The Push and Pull of a New NAFTA

With most eyes focused on the Trudeau-SNC Lavalin drama, another back-and-forth is going on involving ratification of the new NAFTA, dubbed the United States-Mexico-Canada Agreement (USMCA).

Though the new agreement contains some improvements, notably the curbing of the investor-state dispute settlement mechanisms giving corporations the power to sue governments, and the end of energy proportionality requiring Canada to meet thresholds on energy exports to the U.S., it still a corporate-first deal.

In my previous blog, I wrote about how Democrats, now in a majority in the U.S. House of Representatives, are demanding changes to the deal, in particular, binding environmental and labour provisions and elimination of provisions giving pharmaceutical companies new protections that would raise our drug prices. We see other problems as well: encroachment on Canada’s supply management system in farm products, leading to imports of milk produced with bovine growth hormone, and a corporate-first regulatory system that allows business to preview and change regulations before we see them.

We have argued that given the uncertainty of U.S. Congressional ratification – it may not even get to Congress until after the 2020 election – it is better to wait for the U.S. process. As well, 25% tariffs on steel and 10% on aluminum, unilaterally imposed by the United States, remain in force. Canada and Mexico have said they will not ratify the deal until the tariffs are lifted.

Various contradictory positions have emerged from the Canadian government, which has not yet indicated its ratification timeline.

On the one hand, Canada’s Ambassador to Mexico, Pierre Alarie told a Mexican audience that Canada was ready to ratify the agreement and was just waiting for the U.S. He added that it would be better to ratify it before Canadians go to the polls later this year. And Finance Minister Bill Morneau said he was “cautiously optimistic” that a deal would be ratified “in the not so distant future.”

La Presse reporter Joël-Denis Bellavance indicated today that, “Behind the scenes, there is the talk of the possibility that the Trudeau government will not be able to ratify this new agreement, which took up most of the Canadian diplomat's time last year, before the federal election on October 21. Ratification would be the responsibility of the government elected this fall.”  

Meanwhile, the Mexican undersecretary for foreign trade, Luz María de la Mora, confidently predicted that all three countries would ratify the deal this summer.  She went as far as to say that the agreement could be in effect for 2020.

With the Canadian government desperate to divert attention from the SNC Lavalin scandal and to claim a “win” before the October federal election, we must be vigilant about ratification. We should recall that the government gave scant notice before ramming through the so-called Comprehensive and Progressive  Agreement for Trans-Pacific Partnership (CPTPP). 

That is why we ask you to sign our letter to Justin Trudeau urging him to hold off on ratifying the new NAFTA at least until progressive forces in the U.S get a better deal.

Here are some other factors that could delay or speed up the ratification processes in all three countries.

Push

U.S. President Trump

Since it was announced that special counsel Robert Mueller found no proof of election collusion with Russia, Trump has been emboldened on the trade file. He has said he wants to move fast in presenting the new NAFTA to Congress. Under the U.S. fast-track process, he can present the deal to Congress after the U.S. International Trade Commission presents its study on April 19. 

Trump can always threaten to withdraw from the agreement in order to pressure Congress, although he has been coy about it, saying “I think everybody prefers to get USMCA done so hopefully we don’t have to worry about that potential.”

U.S. and Canadian elections

With the U.S. election in 2020 and the Canadian election a year earlier, the three governments feel that sooner would be better than later.

Mexican ratification

Mexico has indicated that it plans to ratify the deal in May or June. It also plans to pass labour legislation in April. U.S. Congressional passage of the deal is conditional on Mexico ratifying its labour legislation. As Canada and Mexico are both negotiating to end steel and aluminum tariffs, they may have similar calendars in mind.

Corporate U.S. and Canada

Corporate U.S. and Canada are spending tons of money on ads and lobbying, urging swift passage of the deal.

Pull

Democrats in the House

U.S. House of Representatives Speaker Nancy Pelosi has effective control of the legislative agenda in the lower house. She must give her endorsement for the legislative process to begin.  Within the Democratic caucus are the New Democratic Coalition, which is urging her to pass the deal, and the progressive wing of the party, which is demanding changes.

The AFL-CIO says the labour chapter lacks enforceability: in the event of a dispute, an arbitration panel of the three countries I set up, but the accused country can choose to opt out. Also, it is enforceable only when labour violations affect trade and investment flows, something that has been impossible to prove in previous trade agreements.

Mexican labour provisions

Conditional upon the U.S. acceptance of the deal is that Mexico reinforce collective bargaining and improve labour standards. Mexico’s ruling party is facing a backlash against its labour legislation in the legislature and from the business community. Also, some American unions and Democrats view Mexico’s legislation as inadequate.

Steel and aluminum tariffs

Canada and Mexico say this is an irritant for them, as it is for many members of the U.S. Congress.  However, neither Canada nor Mexico has indicated that this is a deal breaker. Politico mentioned today that Mexico could accept a U.S.-imposed steel quota in exchange for being exempted from steel tariffs.

In Canada, senior government officials told the CBC they would ramp up retaliation against the U.S. if the tariffs remain.