Mexican and Canadian officials have been dropping hints that they’re not all that enthusiastic about the United States-Mexico-Canada Agreement (USMCA) since before Enrique Peña Nieto, Donald Trump, and Justin Trudeau all sat down to sign it in 2018. But just getting to that point required months of formal negotiations that rarely looked to be all that productive.
Sadly, things don’t seem to have changed now that the USMCA is in full effect. Last week, Mexico requested a dispute settlement panel under the terms of the trade pact to help resolve disagreements about the surprisingly contentious automotive content stipulations that determine whether or not vehicles and parts will be slapped with tariffs. Under the previous North American Free Trade Agreement (NAFTA), 62.5 percent of the vehicle’s components had to be sourced from member nations to be considered tax-exempt. In an effort to spur localized production, USMCA increased that number to 75 and not everyone is thrilled with the updated content requirements with Mexico claiming it’s not even sure how to apply them. Canada now intends to formally sign onto Mexico’s complaint against the U.S. over their divergent interpretation of rules.
According to Automotive News, Mexico and Canada currently favor a “more flexible interpretation of the regulations than the U.S.” which the outlet stated, “sought an overhaul of NAFTA in order to protect U.S. manufacturing jobs.” Canadian Trade Minister Mary Ng said that her nation could be joining Mexico in its formal dispute against the United States on Thursday.
“The interpretation that the United States adopted … is inconsistent with USMCA and the understanding shared by the parties and stakeholders throughout the negotiations,” Ng said in a statement, adding that she would like to see the dispute panel produce a report on the matter by the summer of 2022.
“Happy to hear this,” Clouthier wrote on Twitter. “The regional industry that has been developed for long time has to be defended.”
No one was immediately available for comment at the office of the U.S. Trade Representative.
The election of Joe Biden as president did little to improve trade tensions with Ottawa that had simmered under Trump. A USMCA panel last week said Canada’s dairy practices violated the accord and last month Ottawa launched a challenge against U.S. duties on softwood lumber.
Washington is also unhappy about a proposed Canadian tax on digital services, and reiterated its complaints on Wednesday.
While USMCA tackles a broad range of items, many of which have been subjected to similar complaints, nothing has caused quite as much trouble as the rules pertaining to automobiles. Prior to formal negotiations, former President Donald Trump explicitly stated that the updated deal was designed to supplant NAFTA — with increased localized production and some rebalancing being the two primary goals.
Americans had been arguing the efficacy of the accord, signed during the Clinton administration, for decades. Depending on who weighed in, NAFTA was either the best way to secure trade relations with our nearest neighbors, thereby creating a powerful and cooperative trade bloc or the largest factor in encouraging the continued offshoring of American jobs since 1994.
Trump had even taken the position that NAFTA rules were making the United States uncompetitive and often favored Canada and Mexico, allegedly necessitating a revised trade agreement while the U.S.-China trade war was starting to take shape. But the problem with having a trade deal that favors your neighbors is that they’re probably going to want to keep things that way.
That’s not a slight either. Everyone wants to carve out a better trade deal for themselves and the issue helps explain why everyone is having such a hard time coming together on this. From the perspective of the United States, USMCA existed to rebalance North American trade in a way that served the homeland better. But Canada and Mexico seem to feel differently, with leadership launching assertions that some provisions failed to allot their nations the same flexibility as NAFTA had.
In truth, the newer pact offered a series of large changes providing both up and downsides. USMCA created sweeping protections for Mexican workers that didn’t exist under NAFTA. This has been seen as a victory for human rights, while companies expressed fears that being forced into offering higher pay and benefits will make them far less competitive on the global market. The same was true for provisions designed to keep more production based within the region, rather than exporting labor to Europe and/or Asia. Many saw this as a good thing, while others bemoaned the heightened content requirements for automobiles and provisions to ensure labor came from factories paying at least $16 an hour. Fewer tariffs were good because they helped lower prices for consumers. But additional assurances that factory conditions be met to qualify meant more overhead for manufacturers. Drug companies were also outraged that some of their existing protections were removed under USMCA.
There’s plenty more but you get the idea. Despite everyone going along with the updated trade deal, it wasn’t universally appreciated and the complaints manifesting admit the original negotiation period have failed to dissipate. We’ve even butted heads with lobbyists just for discussing the push to revise UCMCA after its passing. I’m expecting to see more complaints coming from member nations in the months ahead, especially if the economic situation continues to sour. Productivity is down just about everywhere and it’s encouraging finger-pointing. The real trick for regulators will be to accurately determine which complaints are valid and actually capable of being resolved fairly. It’ll be quite the achievement.
[Image: Chess Ocampo/Shutterstock]
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