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After Signing New USMCA, Trump Threatens to Cancel Existing NAFTA

Posted December 03, 2018

Canada, the United States, and Mexico took a significant step last week towards advancing the revamped North American Free Trade Agreement and easing commercial tensions in the region, as leaders of the three countries signed a successor trade pact that was hammered out over more than a year of sometimes fractious negotiations that President Donald Trump described as having been a “battle” (albeit one that he said had made “great friendships” and so was “really terrific”).

Even the formal conclusion of the talks was not absent last-minute wrangling, with concerns that either Mexico or Canada might refuse to sign the new deal to gain leverage in pushing for removal of Washington’s contentious steel and aluminum tariffs. Ultimately though, both Prime Minister Justin Trudeau and outgoing Mexican President Enrique Peña Nieto determined that it was too important for their economies not to participate in the ceremonial event, which took place at a packed hotel ballroom in Buenos Aires on the sidelines of a G-20 meeting.

“The new North American free trade agreement maintains stability for Canada’s entire economy, stability that’s essential for the millions of jobs and middle class families across the country,” Trudeau said. “That’s why I’m here today.” Even so, the prime minister drew attention to still unresolved problems with the deal in his remarks, saying “there’s much more work to do in lowering trade barriers and in fostering growth that benefits everyone.” Citing the recently announced GM plant closures, Trudeau said they were “all the more reason why we need to keep working to remove the tariffs on steel and aluminum between our countries.”

Final Text Published

The legal text of the agreement – 32 chapters, 11 annexes and 12 side letters – can be viewed on the Canadian government’s website here. Regarding the official U.S. version of the deal, the link being circulated which points to the U.S. Trade Representative’s website was not functional at the time of writing, perhaps owing to the fact that the text reportedly still has some deficiencies, including missing references to “Canada,” in multiple areas.

Update: The legal text of the USMCA posted on the USTR’s site can now be found here.

What’s in a Name?

Seeking to avoid what he called “bad connotations” associated with NAFTA, a trade deal that he has routinely denounced on the campaign trail as being “the worst in history” and an economic travesty that “should never have been signed,” Trump re-branded it USMCA; purposely echoing the acronym for the United States Marine Corps, “which I love,” he told reporters in September. Unsurprisingly, the US-first moniker wasn’t exactly a hit with the other two NAFTA partners, who instead reverted to tradition by adopting acronyms that put their own nations in the lead spot.

As a result, in Canada, the new deal will officially be called the CUSMA in English, for the Canada-US-Mexico Agreement and the ACEUM, for Accord Canada-États-Unis-Mexique, in French. Although at the signing ceremony, Trudeau simply referred to it as the “new NAFTA.” In Mexico the deal will be called T-MEC, for Tratado entre México, Estados Unidos y Canadá, after incoming president Andrés Manuel López Obrador put the matter to a Twitter poll.

Towards Ratification

With the deal now signed, the ratification process can get underway in accordance with the respective legislative procedures of the three countries, as was recently outlined in another post.

The pact is expected to pass with relative ease in both Canada and Mexico, but faces a far more difficult path getting through the U.S. Congress. Lawmakers on both sides of the aisle have already raised concerns about certain provisions in the deal: Democrats over inadequate labour standards and enforceability aimed at Mexico, and Republicans over “insulting” language committing the three countries to supporting and protecting sexual orientation and gender identity rights.

The Trump administration has indicated that it wants to secure passage by the middle of next year, before the partisan politics of the 2020 presidential election start complicating the equation. USTR Robert Lighthizer said he was confident of obtaining the support needed and promised to work with lawmakers to make any necessary adjustments in the USMCA’s implementing legislation. For his part, Trump dismissed concerns about possible congressional resistance to the deal, saying “It’s been so well reviewed I don’t expect to have very much of a problem.”

Another Game of Chicken

Those hoping that signing of the reworked trade pact would help to alleviate uncertainty over the issue that has weighed on Canada’s economy for more than a year, were rapidly disabused of the notion when the U.S. president, less than 48 hours after touting what he claimed was a “truly groundbreaking achievement,” once again threatened to blow up NAFTA and thereby run the risk of soon possibly leaving the three countries without any deal at all.

“I will be formally terminating NAFTA shortly,” Trump told reporters while flying back from the G-20 summit in Argentina, “and so Congress will have a choice of the USMCA or pre-NAFTA, which worked very well.”

“We get rid of NAFTA. It’s been a disaster for the United States. It’s caused us tremendous amounts of unemployment and loss and company loss and everything else,” he added, repeating demonstrably false claims that have been exhaustively debunked.

Termination would set the clock ticking on a six-month withdrawal period from the nearly 25-year-old NAFTA governing roughly $1 trillion in commerce with two of America’s largest trading partners and give lawmakers a deadline to choose between the new deal or nothing.

Whether President Trump actually has the authority to pull out of the trade pact by triggering NAFTA’s Article 2205 without congressional approval is unclear. Although most legal experts think that he could theoretically abrogate the deal itself, Congress would probably be needed to repeal the implementing legislation in order for the withdrawal to take full effect.

Despite Trump’s sanguine remarks about not anticipating problems getting the new deal approved by lawmakers, the surprise bombshell dropped from Air Force One could be seen as a tacit acknowledgement of a growing chorus of opposition to the USMCA, which he may fear wouldn’t be approved on its own merits.

As Democratic Oregon Senator Ron Wyden, ranking member of the Senate Finance Committee, asked: “If Trump’s new NAFTA is so great, why does he need to resort to brinkmanship to ram it through Congress?”