The ratification of the trade deal is important for several reasons:
- First, an update to NAFTA is needed because the world has changed so much since the original agreement went into effect in 1994. For example, NAFTA has almost no mention of computers or of the Internet, which makes sense given that it was negotiated in the early 1990s, but these things are clearly central to our lives today. One of the key improvements of USMCA is its e-commerce chapter, which creates rules for digital trade and is also likely to serve as a template for similar chapters in future trade agreements. More generally, US trade agreements have evolved since NAFTA, and so bringing it into line with current norms was necessary.
- Second, the ratification of USMCA will eliminate a lot of the uncertainty that has been in the air throughout this process. While it was always a longshot that the US would leave NAFTA without a replacement deal, there remained a lot of uncertainty about NAFTA's future and about the timeline for USMCA. Now US companies that trade intensively with Mexico or Canada, or that have subsidiaries in these countries can rest more easily, knowing that USMCA will probably go into force soon.
- While USMCA helps to reduce uncertainty, it also adds two changes to NAFTA that may make investors nervous: (1) A sunset clause will require the three governments to renew the deal periodically, which leaves open the possibility that it will become endangered once again in the future; (2) the new agreement has eliminated most of the investment dispute courts that protect foreign investors from policies in host countries that threaten their investment returns. Whether these are good or bad additions to the deal are open to discussion, but they are both create some risks for US-based foreign investors operating in Mexico and Canada.
- Fourth, Democrats and labor organizations in the US had been critical of the earlier draft of USMCA, on the basis that it did not have sufficiently strong rules for labor and the environment. They seem to have made progress in updating the agreement, as the new version of USMCA has mechanisms to monitor and enforce labor rights and environmental rules. AFL-CIO plans to back the agreement, which suggests that these revisions are quite strong.
It is also important to mention that USMCA still must be ratified by the US Senate and by the Canadian legislature (Mexico was the first to ratify). These ratifications are likely to happen in 2020.
Jonas Gamso’s research is on issues of global political economy, international development, and quantitative methods. He specializes in international trade with an emphasis on the western hemisphere. His primary research focus is on trade between developing countries, and the impacts of this sort of trade for sustainable development and governance.
As an assistant professor of international trade and global studies at Thunderbird School of Global Management in Arizona, Professor Gamso has published work on USMCA, the illegal ivory trade, foreign aid and on political risks to foreign investors, among other topics. A headshot and links to articles can be found in his expert profile:
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