NAFTA 2.0

After US President Trump announced the intention of his administration to either renegotiate or break the North American Free Trade Agreement (NAFTA), the renegotiation began in mid-August 2017 and concluded in late September 2018. NAFTA 2.0, henceforth known as the United States–Mexico–Canada Agreement (USMCA), was signed in November 2018. Following further negotiations, a Protocol of Amendment was concluded in December 2019. After being approved in its three states parties, the USMCA entered into force on July 1, 2020. The renegotiation of the NAFTA sparked a lot of interest. The introduction returns to the essentials of the NAFTA, considers its renegotiation, summarizes the main elements of the USMCA, while contrasting it with the NAFTA, and presents the various chapters of the book.

This chapter covers the 19 months between the signing of the United States–Mexico–Canada Agreement (USMCA) on November 30, 2018, and its entry into force on July 1, 2020. First, it explains the amendment, ratification and implementation procedures under the USMCA, as compared to those under the North American Free Trade Agreement. The attention then turns to the ratification and implementation of the accord in the three domestic legislatures. Next, it discusses the USMCA’s Protocol of Amendment signed in December 2019, as well as issues related to the American aluminum and steel tariffs. Finally, it concludes that Trump’s impeachment proceedings muddied the water but, in the end, the legislative process worked and, as of July 1, 2020, we entered a new era in North American economic relations.

In order to avoid becoming mere implementers of trade agreements negotiated by the federal government, Canadian provinces, notably Quebec and Ontario, have become increasingly involved in trade negotiations. Although the federal government has full powers over treaties and sole responsibility for international trade, when we look at the actual process of trade negotiations, it appears as a “de facto shared practice.” The “new generation” of trade agreements increasingly involves areas of provincial jurisdiction, whether public procurement, labor, state monopolies and corporations, investment, the environment, or sustainable development. The evolution of trade agreements has made provincial involvement more critical. This chapter looks at the role Ontario and Quebec played in the NAFTA renegotiation, leading to the United States–Mexico–Canada Agreement, and finds that it falls somewhere between the role they played in the Comprehensive Economic and Trade Agreement and Trans-Pacific Partnership negotiations.

While Canada had largely succeeded in exempting its dairy industry from the general obligations under the North American Free Trade Agreement (NAFTA), the United States–Mexico–Canada Agreement (USMCA) includes new provisions affecting Canada–US trade in dairy products. The Canadian dairy sector was at the heart of the American demands in NAFTA’s renegotiation. For Donald Trump, Canadian dairy regulations were responsible for the loss of jobs and revenues in the US dairy industry. Article 3.A.3 of the USMCA provides for four new obligations, essentially incumbent on Canada regarding dairy products: (1) it grants new market shares to US dairy producers, creating a loophole in the Canadian supply management system; (2) abolishes milk classes 6 and 7; (3) quantitatively caps Canadian exports of certain products around the world; and (4) imposes considerable transparency obligations. These new obligations will have a significant impact on how Canadian dairy producers will be able to dispose of their surplus solids non-fat on markets and on the production of cream-based dairy products in Canada. The entry into force of the USMCA represents a major reorganization for the Canadian dairy industry, not only for production, processing and marketing, but also in terms of systematic data collection in order to meet transparency obligations.

The United States–Mexico–Canada Agreement (USMCA) includes a chapter devoted to investment in North America, as it was the case with the North American Free Trade Agreement (NAFTA). While the new agreement marks a continuation with substantive protection afforded to foreign investors and their investments by the NAFTA, it does depart from its predecessor regarding investor-state dispute settlement (ISDS). It introduces significant differentiations between the United States, Mexico and Canada regarding ISDS, most notably its abandonment regarding Canada. The NAFTA contributed to the creation of a uniform North American approach to investment law and policy. The USMCA begs the question whether it creates a new North American approach. If there is still a common approach to substantive protection within and outside North America, there is no more common approach to ISDS within North America. Latest developments in treaty practice show that the USMCA is not unique in abandoning ISDS. Thus, the new piecemeal North American approach to ISDS could become the global approach. Nevertheless, the abolition of ISDS does not mean the disappearance of investment disputes. Governments will not be able to avoid pressure to intervene in the problems of private investors with foreign countries, the very purpose for which ISDS was—yet imperfectly—created.

Given the dominance of its Internet firms, the United States has major political and economic motives to push for the absence of restrictions in digital trade. After trying to secure a framework for the regulation of electronic commerce at the World Trade Organization (WTO), by the turn of the century the US government turned to preferential trade agreements (PTAs). In view of its weight vis-à-vis particular trade partners, the United States has been able over successive negotiations to furthering e-commerce rules and standards. The United States–Mexico–Canada Agreement is the PTA that goes furthest in regulating digital trade, notably with provisions to ensure that personal data and information may be transferred across borders and that limits on data storage and processing are kept to a minimum. Since 2017, plurilateral discussions on electronic commerce have been revived within the WTO, the US favored venue. Yet, as divergences on this subject remain among WTO members, the PTA path is still the one most likely to enable the United States to achieve its objectives as regards trade in digital products.

Intellectual property (IP) has not historically formed part of free trade agreements (FTAs). The North American Free Trade Agreement was the first FTA to incorporate significant IP provisions, and the United States–Mexico–Canada Agreement (USMCA) captures advances in IP policy established in the intervening 30 years as result of other multilateral agreements, including the Agreement on Trade-Related Aspects of Intellectual Property Rights, the Comprehensive Economic and Trade Agreement and the Trans-Pacific Partnership. The structure of the USMCA’s IP chapter, Chapter 20, is typical of IP chapters within these other trade agreements, but goes further in setting minimum standards for IP protection and requiring continued harmonization efforts. Canada’s reputation for taking a balanced approach to IP will cause the USMCA IP chapter to set a new baseline for North American IP protection as future trade agreements are negotiated and may set new norms for global IP protection that persist for decades to come.

The chapter analyzes the provisions of Chapter 21 of the United States–Mexico–Canada Agreement (USMCA) regarding competition policy and of Chapter 22 on state-owned enterprises and designated monopolies, while comparing them with Chapter 15 of the North American Free Trade Agreement (NAFTA) dealing with competition policy, monopolies and state enterprises. It first looks at NAFTA (section 1) and then discusses the innovations under the USMCA (section 2). After highlighting key aspects of NAFTA and the USMCA, it concludes on the importance of competition chapters in trade agreements, their strategic dimension and their limits in relation to regional and global competition regulation (section 3). The USMCA builds on NAFTA and many institutional and normative innovations within other trade agreements, the Organization for Economic Cooperation and Development, the International Competition Network and other governance sites. If NAFTA’s effect on competition law and enforcement in North America was limited, the USMCA’s impact will depend on the three partners to intensify their cooperation.

The North American Free Trade Agreement (NAFTA) put the North American countries on a new path of transnational labor governance by including labor provisions in a preferential trade agreement (PTA). This path led to a second generation of PTAs, albeit with major modifications, dealing with labor issues. The renegotiation of NAFTA has marked yet another step in this institutional trajectory by updating the labor provisions to reflect changing political and economic realities. The United States–Mexico–Canada Agreement (USMCA) includes new obligations, mechanisms and processes, updating the North American Agreement on Labor Cooperation (NAALC) as it incorporates features of the intermediate generation of labor chapters and reaches beyond. In this chapter, we survey the process from the NAALC to the USMCA. A first section describes the NAALC and its balance sheet on enforcement. A second section summarizes the changes to labor chapters negotiated by the United States and Canada in a second generation of PTAs. A third section addresses the political tensions that motivated further changes in the USMCA—as well as setting limits for their reach. A fourth section compares three generations of labor cooperation linked to PTAs in North America and concludes that the novel aspects of the USMCA have the potential, yet untested, to remedy some labor rights violations through trade mechanisms. If successful this could help translate trade growth into an upward convergence of living standards in North America.

The renegotiation of what US President Trump called “the worst trade deal ever” has resulted in the most detailed environmental chapter in any trade agreement in history. The United States–Mexico–Canada Agreement (USMCA) reaffirms the approach to environmental protection under the North American Free Trade Agreement (NAFTA), but also mentions dozens of environmental issues that its predecessor overlooked. Moreover, in line with contemporary US practice, the USMCA brings the vast majority of environmental provisions into the core of the agreement, and subjects these provisions to a sanction-based dispute settlement mechanism. It also jettisons two controversial NAFTA measures potentially harmful to the environment: the investor–state dispute settlement mechanism and the energy proportionality rule. The contribution of the USMCA to environmental governance remains limited, however. The agreement primarily replicates most of the environmental provisions included in recent trade agreements, in particular the Comprehensive and Progressive Agreement on Trans-Pacific Partnership, and avoids important issues such as climate change.

Regulatory coordination now covers most areas of public regulation and, increasingly, corporate governance. With globalization, the debate has taken on a new twist, as far as trade along value chains, commercial services or electronic commerce are concerned. However, despite some notable progress, the number of countries that have a coordinated approach or that use impact analysis remains limited. A new path has been taken since the 2010s, that of preferential trade agreements. Three of them deserve attention in this chapter: the Comprehensive Economic and Trade Agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and the latest, the United States–Mexico–Canada Agreement. The chapter highlights three points: (1) even if the common objective is to improve the efficiency of regulatory processes, political principles, priorities and procedures are very different in each agreement; (2) despite all the precautions taken by Canada, there is every reason to believe, given the gravity effect, that regulatory cooperation will continue to strengthen in North America in favor of the United States; and (3) in view of this, transatlantic regulatory dialogue is likely to be a source of misunderstanding and disillusionment for both Canadians and Europeans.

In the United States–Mexico–Canada Agreement (USMCA), Chapter 33 on Macroeconomic Policies and Exchange Rate Matters constitutes a new addition to the realm of preferential trade agreements and therefore had no equivalent chapter in the North American Free Trade Agreement. The new provisions seem to have been included in the renegotiation agenda at the request of the United States following the multiple currency manipulations done in the 2003–2013 decade and the inability of the International Monetary Fund (IMF) to effectively regulate competitive devaluations. Yet, the majority of the substantive articles resemble non-binding provisions found in the IMF Articles of Agreement. However, the parties agreed to subject the transparency requirements to the dispute settlement mechanism of the entire agreement, adding a layer of enforcement not found previously in other forums. While this chapter does not respond to an issue between the three USMCA parties, it demonstrates the will of some states to include more and more non-trade issues in trade agreements in order to benefit from the strong dispute settlement mechanisms they generally contain. It remains to be seen if Chapter 33 will be reproduced in future trade agreements.

The exceptions and general provisions under the United States–Mexico–Canada Agreement (USMCA) are as multifarious as its rules and disciplines. Some are quite classic, inspired by good old trade agreements or duplicates of articles of the Trans-Pacific Partnership (TPP) drafted while the United States was still a negotiating party. Other exceptions are unprecedented and tailor-made to the very specific political and economic tensions that prevailed in North America and in the world trading system during the negotiation. The USMCA incorporates the general exceptions under the World Trade Organization. It replicates the cultural industry exception found in the North American Free Trade Agreement. On information, it adapts some provisions found in previous preferential trade agreements (PTAs) to the new digital environment. But the wording of the national security exception, copied from the TPP, is very different from what we find in Article XXI of the General Agreement on Tariffs and Trade. The text of the indigenous peoples rights exception is a novelty. Articles 32.11 and 32.12, both related to investment issues, illustrate the USMCA’s specificity. Two unusual provisions might prove problematic: Article 32.10 precludes a party from concluding a PTA with a non-market country (read China) without the approval of the other two USMCA parties, and Article 34.7 creates a sunset clause accompanied by a review mechanism that is unique in the trading system.

As cultural products are associated with the cultural identity of various polities, they represent the only sector regularly subject to special treatment in preferential trade agreements (PTAs). Canada has even secured an outright exemption in favor of cultural industries under the North American Free Trade Agreement (NAFTA) and its successor the United States–Mexico–Canada Agreement. The United States and Mexico, on the other hand, have secured a limited number of specific exceptions relating to cultural products in these same PTAs. From NAFTA 1.0 to 2.0, if the treatment of cultural products has evolved, notably with provisions dealing with digital trade and the extension of copyrights, not much has changed overall as regards the reservations taken by states parties. The essential of Canada’s cultural exemption has been reconvened, including for the digital field, the US exceptions have not varied significantly in scope and remain very limited, while the scope of Mexico’s has actually narrowed.

The coming into force of the North American Free Trade Agreement (NAFTA) in 1994 has made North America a significant and influential experiment in regional integration, aimed at competitiveness gains and continent-wide production and investment. The concluding chapter takes stock of NAFTA’s economic and social impacts on its three states parties, with a focus on employment. Such impacts are crucial to understand the dissatisfaction that led to its renegotiation. It is considered whether its successor, the United States–Mexico–Canada Agreement (USMCA), is likely to address these concerns and produce a stable and prosperous North American space. Rather than a new model, the USMCA constitutes an update and a slight rebalancing of the existing North American integration model, although much less significant and influential than at NAFTA’s advent. North American economic integration will remain a contested work in progress.