USMCA Update – Just when we thought we had a deal…

Many are wondering whether the updated NAFTA is going to make it. By make it, of course, we mean ratification of the agreement so that it may replace NAFTA. More and more, it seems that the “United States-Mexico-Canada Agreement” is a misnomer because the only agreement we are seeing is that there are still kinks to work out. This is especially the case with the most recent announcement via President Trump regarding the 5 percent tariffs on all Mexican imports until the border issue is resolved. Who knows where this will end up, much less, how much of the current negotiations will remain intact.

August 30, 2018 – Congress received the notification of U.S. intent to enter into a bilateral trade deal with Mexico.

September 30, 2018 – Canada joined the agreement with the U.S. and Mexico after long negotiations.

November 30, 2018 – The U.S., Canada, and Mexico signed the trilateral agreement.

May 17, 2019 – President Trump lifts Section 232 Aluminum and Steel tariffs on Canada and Mexico

May 30, 2019 – President Trump announces 5% tariffs on all Mexican imports, with a planned gradual increase to 25%

Present – The proposed USMCA is awaiting Congressional ratification but has not been introduced for a vote.

A key roadblock to ratification is the lack of an enforcement provision. The Speaker of the House, Nancy Pelosi, has been quoted saying that the agreement, as it now stands, does not offer enforcement accountability for some of the measures outlined, e.g. labour and environment provisions.

Another sticking point for Canada and Mexico was Section 232 Steel and Aluminum tariffs. Although that hurdle has been jumped with the lifting of these tariffs on Canada and Mexico, a new hurdle has popped up to take its place, naturally. President Trump announced a blanket 5 percent tariff on ALL Mexican imported products under the International Emergency Economic Powers Act (IEEPA). The U.S. President also announced that not only will this tariff gradually increase monthly, but that it will remain in effect until “the influx of illegal aliens” stops. See the Statement from the President here.  

In addition to the newest hurdle, the Congressional Research Service has also identified the following roadblocks to ratification:

• The timetable for consideration
• Whether the USMCA meets the Trade Promotion Authority’s negotiating objectives or requirements and modernizes NAFTA
• Whether the USMCA achieves the President’s stated goal of increasing domestic manufacturing, and whether its more restrictive Rules of Origin are beneficial to the vehicle sector
• Whether the USMCA represents a template for future Free Trade Agreements, given its reduced commitments on issues such as Investor-State Dispute Settlement, Government Procurement, a sunset clause, and de minimis levels

According to some officials, the text of the USMCA is not open to renegotiation, meaning that these kinks would have to be worked out as add-ons. The trade policy climate isn’t exactly poised to accept a deal that doesn’t give everyone what they want. Mexico’s current administration can be considered not as trade gung-ho as the recently exited administration, and the U.S. administration is about to switch gears to focus on another election. 

The USMCA passage play not only implicates the North American steel and aluminium industry. In fact, it may be affecting the tomato industry. The recent withdrawal from the 2013 Suspension Agreement on the ITC’s investigation into tomatoes from Mexico may have been the Trump Administration’s way of winning USMCA support from the pro-domestic tomato-leaning officials in Congress. Should the bill be introduced any time soon, Trump will likely need all the support he can get, so this might not be the last product-specific trade development we see.