New US-Mexico-Canada deal is cloaked in uncertainty

US Secretary of State Mike Pompeo met top Mexican officials on Sunday, capping off a multi-day trip to South America, including a stop-off in Argentina. Top of the Mexican City agenda was Washington's ratification plans for the new United States-Mexico-Canada Agreement (USMCA), anchoring North America's relationship with the South, in the midst of uncertainty over legislative logjams in Congress and the Trump team's continuing concerns over immigration on the US border. That latter issue remains a sore point in ties; and on Sunday, Mexican officials said that Mr Pompeo recognised the "significant advances of Mexican operations" in reducing US migrant flows a day before the culmination Monday of a 45-day period in which the government previously committed to significantly lowering the number of people seeking to enter the United State illegally. In an agreement on June 7, this averted tariff threats by the Trump team.

Beyond this immigration issue, the wider importance of the USMCA accord for the region is underlined by the fact that the North America Free Trade Agreement (Nafta), which the new agreement will supersede, underpins over US$1 trillion in annual trade. The new deal will therefore be a cornerstone for political and economic relations with Nafta having originally been signed in 1994 as the most comprehensive trade agreement outside the EU, and the first major trilateral trade accord negotiated between a developing country (Mexico) and developed counterparts (United States and Canada).

The USMCA - in effect a Nafta 2.0 - emerged from a tortuous negotiation between the three countries in 2017 and 2018 with the outcome celebrated by US President Donald Trump as "wonderful" and a "historic transaction!" He asserted that it delivers on one of his key 2016 election promises to curb the US trade deficit and get "tough" with US trade partners, and has given him renewed confidence that he can decisively re-shape the international political economy after his earlier decisions to withdraw US participation from the Trans-Pacific Partnership (TPP); launch new trade sanctions against world powers from the EU to China; and also threaten US withdrawal from the World Trade Organisation (WTO).

Yet, while Mr Trump has claimed USMCA as a huge political and economic win for his America First approach, the agreement has much more similarities than differences with Nafta which he described previously as "the worst trade deal maybe ever signed anywhere". The continuities between USMCA and Nafta reflect the fact that the final concessions secured by the Trump team from Mexico and Canada were not as big as had previously claimed possible.

MULTIPLE NEW BENEFITS

To be sure, the deal contains multiple new benefits for the United States, including a limited opening of Canada's dairy markets. But Washington has also agreed to the requests of Mexico City and Ottawa to preserve a trade dispute settlement mechanism while protecting Canada's car industry from potential further US tariffs.

It is partly because the Trump team "oversold" what the USMCA negotiations would achieve that its passage in the US Congress is proving tricky with Democrats who have, historically in the pre-Trump era, been more protectionist than Republicans. The legislation may not come up for final votes for weeks more to come, threatening to push this issue into 2020 which may make ratification even tougher, given potential hardening of positions in a big election year. So the Trump team is increasingly frustrated at the pace of progress, while House Democrats are also annoyed that the White House has not been perceived to have budged in addressing their list of concerns over the bill.

The slow pace of progress on Capitol Hill also reflects the fact that despite having significant business support, international trade is increasingly under political attack as exemplified in increased criticism of Nafta in recent years from both the US political left and right. Both, for instance, have blamed it for contributing to a hollowing out of the US manufacturing industry, partly because of increased trade deficits with Mexico and Canada. This is why the Trump team decided to give the new pact a brand makeover to USMCA, despite the continuities with Nafta.

The protracted USMCA discussions on Capitol Hill are worrying the Mexicans, especially after sometimes rancorous negotiations that the Trump team put them and the Canadians through. A fear is that Washington may even seek to re-open the trade talks, and it is perhaps no coincidence here that the Canadian legislature has also not yet ratified the deal (although Mexico has).

Any such slippage would be opposed by both Mexico City and Ottawa which the Trump team tried to divide during the USMCA negotiations. Perhaps pre-empting this scenario, Mexican President Andres Manuel Lopez Oprador has warned the nation that if USMCA collapses, this "cannot be fatal for Mexicans, our country had a lot of natural resources, a lot of wealth". He also asserted that in this eventuality, he would seek to redirect the country's resources towards internal markets and revive the rural economy.

Ottawa would also be alarmed too by any further challenges with USMCA, given that it will underpin three-quarters of exports that Canada sends south of the US border and with 2.5 million jobs in the country depending on this trade. It will also know, should USCMA collapse, that there is a real and present prospect of Mr Trump seeking to "divide and rule" again, as before, when he initially signed a bilateral Mexican trade agreement last year, and said that "there is no political necessity to keep Canada in the new Nafta deal. If we don't make a fair deal for the US after decades of abuse, Canada will be out." These remarks were bridled at even by some in the US Congress who recognise the importance of strong relations with its northern neighbour.

FRAYED BILATERAL RELATIONS

There are precedents for why Mexican and Canadian fears about the negotiations being re-opened are not unfounded. The George W Bush administration, for instance, faced into Democratic congressional demands that amendments were made to bilateral trade deals with South Korea, Panama, Peru and Colombia. As South Korea and Panama had not yet legislated for the deal, they incorporated the extra provisions, while Peru and Colombia retrospectively were forced to make changes post-ratification.

Taken overall, with the USMCA log-jammed on Capitol Hill, Mr Pompeo sought to reassure Mexico of the Trump team's commitment to get ratification. With bilateral relations frayed, over trade and immigration issues, both sides know the urgency of seeing the new trade deal brought into effect as a strategic framework for political and economic ties a quarter of a century after Nafta's birth.