Mexico Becomes First Country to Ratify USMCA; U.S., Canada Approvals Pending

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Quite a bit has happened since late November, when the leaders of the U.S., Canada and Mexico signed the United States-Mexico-Canada Agreement (USMCA), the intended successor to the North American Free Trade Agreement (NAFTA) and sometimes dubbed “NAFTA 2.0.”

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More recently, President Donald Trump threatened to impose an escalating tariff, beginning at 5%, on all imports from Mexico as of June 10 if the countries could not reach an agreement on immigration enforcement. Days before the deadline, the U.S. announced it would back away from the tariffs amid a deal reached with Mexico.

The U.S. also recently lifted its Section 232 steel and aluminum tariffs with respect to imports from Canada and Mexico, one high-profile sticking point in the USMCA approval process.

The legislatures of all three countries must ratify the USMCA before it can go into effect; as such, the deal has been in a sort of limbo since the countries’ executive leaders signed the deal during the G20 Summit in Buenos Aires.

Until recently, none of the countries’ legislatures had approved the USMCA. That changed this week, however, as the Mexican Senate became the first to ratify the USMCA.

In a press conference Thursday, Mexican President Andrés Manuel López Obrador lauded the USMCA’s passage, saying the approval conveys confidence to national and foreign investors and is good for the Mexican economy.

In the U.S., President Donald Trump in public statements has continued to put pressure on the Democrat-majority House of Representatives to pass the USMCA.

The United States Trade Representative (USTR) lauded Mexico’s approval.

“The USMCA is the strongest and most advanced trade agreement ever negotiated,” USTR Robert Lighthizer said in a prepared statement. “It is good for the United States, Mexico, and Canada in a way that truly benefits our workers, farmers, and businesses. The USMCA’s ratification by Mexico is a crucial step forward, and I congratulate President López Obrador and the Mexican Senate on this historic achievement.”

In his opening statement during a Senate Finance Committee hearing Tuesday, Lighthizer called the USMCA the “gold standard.”

“It is the gold standard for rules on the digital economy, financial services, intellectual property, etc.,” he said. “It will help stop the outflow of manufacturing jobs and return many to the United States. Its labor and environmental provisions are the most far-reaching ever in a trade agreement. The agricultural chapter will lead to increased market access and eliminate unfair trading practices by our trading partners.”

Among other clauses, the USMCA includes language on labor practices (aimed particularly at lifting labor conditions in Mexico), automotive regional content rules (increasing to 75%, up from 62.5% under NAFTA) and activities of or dealings with state-owned enterprises.

Sen. Ron Wyden (D-Oregon), in testimony during the Senate Finance Committee hearing this week, applauded parts of the deal but questioned aspects related to enforcement.

“The president campaigned on ripping up existing trade deals, but the new NAFTA sure resembles the old one,” Wyden said. “That said, there are areas of meaningful progress. It goes further than before on digital trade and state owned enterprises. It takes a modernized approach to customs and duty-evasion. I commend Ambassador Lighthizer for obtaining some strong outcomes in the labor and environment chapters.

“But particularly when it comes to enforcement, there’s some hard work left to be done. Commitments from other countries aren’t any good if there’s no way of holding those countries to them. The new NAFTA retains a weak enforcement system from the old NAFTA, which was too easy on trade cheats. That’s a bad deal for American workers, particularly the enforcement of labor obligations.”

Senate Finance Committee Chairman Chuck Grassley (R-Iowa), meanwhile, touted the USMCA’s potential positive impact for U.S. farmers.

“American farmers, workers and businesses stand to benefit greatly from USMCA,” Grassley said.  “More market access for agriculture, new commitments in critical areas such as customs, digital trade, intellectual property, labor, environment, currency, and the lowering of non-tariff barriers will translate into higher wages, greater productivity, and more jobs.

“In fact, the U.S. International Trade Commission’s economic analysis found that USMCA will create 176,000 new American jobs. We shouldn’t squander this opportunity to update NAFTA, which is now a quarter century old but has been critical to the success of American farmers and businesses.”

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Now, the USMCA awaits approval from the legislatures in the U.S. and Canada.

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