Back

October 8, 2018

U.S., Canada, Mexico Trade Pact Will Have To Wait Until Next Congress

As noted in last week’s Connecting the Dots, the United States, Canada, and Mexico have reached an agreement to replace the North American Free Trade Agreement (NAFTA). Lawmakers in the U.S. Congress have acknowledged the deal, called the United States, Mexico, Canada Agreement, or USMCA, will not be considered by lawmakers before this current congress adjourns in December. The agreement will not formally be signed by President Donald Trump until the end of November and, under current law, the U.S. International Trade Commission (ITC) must complete a detailed economic analysis of the new pact before Congress can consider it. The ITC may take up to 105 days to complete that study.

One part of the agreement we’ve learned more about in the past week: the USMCA included a provision that prohibits Canada and Mexico from entering into bilateral free trade agreements with non-market economies like China. U.S. Commerce Secretary Wilbur Ross has discussed this provision and said it’s likely the Trump administration will add provisions like this one to future trade agreements. The USMCA does stipulate that if one country enters into a deal with a non-market economy, that country can give six months’ notice to the other two countries so they can terminate the USMCA and replace it with a bilateral agreement.

Another significant change in the agreement has to do with the investment dispute settlement mechanism, which narrowed the scope of the remedies available to participating nations. As the law firm Winston & Strawn explains, the USMCA:

  • Excludes Canada from investment arbitration;
  • Reduces Mexico-related investment arbitration causes of action; and
  • Closes the window to utilize NAFTA mechanisms.

As readers are aware, the USMCA did not address the United States’ Section 232 steel and aluminum tariffs, or the retaliatory tariffs put into place by Canada.Canadian Prime Minister Justin Trudeau said he will continue to work to lift the tariffs, and U.S. Trade Representative Robert Lighthizer said discussions are underway to do so. U.S. Agriculture Secretary Sonny Perdue is one of the voices in the Trump administration calling for an end to the steel and aluminum tariffs. According to Politico, last Thursday Secretary Perdue said he has advocated that the penalties for Canada and Mexico be “relaxed.”

The Metals Service Center Institute has argued since the beginning of the Section 232 investigations that North American trading partners should be exempt from the penalties.