USMCA sidelines China and paves the way for future American trade deals

Agreement has recently been reached between the U.S., Mexico and Canada to introduce a new United States Mexico Canada Agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA).

The USMCA will come into effect after ratification by the parties.  In the meantimem, NAFTA remains in effect.

President Trump has said that he plans to sign the agreement at the end of November, with Canadian Prime Minister Trudeau and Mexican President Pena Nieto. The agreement will then go to Congress, which is expected to vote next year.

Article 32.10 of the published USMCA text refers to ‘Non-Market Country FTA(s)’.  This requires the parties to consult with each other in the event that one of them intends to commence free trade agreement negotiations with a ‘non-market country’.  A non-market country is defined as a country which at least one of the parties has determined to be a non-market country for the purposes of its trade remedy laws.

Entry by any of the parties into an FTA with a non-market country “shall allow” the other parties to terminate USMCA with six months’ notice and replace it with a separate bilateral agreement, which could exclude some or indeed all of the USMCA provisions.

 

Bilateral agreements

The Trump administration has described the USMCA as a template for future U.S. trade agreements with other countries.

Taken together, these developments constitute a significant further ramping up of pressure on China.

Trump was criticised for withdrawing from the Trans-Pacific Partnership (TPP),  an agreement conceived by the Obama administration to serve as a bulwark of trade rules in the Asia Pacific region against China.  But Trump clearly saw this approach as too weak for his purposes.  He appears to want to replace it with a network of bilateral agreements with more explicit defences against China.

There are a number of potential implications:

  • The U.S. and Japan have recently announced talks on a potential FTA (Free Trade Agreement) in which the U.S. would presumably press for a replication of Article 10 of the USMCA.
  • Canada has flirted with the idea of an FTA with China – but this now seems a distant prospect.
  • The UK has promoted itself as open to FTAs with all comers, and China has been explicitly mentioned as a potential partner. An FTA with the U.S. would be a much higher priority for the UK, and that would probably rule out a future FTA with China.
  • Would this have any effect on the ongoing RCEP trade negotiations involving the 10 ASEAN countries plus China, India, Australia, Japan, New Zealand and South Korea?
  • Would there be any effect on any of the countries with which the US already has FTAs, such as Australia and South Korea? Would Trump seek to renegotiate these?