New North American trade deal launches under increasing threat of disputes

WASHINGTON / MEXICO CITY / OTTAWA (Reuters) – The renewed trade pact between the United States, Canada and Mexico that went into effect on Wednesday was intended to create a kind of fortress in North America, increasing the region’s competitiveness, but the Cracks are already beginning to appear on the Foundation.

FILE PHOTO: The President of Mexico, Andrés Manuel López Obrador, observes the Canadian Deputy Prime Minister, Chrystia Freeland, the Mexican Deputy Minister of Foreign Affairs for North America, Jesús Seade, and the United States Trade Representative, Robert Lighthizer, at Sign documents during a meeting at the Presidential Palace, in Mexico City, Mexico. December 10, 2019. REUTERS / Henry Romero / File Photo

As the deal kicks off, the Trump administration is threatening Canada with new aluminum tariffs, and a leading Mexican labor activist has been jailed, underscoring concerns about crucial labor reforms in replacing the American Free Trade Agreement. 26 years old from the North. Analysts say the risk of disputes between the three trading partners is growing.

The Agreement between the United States, Mexico and Canada includes stricter content rules in North America for automobiles, new protections for intellectual property, prohibitions against the manipulation of currencies and new rules on digital commerce that did not exist when NAFTA was launched in 1994, an agreement that the president of the United States, Donald Trump, has criticized as the “worst trade agreement ever made”.

The coronavirus has all three countries in a deep recession, reducing their trade flows in goods in April, normally around $ 1.2 trillion annually, to the lowest monthly level in a decade.

“Champagne is not as effervescent as we could have hoped for, even under the best of circumstances, and there are problems coming from all sides,” said Mary Lovely, a professor of economics at Syracuse University and a senior fellow at the Peterson Institute for International Economics. in Washington. “This could be a trade deal that quickly ends in dispute and further trade barriers.”

Problems affecting the USMCA include hundreds of legal challenges to Mexico’s new labor law championed by President Andrés Manuel López Obrador to ensure that workers can organize freely and that unions have full collective bargaining rights.

A decision against him would harm Mexico’s ability to comply with provisions aimed at ending agreed labor contracts without the consent of workers who stack up in favor of companies and have kept wages chronically low in Mexico. Democrats in the United States Congress had insisted on stronger labor provisions a year before granting approval, prompting a substantial renegotiation of the terms agreed for the first time in October 2018. The arrest of Mexican labor attorney Susana Prieto in early June has fueled arguments by US unions that the rights of Mexican workers are not sufficiently protected.

“I remain very concerned that Mexico will not fulfill its commitments to implement the legislative reforms that are the basis in Mexico to effectively protect labor rights,” said the representative of the United States, Richard Neal, chairman of the Committee on Ways and Means on Tuesday. of the House of Representatives. that the success of the USMCA “really depends” on its new labor enforcement mechanism.

United States Trade Representative Robert Lighthizer said he will present the dispute cases “early and often” to enforce USMCA provisions, citing Mexico’s failure to approve biotech products from the United States.

That could lead to increased tariffs on offensive products, such as products from individual factories where labor violations are found.

Carlos Vejar, a former Mexican trade negotiator, said the country was interested in following through on promises made to strengthen unions and end child labor.

“If Mexico is not aware of this, there will be cases against Mexico and Mexico will lose them,” said Vejar.

Graphic: Here a new trade agreement is launched in a pandemic


United States’ national security tariffs on imported steel and aluminum, including those from Canada and Mexico, were a major irritant during the USMCA negotiations until a waiver agreement was reached last year. But now, USTR is considering a request from domestic producers here to reinstate the 10% tariff on Canadian aluminum to combat an “increase” in imports at the northern border.

Canadian Prime Minister Justin Trudeau told reporters on Monday that this would harm both countries and increase material costs for American manufacturers.

Another source of disputes could be the energy sector, where the main US oil and gas lobby has already complained that Mexico’s recent actions in favor of state oil company Pemex violate protections for private investors transferred from NAFTA.

FILE PHOTO: United States President Donald Trump poses for a selfie during a signing ceremony for the United States-Mexico-Canada Trade Agreement (USMCA) in the south garden of the White House in Washington, USA. ., January 29, 2020. REUTERS / Jonathan Ernst / File Photo

Canada has also complained about new Mexican rules that formally threaten investment in renewable energy.

The USMCA will impose new compliance burdens on automakers in the region as the coronavirus blocks consumer spending and car production. Within three to five years, the minimum vehicle content in North America increases to 75% from 62.5%. Automakers must also produce 40% of their vehicle content in “high wage” areas, effectively in the United States and Canada.

A study by the US International Trade Commission found that this would attract more auto parts production to the United States, but could slow down the assembly of US vehicles and increase prices, limiting consumer choice in automobiles. . The same panel found that after 15 years, the deal would add $ 68.5 billion annually to the economic output of the United States and create 176,000 jobs compared to a NAFTA baseline.

Report by David Lawder in Washington, Dave Graham, Anthony Esposito and Daina Beth Solomon in Mexico City and David Ljunggren in Ottawa; Written by David Lawder; Dan Burns and Matthew Lewis edition

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