The Financial Express

North America's changing trade order

| Updated: October 04, 2018 21:00:49

North America's changing trade order

The previous Scopus article ("After NAFTA," October 02), was written only hours before the NAFTA deadline approached (midnight, September 30). It anticipated the NAFTA twilight (really, anyone could, the way that that trade agreement has progressed, especially in this rocky century). Before the Scopus article came out by midnight October 01, a last-minute Canada-US deal was reached, confirming (a) the end of the NAFTA (North American Free Trade Agreement) era; (b) a new 'North America' trade label between its three countries; and (c) a return to the country-specific, more 'landlocked' approach to bilateral trade from the open-ended free-trade-agreement (FTA) alternative.

First, the NAFTA tag was discarded, hoisting a warning signal to the many other (especially US-based) FTA follow-ups after 1994. It fell for paradoxical reasons. On the one hand, it boasted being the world's first free-trade deal between developed and developing countries, but its inherent low-wage flavour angered many US circles, especially as the United States was being deluged by low-waged imports from another significant part of the world (China).

On the other, after over 20-odd years of NAFTA operations, emergent service-trade practices found no NAFTA provision. NAFTA exemptions and lengthy 'national treatment' lists reiterated how North America was not eventually turning into a customs union, as across West Europe, let alone a common market with a common currency. In short, economic integration was not projected nor approached beyond a state-centric playground. The US MC transition accented that architecture.

Second, this new nomenclature (USMCA - the United States-Mexico-Canada Agreement)  tells US  plenty: it is not only too much of a mouthful to pronounce, but also shows an explicit ordering of members that its NAFTA counterpart did not.  Signed as a 16-year deal (with review every six years), the United States moved completely behind the steering-wheel, by both choice and command. By contrast, it was the recipient of a 1990 NAFTA proposal from the Mexican president, while the Canada-United States Free Trade Agreement (CUSFTA) stemmed, if not from the Canadian Prime Minister, then in conjunction with President Ronald Reagan during the 1986 Shamrock Summit.

More intriguing is how Canada and Mexico have been ordered: Mexico coming before Canada in that acronym, defying the alphabetical diplomatic tradition. Another explanation could be chronology of developments: the Mexican agreement with the United States in August preceding its Canadian counterpart by a month.

One cannot but feel the gut Canadian sentiment between 1990 and 1993 of Mexico becoming the long-term NAFTA winner was reignited and vindicated by this ordering.

There may be more behind this flipping of the two other USMCA partners. Whereas the NAFTA precursor depicted a breakthrough CUSFTA exit from multilateralism, Canada became the role model for Mexico to adjust to deal with the United States within a neo-liberal frame: quite frankly, without Canada on board, the United States would not have launched its FTA crusade with Mexico (which was still recuperating from the lost economic decade in the 1980s, and still so much more a less developed country then).

Even if it did, no other country would even have blinked, as they did after 1994. In the USMCA evolution, Canada was found adjusting to Mexico, not with arrangements between the two of them (nothing was mentioned of these), but in how each adjusted to the United States. Unlike the NAFTA trait of having 3 (three) bilateral agreements transforming into one NAFTA deal, the absence of a USMCA counterpart suggests only one country at the helm, and Canada or Mexico are not that country.

Canada and Mexico have been forging many other bilateral arrangements over the past few years in a topsy-turvy relationship (Prime Minister Steve Harper scrapped a visa-free status for Mexico for reasons of illegal immigration/refugee entry into that country from the United States; but Justin Trudeau revoked that restriction).

Nevertheless, though trade relations have grown, a separate bilateral trade deal would be costly, even impossible, given the water to have flowed beneath 'North American' bridges for over a generation now. Clearly the simultaneity that was a part and parcel of the NAFTA negotiations was absent in the USMCA parleys.

This feature takes US into the final point, the return of unalloyed bilateralism for the sake of bilateralism. The NAFTA precursor involved bilateralism as a means towards broader partnerships, fitting snugly into the FTA framework (and within WTO multilateralism). That is not the case now. Landlocked bilateralism, as it may be dubbed, means fewer exogenous  infringements, be they multilateral or regional (NAFTA leftovers, either in performance or prescriptive forms). No space is created for ambition, that is, to move beyond bilateral boundaries: it will be the United States versus  Canada, and the United States versus  Mexico here and now. The future stems from that. The Canada-Mexico component must take the backseat, while trilateral outcomes essentially disappear. As one might expect, the stronger of the two tilts the playing field, narrowing the future bilateral reach. It was difficult to get to this point for Canada, whose negotiators dashed to Washington (from Europe, in fact), the very hour the US-Mexico agreement was announced in very late August, in spite of Prime Minister Trudeau talking tough politely.

We can expect many more tumbling dices, not only because of the unchartered trading arenas cropping up, given competition, technological advances, software espionage and viruses, as well as expanding not only trade partners, but also diverse trading habits. In that sense, this could mark the twilight of the FTA era that began in 1984 with the United States, and usher a new pattern for the next generation based more on commercial machismo. On the positive side, full-blooded unilateralism was avoided, but the key pitfall of putting multilateralism on a more slippery slope means there will be more setbacks than new thresholds forthcoming.

Canada yielded only slightly on dispute settlement, an idea in greater need now than ever before, but at odds with the prevailing surreptitious state interventions. If lumber, pork, swine, and dairy trade differences between Canada and the United States could not be resolved under the NAFTA regime, it was just as good to say differences will not be ironed out in the foreseeable future. One sword continues to dangle.

Canada opened up slightly more with dairy, allowing the United States 3.5 per cent of the $16 billion US$ Canadian market but Mexico yielded significantly, especially over automobiles: regional content rose from 62.5 per cent to 75 per cent, rather than the 80 per cent the United States demanded; but that 40-45 per cent of automobile workers across North America have to be paid no less than $16 an hour was the big concession Donald J. Trump received, and can now take into the mid-term election to retain Republican control of Michigan (and likely spawn ripple effects on Ohio and Pennsylvania). He will also look good not just for automakers, but also to US farmers, with the dairy breakthroughs. Mexican automakers will earn more, helping the pro-worker platform of incoming president Andrés Manuel López Obrador, and Canadian subsidies for farmers will also spiral.

With domestic elections determining trade negotiations, quid pro quo bargaining may be displaced by sine qua non outcomes. Further, US elections may play a pivotal global role by reconfiguring trade policies in this populist era. Both 'America first' and 'America retreat' cannot coexist. Which prevails will tell US  much of Trump's popularity and legacy.

Dr. Imtiaz A. Hussain is Professor & Head of the Department of Global Studies & Governance at Independent University, Bangladesh.

[email protected]





Share if you like

Filter By Topic