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USMCA Provision Could Deter Trade Agreements with China

Thursday, October 04, 2018
Sandler, Travis & Rosenberg Trade Report

A provision in the updated NAFTA concluded this past weekend could make it more difficult for Canada and Mexico to pursue potential free trade agreements with China. Observers say the Trump administration could look to insert a similar provision in possible FTAs with the European Union and Japan as part of its effort to pressure Beijing to advance economic reforms.

According to press sources, the U.S.-Mexico-Canada Agreement contains a provision requiring any of the three partner countries who wish to negotiate a free trade agreement with a non-market economy country such as China to give the other two members three months’ notice. If such an FTA then takes effect, the other two countries would be able to withdraw from the USMCA in six months and form a bilateral pact.

A Reuters article states that the clause “fits in with U.S. President Donald Trump’s efforts to … prevent Chinese companies from using Canada or Mexico as a ‘back door’ to ship products tariff-free to the United States,” but it is unclear how likely such a scenario might have been. Canada discussed a potential FTA with China relatively recently but Beijing reportedly balked at the terms Ottawa was seeking. Mexico appears to have relatively little interest in a deal with China, which is an important trade partner but still less so than the U.S.

However, this restriction could have a more wide-ranging impact if the White House seeks to replicate it elsewhere. Politico notes that the provision “is expected to serve as a template for future U.S. trade agreements with other countries,” including Japan (which recently announced it would launch talks with the U.S.) and possibly the EU and United Kingdom post-Brexit.

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