"And so Congress will have a choice of the USMCA or pre-NAFTA, which worked very well." — Donald Trump
Despite the lavish signing ceremony for the post-NAFTA agreement, the new trade agreement may run into a snag despite the Democratic leadership will be in charge of the U.S. House in January. The Dems might still pass the agreement somehow but only because they are in the habit of capitulation in the name of compromise.
Countries can withdraw from NAFTA, which would kick in 6 months after the announcement. Trump has said he will withdraw from NAFTA but U.S. law isn't crystal clear as to whether Congress needs to approve that move.
Canada is trying to remove the stigma of the ugly USMCA by renaming the deal CUSMA putting Canada first. The NAFTA name is starting to look better.
Even though the CUSMA will hurt Canada on many levels, the Liberals will pass the new deal in Parliament. The Conservatives are more into free trade than the Liberals so we'll see if they have any real objections. The senators might take their time, but maybe not as slow as their path with the marijuana legalisation bill.
The NAFTA withdrawal is designed to force the Dems to pass the new trade agreement. Canada does have an ace up the sleeve, something that the U.S. have virtually forgotten even exists: The Canada–United States Free Trade Agreement would be the standard bearer if NAFTA didn't exist.
The Canada–United States Free Trade Agreement was negotiated in 1987 and signed by the country leaders in 1988. The CUSFTA standard was the impetus for NAFTA negotiated by Canadian Prime Minister Brian Mulroney as well as U.S. President George H.W. Bush, who passed away on Friday.
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If the goal was to truly reinvent NAFTA, then let's start with the work of CUSFTA. Start from as close to the bottom as you can and truly rebuild a new NAFTA. Going back to CUSFTA would also take out the threat of GM moving jobs to Mexico.
GM's plans last week to close the Oshawa, ON plant as well as 4 U.S. plants is a reminder of the threat of auto jobs to Mexico. While that might seem unfair to Mexico, so was going behind Canada's back on USMCA/CUSMA. Canada would negotiate a separate trade deal if NAFTA didn't exist.
The move could be seen as playing to Trump's bizarre theory that 2-way trade agreements are significantly better than 3-way trade agreements as well as getting Mexico out of the deal, but Canada needs to be in a good deal and CUSMA is not a good deal.
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There is also the issue that tariffs on steel and aluminum still exist as well as tariffs on softwood lumber and the Bombardier planes. The threat also exists for tariffs on cars between Canada and the United States. There is no plan to get those tariffs to go away. The tariffs are part of the reason why GM is pulling out of 5 plants in Canada and the U.S. We haven't heard a peep from the WTO on the U.S. tariffs against Canada.
If CUSMA becomes official, there will be no incentive to renegotiate the deal in the future. The only leverage is to not have CUSMA become a reality. CUSFTA is not an ideal situation but there is huge incentive to build on that ancient agreement to give Canada a chance to have a trade agreement that benefits Canada.
photo credit: Martin Mejia/AP Photo
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