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PRINT EDITION
Key sections in new trade pact will put U.S. isolationism to the test
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By DAVID PARKINSON
  
  

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Thursday, October 4, 2018 – Page B1

To the critics who were quick to declare that Canada handed over its sovereignty in some important areas in the new United States-Mexico-Canada Agreement, I'll say this: The deal is not a one-way street.

Without question, a couple of key clauses in the pact - one placing conditions on trade negotiations by any USMCA country with "non-market" economies such as China, another that would create a trilateral committee to regularly review "the macroeconomic and exchange-rate policies of each party" - will give the United States and Mexico new input into Canadian economic and trade policy.

But by the same token, Canada will also gain a new voice in the affairs of the United States and Mexico.

The clauses may imply the start of a big shift in the relationship of the three continental trade allies. The provisions nudge them toward a broader form of continental co-operation that sacrifices a bit more sovereignty in the name of regional unity and the pursuit of mutual interests globally. You give up some independence to gain some influence.

That might be a reasonable, if debatable, trade-off for Canada and for Mexico. But it's an odd turn for the United States, which bristled for years over ceding sovereignty under the previous North American freetrade agreement, most notably through the Chapter 19 dispute-settlement panels. It has now not only left Chapter 19 intact, but has effectively given its junior partners input on much bigger issues such as currency and China. How these two sections of the new deal are going to function in practice no one can know until we see them in action.

But there's certainly no guarantee that the parties who agreed to them on paper are going to love the way they play out when they are put to the test. Indeed, these two sections in the trade deal have the potential to supplant Chapter 19 as the biggest sources of tension in the alliance - long after we've forgotten about the dairy quotas and autocontent rules that dominated the initial headlines.

First, a quick review of the two provisions in question.

One, called the "Non-Market Country FTA" clause, will require any USMCA country pursuing a bilateral free-trade agreement with a country that doesn't have an open-market economy to fully apprise its USMCA partners before talks begin, and furnish its partners with a copy of any proposed agreement for their review in advance of signing it. If a USMCA partner has serious problems with the deal, it can use it as grounds to leave the USMCA with six months' notice.

The other, in a chapter titled "Macroeconomic Policies and Exchange Rate Matters," pledges the USMCA countries to maintain "market-determined" exchange rates, and refrain from market intervention and "competitive devaluation." It establishes a "Macroeconomic Committee," with representatives from each country, to meet at least annually (but maybe more often) to not only keep tabs on each other's exchange-rate policies, but to weigh in on each other's economic policies more generally.

It doesn't take much imagination to tie both of these provisions to the United States' continuing feud with China. Trade barriers and currency manipulation are the two major perpetual beefs the Americans have with the state-managed economic superpower. Under President Donald Trump, the United States has dramatically turned up the heat on China to change its ways, and has lately been seeking allies to form a common front on China. While its courting of Japan and the European Union would certainly hold more sway in Beijing, getting its own North American partners pulling in the same direction can't hurt.

In particular, the non-market trade clause signals that Canada or Mexico won't strike any deal with China that would give it a back door into the U.S. market via the USMCA's tariff-free borders while the United States continues its strategy of punishing China with heavy tariffs. The currency provisions, meanwhile, create a template for a broader pact on currency stability that the United States wants to pursue at the Group of 20 - which includes China.

It all kind of fits with the usversus-them approach to foreign policy that the Trump administration has pursued. Once it committed to the North American alliance, its logical inclination would be to find ways to coordinate the partnership in ways that would simultaneously improve the advantage within the alliance, while putting major competitors outside the alliance at a disadvantage. Limiting China's access to the combined North American market does that. Co-ordinating their currencies to their mutual benefit does that.

But how happy is the United States going to be the day it decides that it is ready to pursue a trade deal with China (the kind of about-face that would be entirely in character for the mercurial Mr. Trump), and Canada and Mexico point to the non-market clause to demand seats at the table? What happens if Mexico or Canada want to use the macroeconomic committee to insist that U.S. government officials stop talking down their currency (as they are prone to do on occasion), or to demand to see a plan for reining in the massive U.S.

deficit?

We could find out very quickly how truly committed the United States is to share the power in the name of the North American alliance that the USMCA envisions.


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