The United States, Mexico and Canada face a key deadline on Wednesday for the future of the reciprocal agreement that underpins North American trade.
But the negotiations have just begun.
The text of the US-Mexico-Canada agreement, which President Trump signed in his first term, requires the three countries to jointly review the agreement six years after it entered into force on July 1, 2020.
That date has now arrived, and the three countries will gather for a virtual meeting on Wednesday. But they are still far from a consensus on how exactly their trade agreement should be changed.
Last month, Mexico and Canada expressed their desire to extend the agreement by 16 years. But Mr. Trump has repeatedly suggested he might pull out of the deal, raising anxiety among America’s neighbors. While the deal has many critics, industries such as automobiles and agriculture are tightly integrated across the continent because of the pact. Its end, experts say, would be disruptive to workers and businesses alike.
What is the USMCA again?
The pact replaced and updated the 1992 North American Free Trade Agreement, which Mr Trump criticized as the worst trade deal ever.
Apart from the name change, this negotiation left many parts of the original agreement intact. It also updated the pact with new provisions for digital technology, raised requirements for automakers to build more of their cars in North America, created new labor standards and modestly opened Canada’s dairy market to imports, among other changes.
Trump officials now say the new deal has not done enough to stop outsourcing, which is leading to the growth of the US trade deficit with Canada and Mexico. Mr. Trump has repeatedly threatened to scrap the deal, while his officials have proposed changes to encourage more American manufacturing. While many trade analysts believe the threat is a negotiating tactic, no one can be sure, given Mr. Trump’s desire to drastically change the trade system.
With the future of the deal hanging in the balance, businesses, farmers and unions have watched nervously and lobbied their governments on what to do. Also above the meeting are tariffs, which Mr. Trump imposed tariffs on crucial industries such as autos, steel and aluminum that Canadians and Mexicans claim have violated the pact.
What’s happening on July 1st?
Expectations for the meeting on Wednesday are low as negotiations continue separately. The US and Mexico have a second round of talks scheduled for the week of July 20, while talks between the US and Canada have not started in earnest.
Both Canada and Mexico have publicly rejected the idea of replacing the USMCA with separate bilateral agreements between the United States and its current trading partners.
Canadian officials have downplayed fears at home of an imminent end to the deal, suggesting that July 1 is less a deadline than a starting point for negotiations.
US officials have not made clear what they will say on Wednesday, but with negotiations underway, they appear unlikely to commit to extending the pact now. If no agreement is reached, the countries will begin a cycle of annual reviews and the USMCA will automatically expire after a decade.
In Mexico, officials have begun preparing for what they say is the most likely outcome. But they fear the annual reviews will create frequent instability, making it harder to attract the big investments needed to bolster North America’s economy and phase out Asian suppliers like China.
“If you drag us into a constant review process, you’re going to stifle investment,” Marcelo Ebrard, Mexico’s economy minister, said last week on a podcast. “It completely defeats the purpose of replacing your Asian suppliers. You can’t have it both ways.”
Public Citizen, a left-leaning advocacy group, said Monday that the switch to annual reviews would be “good news,” giving Democrats leverage to demand that Mr. Trump is making significant changes to the pact.
But companies have argued that the uncertainty undercuts the agreement’s benefits. Matt Blunt, the president of the American Automotive Policy Council, which represents US automakers, said he was pleased that governments were engaging constructively, but that uncertainty about the rules could delay investment decisions.
“The sooner the better and delay is not our friend,” he said.
How could the USMCA change?
The US has proposed changes to the pact’s rules for agriculture, metals, cars and other goods. These include a measure that is controversial for the car industry. It would raise the requirement for how much North American content by value a car would have to qualify for duty-free treatment.
The Trump administration will raise that threshold to 82 percent from 75 percent currently, while requiring 50 percent of a car’s materials to come from the United States, people familiar with the proposals said. The US also proposes to extend these rules to new types of auto parts and to impose new content requirements on other industries, including electronics.
Canada and Mexico also have their disputes, but for the most part they are eager for the deal to be extended and for the Trump administration to offer some relief on other tariffs it issued last year.
Mr. Trump has so far exempted most goods from Canada and Mexico covered by the trade agreement from tariffs. But that has not been the case for the crucial industrial sectors of cars, steel and aluminium, which face tariffs of up to 50 percent. Removing or reducing these duties is high on the list of demands for Canada and Mexico.
Prime Minister Mark Carney of Canada has taken steps that have been widely seen as concessions to the United States, despite his denials to the contrary. They include ordering a broadcast regulator to review a decision that would have tripled what major U.S. streaming services like Netflix pay to support Canadian TV and film production. And after the United States threatened tariffs on countries it determined had insufficient controls on imports of products made using forced labor, Mr. Carney’s government legislation to tighten its system.
But Mr. Carney has also vowed not to follow the Trump administration’s demands that could hurt Canadian industries just to preserve the trade deal.
Mexican officials have drawn a red line at any seasonal restrictions proposed by the United States to prevent Mexico from exporting agricultural goods during the seasons when the United States produces its own. If the Trump administration tries to enforce such restrictions, Mr. Ebrard said last week that Mexico will look for alternative mechanisms to replace U.S. agricultural imports, of which corn is the most important.
“We would not accept changes of that nature,” he said. “We told them that.”
