NAFTA is dead; long live NAFTA
Source: The Winnipeg Free Press
MARIETTE MULAIRE, president and CEO of the World Trade Centre Winnipeg.
Following months of arduous negotiations, the new deal is now a fait accompli. While the exact details will be made public over the coming days and weeks, all three national governments involved can present positive news to their constituents. Chief among them is the elimination (rebranding) of the North American Free Trade Agreement a few weeks before the U.S. midterm elections. The deal will now be known as the United States-Mexico-Canada Agreement.
U.S. President Donald Trump had sunk considerable political capital into reforming “the worst deal in history” for the benefit of his electoral base, especially in the Rust Belt. He can now proudly boast that NAFTA is no more. For Canada and Mexico, the price paid for the incremental update could have been much higher, given the circumstances. Time will tell if NAFTA 2.0 benefits all parties involved.
Yet mostly lost in the early public reaction to the USMCA are two important clauses that offer insight into the region’s vision of globalization in the 21st century.
The first is an exchange-rate provision that further limits the capacity for a signatory to devalue its currency to benefit its exporters. Seeing that both Canada and Mexico have free-floating currencies, one can surmise that the provision was meant to be used as a strategic piece on another chessboard.
The second clause allows a signatory to annul the USMCA if another member signs a free trade agreement with a “non-market economy,” thereby guaranteeing that the rules of economic liberalism will underpin the North American economy for another generation.
Taken together, it demonstrates that the American-led region is preparing itself for the new era of global competition in which its privately owned companies compete directly against state-owned enterprises from authoritarian countries that have no qualms about manipulating markets for their benefit. Russia and China are widely viewed as the modern flag-bearers of this model.
The new clauses are based on the premise that state capitalism is anti-competitive and a serious challenge to the long-standing consensus of liberalized free trade. As these state-led economies grow and gain influence, the pressure on other countries to adopt certain of their economic policies will become inescapable.
Seen through this lens, the USMCA is a message to the world that North America will not accept being undercut with less stringent labour, environmental or intellectual property practices, and it will act as a trusted partner to countries who would wish to avoid being compromised by the machinations of opaque state-owned economies.
The Trans Pacific Partnership had much the same intent when first supported by the United States in early 2008. That agreement was partly meant to ensure that the dominant economic model in Asia was based on liberal principles. In effect, if everyone else agreed on a set of rules by which to abide, the Chinese and Russian outliers would be left with very few options.
While it might seem like the long game is being played in these agreements, the reality is that it can have immediate effects on national economic policies. It was likely not an accident that the U.S. has been pushing Canada to open its dairy and softwood lumber industries. Both sectors are regulated by the federal government, much to the chagrin of American competitors.
If the future of regional trade is increasingly liberalized, expect that the pressure will only increase on the Canadian government to eliminate supply management entirely, as well as change the way Crown land is granted to loggers.
But those tense negotiations are for another day. For at least the next decade or so, Canadian businesses can rest assured that the rules have been set and that they now fully encompass the world’s leading economies.
Photo: Pete Marovich / Abaca Press