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Current Event for the Week of 10-12-2018: Signing of NAFTA 2.0, the USMCA

Article by Talha A. Mirza, JD 2021


Picture via: Sangudo / flickr

Background


Earlier this month, the United States (US) signed into effect the new USMCA (United States—Mexico—Canada Agreement) free trade agreement. The USMCA, also known as “NAFTA (North American Free Trade Agreement) 2.0,” forges a new path in International Trade. The agreement allows the US greater access to Canada’s nineteen billion-dollar dairy market and promotes greater automotive production in the US domestic market. Nonetheless, the USMCA fails to address the tensions around American tariffs on Canadian steel and aluminum exports, an issue that has been hotly contested between President Trump and Prime Minister Trudeau.


Don’t Milk It!: Summary of Changes and Impact on Specific North-American Trade Markets


While the USMCA breaks new ground in several areas of North-American trade policy, it does not help Canada’s domestic dairy market, and increases costs in the automotive industry through wage alterations. First, the USMCA grants the United States access to three-and-a-half percent of Canada’s dairy market, a move that faces strong opposition from Canadian farmers who produce dairy and manage the international supply chain to the United States. In response, Canada has offered compensation to its farmers, but this has not remedied the dilution of Canada’s domestic dairy market. Now that the US can increase dairy exports to Canada, in addition to gaining more control over the international dairy supply chain, there will be a significant economic loss for domestic players in Canada’s dairy market. Secondly, the agreement’s provisions require higher proportions of car parts to be manufactured in Canada and America. In addition, the agreement established a wage floor of sixteen dollars per hour. Together, these provisions outsourced significant automotive production from Mexico to the United States and Canada.


Ramifications on International Trade Arbitration


While the USMCA brings about new policy, it will carry over one of the most hotly contested NAFTA provisions. NAFTA’s Chapter 19 dispute resolution mechanism, a significant point of contention during previous NAFTA negotiations, grants all agreement signees the right to challenge other nations’ anti-dumping and countervailing duty decisions in front of an objective, multilateral, expert panel.


Canada has used the Chapter 19 dispute resolution mechanism against the US, primarily in anti-dumping cases that pertain to imported Canadian softwood lumber. There exists a strained back-and-forth between trade representatives from the United States and Canada, as both countries attempt to avoid arbitration in the Chapter 19 forums.


However, the WTO (World Trade Organization) provides a potential solution. The WTO’s 164 members are granted the right to challenge one another over “unwarranted trade restrictions, illegal subsidies, and other unfair practices.” Nevertheless, the WTO may pose even more problems, as it does not have the jurisprudential effect of a domestic court, which the NAFTA-borne Chapter 19 judicial forums possesses. The consequences of potentially moving the anti-dumping and import dispute cases under the purview of the WTO could yield unenforced judicial decisions.

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