TWN Info Service on WTO and Trade Issues (Oct18/08)
10 October 2018
Third World Network

US-Canada revised NAFTA deal could pose systemic threat to South
Published in SUNS #8764 dated 2 October 2018

Geneva, 1 Oct (D. Ravi Kanth) -- The United States and Canada reached an agreement on late Sunday night (30 September) for replacing the existing North American Free Trade Agreement (NAFTA), a deal that seeks to strengthen the rules of origin, labour and environmental rights, which pose a systemic threat for developing countries.

The US-Canada agreement signed alongside Mexico includes 34 chapters which lay out the new conditions in rules of origin, intellectual property provisions, enforcement mechanisms, trade and labour and trade and environment provisions, as well as market-opening conditions for satisfying Washington's demands.

It also includes several side letters on ticklish issues between the three countries, especially on the US Section 232 tariffs imposed on steel and aluminium, and likely to be imposed on cars and automotive parts.

The new agreement, called USMCA (US-Mexico-Canada Agreement) instead of NAFTA, will serve "as a template for all future trade agreements .... That template has three main foci - "rebalancing" US trade relationships, "ambitious" provisions dealing with 21st century issues like digital trade, and combating unfair trade practices," according to a report in the Washington Trade Daily (WTD) on 1 October.

Although the USMCA includes a chapter on continuing with the dispute resolution mechanism as set out in Chapter 19 of the NAFTA, it has brought quotas as well as several other provisions, including stringent patent protection rules for pharmaceutical products that would include new drugs called biologics (US-Mexico side letter).

The US has stated that the USMCA will go far beyond the Trans-Pacific Partnership (TPP) negotiated by the Obama administration with eleven countries.

From the details announced on late Sunday night, Canada has agreed to offer significant market access for American dairy products by agreeing to eliminate its Class 7 pricing program for ultra-filtered milk and the new regime would prevent the supply management system from being externalized, according to the WTD.

Under the current Canada dairy management system, Ottawa imposes tariffs on dairy imports - which run as high as 300 per cent - that exceeds the established quota.

The US President Donald Trump has repeatedly denounced the Canadian dairy tariffs as having undermined the American dairy exporters.

The terms agreed in the dairy sector could be politically challenging for the Trudeau government, especially in the Quebec region where dairy farmers hold electoral influence.

"We have achieved levels of market access, from the perspective of the US, that are a better deal than what the previous [Obama] administration negotiated in TPP," a US official said, according to news reports.

After 14 months of intense and often fractious negotiations between the US and Canada, the USMCA has succeeded in enabling the Trump administration to realize its market access demands through aggressive blackmailing, said a trade envoy who asked not to be quoted.

Canada has claimed success on grounds that it ensured the continuation of Chapter 19 on the dispute settlement mechanism in the USMCA.

The US Trade Representative Ambassador Robert Lighthizer opposed the dispute settlement mechanism on grounds that it would amount to a violation of US sovereignty to have a multi-national panel of arbiters decide on the acceptability of US tariffs.

But the US maintained that from its perspective there are "really, really great things in USMCA [and] we are excited about those parts of it," according a news report from Canada.

Apparently, Canada and the US agreed to phase out the investor-state dispute settlement provisions in Chapter 11 of the NAFTA which Mexico had agreed to continue in its bilateral agreement with the US.

As regards the US Section 232 tariffs on steel and aluminium, which were challenged by both Canada and Mexico, it is not clear yet whether Canada has been able to secure an exclusion from the tariffs.

Canada has also not been able to secure a guarantee that the US will not impose the Section 232 tariffs on autos.

The discussions on Section 232 tariffs on steel and aluminum are continuing, according to WTD.

Further, on the issue of Section 232 auto tariffs, Canada agreed to a side letter accepting quotas on its auto exports to the US in the event that Washington does go ahead with Section 232 tariffs.

"Only autos that do not meet the agreement's new rules of origin for autos would potentially be subject to the tariffs," according to the WTD.

The biggest impact, according to US trade officials, is going to be in the auto sector that stipulates conditions such as manufacturing of a greater portion of vehicles in the three countries and with high-wage labour in the US and Canada.

Also, the inclusion of tough labour and environmental conditions are bound to have an adverse effect on Mexico more than Canada.

The agreement is also a boon to the US financial services industry as USMCA will prey upon the restricted Canadian market for American banks.

The USMCA also includes new rules for digital businesses, a victory for Amazon, Microsoft, and Google among others.

The USMCA, which makes "significant" changes to the NAFTA rulebook of 1994, needs to be ratified by the three legislatures by early next year.

The Chapter 23 on "Labor" in the USMCA includes the ILO's core labour standards such as labour rights as stipulated in the ILO declaration on rights at work, "non-derogation" that would allow trade and investment by weakening the labour protection, and enforcement of laws among others.

The US President Donald Trump has repeatedly been explicit about the leverage he has felt that threat has given him in trade talks, according to news reports.

"Canada will come along," he told a press conference last week. "Now, if Canada doesn't make a deal with us, we're going to make a much better deal. We're going to tax the cars that come in. We will put billions and billions of dollars into our Treasury."

It remains to be seen what the EU, which is a counterweight to the US, will do when Trump continues with his incessant threats.

Indications are that Germany and France will resist Trump's demands but given the fractured and weakened EU in the wake of the Brexit, it is highly likely that Brussels will bend backwards to satisfy the Trump administration.

Japan also has to face the Trump onslaught following the bilateral agreement signed last week to launch negotiations for market access in goods and investment.

Clearly, it is only one country, i.e. China, that is holding steady and showing courage to stand against the Trumpian threats.

Unfortunately, with the global trade regime being divisive and based on a truly mercantilist framework of dollar-and-cent tradeoffs, it remains to be seen how the Trump administration will change the multilateral architecture at the WTO with its aggressive demands.

[The full text of the US-Canada deal can be found at:

[Unlike in 1994 (Marrakesh WTO accord juncture), it is the South that has the markets (goods and services including financial) that the US and other Industrialised Countries want. They also want for free the raw materials, including the latest data, from the South. Hence, the South, if it combines and stands united, can meet these systemic concerns. It also means China must abandon its Middle Kingdom syndrome - abandon its current "run with the hares and hunt with the hounds" approach at the WTO, and stand united with other developing countries. - SUNS] +