New Nafta still to clear ratification hurdle

It took months of hard-fought negotiations for the US, Canada and Mexico to reach a deal to replace the North American Free Trade Agreement (Nafta) with the US-Mexico-Canada Agreement (USMCA) in October 2018. The administration of US president Donald Trump hopes to win Congressional approval this spring. But the fight is not over yet: interest groups in each country are battling to delay legislative ratification of the deal until their demands are met, while rival coalitions of farmers and industries are fighting to get it passed.

For US workers and their Democratic allies in the House and Senate, demands centre on major reforms to Mexican labour laws and rigorous enforcement mechanisms.

Democrats also want to remove a 10-year period of protection for advanced medication against generic competition, which they say hinders their ability to modify US domestic law, and harms patients.

Meanwhile, Canada is delaying USMCA ratification in response to Mr Trump’s decision last year to hit Mexico and Canada with steep tariffs on steel and aluminum on national security grounds. To move ahead, Canadians believe the tariffs should be scrapped, said foreign affairs minister Chrystia Freeland. This is a view shared by powerful US Senator Charles Grassley, a Republican, and a bipartisan group of colleagues.

John M. Weekes, senior business advisor at law firm Bennett Jones in Ottawa and Canada’s former chief Nafta negotiator, says it is “a foregone conclusion” that Canada will sign the agreement. But he says the country will wait until the US Congress has acted.  

Mr Weekes is especially concerned that the US unnecessarily invoked a rarely used, unreviewable ‘security exception’ under the World Trade Organization to impose the tariffs. “It sets a bad example for the US, a global leader, to use this technique,” he said. “Other countries will now start to do so.”

Mexico is also unlikely to ratify the treaty while tariffs are in place, says Antonio Ortiz-Mena, a senior vice president with business strategist Albright Stonebridge Group in Washington, DC.

Still, Mexican president Andrés Manuel López Obrador has pushed labour reforms to meet USMCA commitments. “We don’t want any motive to be given for reopening the negotiations on the treaty,” he said.

Mr Ortiz-Mena says the reforms are far-reaching and their implementation can be ensured without renegotiation through side letters, agreement on strict monitoring or other measures.

However, public policy professor José Gabriel Martinez of the Instituto Tecnológico Autónomo de México questions whether side agreements would work on labour matters because it is difficult to define what constitutes compliance in individual cases.

“Nafta has allowed a lot of specialisation which has made the region very strong,” he notes. So even if the US Congress decided not to ratify USMCA, Mr Martinez believes Mexico would be no worse off in exporting to the US than countries or regions such as Japan, Europe or Vietnam.