The New NAFTA Has an Interesting Rule In It

By Matthew McMullan
Oct 02 2018 |
President Trump announces the completion of the United States-Mexico-Canada Agreement in the White House Rose Garden this week. | The White House

For its members: No new trade agreements with “non-market country.” Wonder who that could be about?

A NAFTA renegotiation has been completed. Go put your transition shades on and head out to the Rose Garden to join President Trump for a victory lap!

It’s not a done deal, of course. Legislatures in all three countries will need to approve the United States-Mexico-Canada Agreement (USMCA), and, given the complicated politics of trade in this country, that is no sure thing.

But, as we said on Monday, there’s a lot that stands out in the text, including: stronger rules of origin for auto manufacturing, side letters on steel and auto tariffs, and improved labor protections for Mexican workers that could ultimately help workers in America. Vox explains:  

One of the biggest complaints against Mexico right now is that labor unions are largely controlled by employers, and workers are not even part of contract negotiations. So it’s no wonder why Mexican factory workers are earning so little. The average hourly wage for factory workers in Mexico is just over $2 an hour, and the country’s minimum wage is roughly $4.15 for a full day’s work. These low wages attract US companies to operate in Mexico.

The new labor rules in Trump’s pact with Mexico are supposed to remove the incentive to keep Mexican workers living in poverty. Under the new deal, the United States can use the same dispute system to resolve labor complaints that NAFTA previously allowed only for commercial trade violations (such as exceeding trade quotas).

So that’s cool. But there’s other interesting stuff in there, too. What’s this new clause all about?

To answer the reporter's question in her tweet: Yes! yes it is.

Article 32.10 of the new deal stipulates that “entry by any Party into a free trade agreement with a non-market country , shall allow the other Parties to terminate this agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement).”

In short: If Canada, Mexico, or the United States were to individually join a trade agreement with China (a non-market country), either of the other two parties could scuttle USMCA. That makes for a pretty good incentive not to sign an agreement with China.  

Between that, the stronger rules of origin for auto parts, and the provision that bars members from devaluing their currencies to boost competitiveness, it kinda looks like the Trump administration is going to start focusing more of its trade attention on Beijing.