Reflecting on the USMCA Regional Free Trade Agreement’s Deadlock (I)

by Laura Lai/Comment

The process of developing regionalized based institutional cooperation dates back to the 1920s (the trade agreement between Australia and New Zealand), got differently shaped in the late 1950s and during the 1960s (the European Economic Communities in Europe, the Latin American Free Trade Association in South America, the Association of Southeast Asian Nations in Asia (ASEAN), etc.) and got a boost in the 1990s: the North American Free Trade Association (NAFTA) in North America, the South American Common Market (MERCOSUR). They all have in common the regional economic integration, but they all differ in comparison to the European Union (EU) in some regards: the degree of institutionalization (the EU developed supra-national institutions, a permanent supra-national court, etc.), the degree of sovereignty (the loss of national sovereignty is evident in the case of EU). I will focus on the NAFTA’s most recent reform developments, on the reasons of the American delay in ratifying the new trade deal, and on any possible way to have avoided the ratification deadlock.

NAFTA is a regional agreement that came into effect in January 1994 and it gradually eliminated most commercial tariffs and barriers between the three countries of the North American continent: Canada, Mexico and the United States of America. It actually relies on a previous bi-lateral trade agreement from 1988 between Canada and the United States, which got extended, in order to include Mexico, too.

            From an institutional point of view, NAFTA is run at the level of national ministries and through three relatively small secretariats in each of the three countries’ capital cities. The eventual economic and commercial disputes are settled through arbitration panels rather than by a permanent court of justice, as in the case of the EU – but that’s because all continental regional agreements remained at the level of free trade cooperation, the EU being the only one having passed to political integration and basically developing towards a supra-national genuine new state.

But NAFTA is outdated. Its shortcomings were evident. And the need of a new free trade agreement to address the current issues of economic development dynamics was imperative. In November 2018, the U.S. President Donald Trump joined the Canadian Prime Minister and the Mexican President, in signing a new trade deal: the USMCA Agreement. Mexico was the first country to have overwhelmingly ratified it in June 2019, followed by the Canadians that are about to ratify it. Despite the Canadian Prime Minister’s visit to the US, in order to urge the Congress to ratify this mutually beneficial trade deal, the United States still did not ratify it.

            The USMCA is considered mutually beneficial for agriculture and industry, farmers and workers, for businesses; it protects intellectual property, addresses the bio-technology issue, which was not the case when NAFTA was signed and ratified. In the car industry, for example, the new deal eliminates the possibility to buy auto parts from somewhere else (ex. China, EU, etc.), assemble it in Mexico and sell the car duty free in the US. With the USMCA there are precise requirements that at least 75 percent of a car to be built with auto parts made in North America and at least 40 percent of it to be made by workers earning at least $16 per hour. (to be continued)