From NAFTA To USMCA: The New Deal and What’s Missing

by Rebeca Camacho
Staff Writer

On November 19, 2018, UC San Diego’s School of Global Policy and Strategy (GPS) hosted the one-day conference titled From NAFTA to USMCA: The New Deal and What’s Missing on the newest iteration of the long-controversial trade deal between Mexico, Canada and the United States. The conference was one of the last events in a series celebrating the thirty-year anniversary of GPS during the Fall 2018 quarter. From October 2018 through August 2019, there will be events in honor of the accomplishments of GPS, orchestrated to incite educational debates over multifaceted issues present in the international arena. A critical theme of the series is the future direction of United States foreign policy and the nature of international trade agreements in the 21st century, which was explored extensively at the “New Deal” event.

The event included several talks centered around the divergent interests of state and non-state actors affected by the new United States–Mexico–Canada Agreement (USMCA) deal, with the keynote address given by Jesús Seade—Mexican President López Obrador’s chief trade negotiator.

While the USMCA will account for more than $1.2 trillion in trade, the most important elements of the new deal can be summarized in five main points: country of origin rules and labor rule provisions in the automotive sector, regulatory changes in the Canadian dairy industry, intellectual property pertaining to digital trade, uplifting of section 232 “national security” tariff protections, and the establishment of a sunset clause. All three national leaders have signed the agreement, leaving only subsequent ratification by each nation’s respective legislature obstructing the passage of the first multilateral agreement since Trump and Obrador came into office.   

The most negotiated clauses in the deal were those pertaining to the country of origin rules, and the effect that such rules pose on the automobile industry.  The primary component of the rules of origin is that at least seventy-five percent of an automobile’s components (up from sixty-two percent under NAFTA) must be manufactured in Mexico, the United States, or Canada if they are to qualify for a zero tariff designation. In addition to this, forty-five percent of all production must be conducted at a minimum hourly wage of $16 by 2023.

Representing the Mexican perspective on the agreement, Beatrice Leycegui Cardoqui— former Undersecretary of Foreign Trade for Mexico’s Ministry of Economy who now works for the International Consulting firm SAI Derecho & Economía in Mexico City—called attention to the deal’s “poison pills.” Though the agreement may be “far from ideal,” she pushed Mexico to be pragmatic in accepting the new deal. She explained how with eighty percent of Mexico’s exports in the auto sector going to the United States and about ninety percent of U.S. imports in the industry coming from just south of the border, Mexico was left with little leverage to negotiate any modification of the rules of origin.

The overwhelming concern shared by Cardoqui and Seade revolved around how the new requirements will influence the reallocation of certain stages of production in car manufacturing, the distribution of labor income between borders and the eventual higher prices to compensate for increased production costs.

Through the question and answer portion of the first panel of speakers: remarks divided between Beatriz Cardoqui, Paola Avila (official representative of the San Diego Regional Chamber of Commerce) and Dr. Michael Hawes (political science professor and Executive Director of Fulbright Canada), the three representatives emphasized how the nature of White House negotiations is now more heavily shifting towards favoritism of bilateral accords.

With the primary trade negotiation meetings between the United States and its fellow deal members occurring separately, Avila warned that the “divide and conquer” approach taken by the United States is one the government may begin to employ more frequently and potentially as their primary negotiation model within the new paradigm of American foreign policy.

While President Trump has strongly advocated in favor of the USMCA, it remains to be seen whether or not the new deal will pass through the Democrat-controlled House of Representatives. With the Democrats objecting to parts of the deal— which must be passed in its entirety— the Trump administration is at risk of facing a taste of their own medicine and much of the same lack of compromise from Congress that they themselves previously exerted upon their North American trading partners.

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UCSD School of Global Policy and Strategy

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