.
Despite the accusations that the changes to Nafta are only skin-deep, rebranding the trade agreement is a step in the right direction, many believe. Others are simply grateful that a deal was eventually struck.
“It is not better than the Trans-Pacific Partnership (TPP), that Trump so reviled, nor is it an overall improvement over Nafta. But it is better than blowing up trade in North America,” said Jeffrey Frankel, a professor at Harvard University’s Kennedy School of Government.