Politics as much as economics driving UK to join USMCA

WHILE the United Kingdom remains firmly fixed geographically in Europe, one of the defining features of its post-Brexit foreign policy has, so far, been the attempts to join far flung trade groups like the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and, potentially too now, the United States-Mexico-Canada agreement (USMCA).

With the UK application already in to join CPTPP - which comprises Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam - UK Prime Minister Boris Johnson last week sought in Washington to play up expectations of joining USMCA too.

Yet, while this might be possible in coming years, part of his motivation was political sleight of hand. That is, to conceal his disappointment that a bilateral trade deal with the US is now unlikely during Joe Biden's current term of office which extends to early 2025. Tension over the implementation of the Northern Ireland Protocol, a key tenet of the UK-EU Brexit divorce agreement, is one of the key roadblocks to any US bilateral deal which now seems unlikely till after a 2024 consent vote in Northern Ireland on the protocol, and the US presidential election that same year. In other words, it will need to await a second Biden term, or a new president coming into office.

Few remember now that then-president Barack Obama said, in 2016, that if the UK left the EU, it would go to the 'back of the queue' for a US trade deal. Yet, in effect, that is what has happened with Mr Biden now prioritising other trade agreements, including ironically one with the 27-member European bloc, over that proposed with the UK.

One of the key arguments of Brexiteers during the 2016 referendum campaign was that a big new trade prize, post-Brexit, would be such a US deal. This despite the fact that such an agreement, and indeed the wider USMCA, will do comparatively little to make up for the long-term hit to GDP from new barriers to trade with the EU as a result of Brexit.

The pathway for London to join the USMCA - which is in effect a North America Free Trade Agreement (Nafta) 2.0 - could be even more complicated than securing a bilateral US trade deal. For the UK's accession would require not just the 'green light' of the US, but also Mexico and Canada too.

Since leaving the EU, the UK government has struck agreements to roll over trade deals it previously enjoyed with Mexico and Canada when it was part of the EU. UK ministers have also announced their intention to begin talks on upgraded agreements with the two countries in order for the deals to be 'better tailored to the UK economy', but these initiatives remain at an early stage.

USMCA

Comparatively little is known outside of North America about USMCA, one of the most comprehensive trade areas outside the 27-member EU. Along with Nafta, it has served as a cornerstone of economic relations within the continent, including the more than US$1 trillion in annual, trilateral trade.

Nafta, originally signed in 1994 during Bill Clinton's presidency, was the first major trilateral trade accord negotiated between a developing country (Mexico) and developed counterparts (US and Canada).

That distinctive era, soon after the end of the Cold War, saw economic globalisation largely unchallenged as a political orthodoxy across much of the world.

While the deal has brought significant prosperity to Mexico, it has proven much more controversial in the US. This was illustrated during Donald Trump's presidency when, reflecting the erosion of political support for international trade, Mr Trump called Nafta "the worst trade deal maybe ever signed anywhere".

In the US, both the political right and left have blamed it for contributing to a hollowing out of the US manufacturing industry, partly because of increased trade deficits, especially with Mexico. This is why former president Trump decided it was politically prudent for him to give the trilateral pact a branding refresh to the USMCA which ended, in his own judgement, what he called the "Nafta nightmare", despite the major continuities between it and the original 1994 accord.

So although Mr Trump claimed his renegotiation was a historic masterstroke, the deal continues to be controversial. Only last month, Mexico's Economy Minister Tatiana Clouthier requested formal consultation over the interpretation and application of tougher content rules for vehicles, after voicing in May disagreement over the issue citing differences with the US methods, and Canada has since joined Mexico in this action.

Last year too, even before the USMCA agreement took effect, then-US Trade Representative Robert Lighthizer threatened Canada and Mexico with potential litigation. He asserted that Mexico needed to implement the improved worker rights it agreed to in the deal, saying "we will take action early and often when there are problems" so as not to allow a competitive advantage over US labour workers.

Canada was also in his sights too, including over opening up its domestic dairy market, and he claimed that Ottawa has a history of playing games that effectively shut out foreign competitors even after a trade deal is reached.

This highlights that USMCA continues to present political challenges, and the UK would do well to be aware of these tensions as it looks to enter the agreement.

Part of the reason for this continued controversy is that former president Trump eroded much goodwill in Mexico and Canada after more than a year of acrimonious negotiations over USMCA that left a sour taste in both countries which were traditionally enthusiastic about North American trade.

TRUMP VS CANADA

Take the example of Canada which Mr Trump put under intense pressure during USMCA negotiations, posing an acute dilemma for Prime Minister Justin Trudeau's administration, given that the North American deal underpins three quarters of exports Canada sends south of the US border and 2.5 million jobs in the country depend on this trade. Mr Trump's references to Ottawa's "decades of abuse" of Washington alarmed not just the Trudeau team, but also a significant number of legislators in the US Congress who recognise the importance of strong relations with their northern neighbour.

It is in this cauldron that the UK would make any formal bid to join USMCA. Ultimately, such a move will be driven by politics as much as economics given that joining the North American bloc will do comparatively little in the short term to make up for the hit to GDP from new barriers to trade with the EU as a result of Brexit.

• The writer is an associate at LSE IDEAS at the London School of Economics