4/5/21 • TradeUSMCA

USMCA – Last of It’s Kind?

April 5, 2021

By Michael Anderson, Vice President, Trade & Industry Affairs and Caitlyn Costello, Trade Policy Intern

flags of the U.S. Mexico Canada

The U.S.-Mexico-Canada Agreement (USMCA) may be the last U.S. comprehensive trade deal in the near future. USMCA set a leading standard for future trade agreements and comprises one of the most significant trade events for the U.S. since the turn of the century, particularly for agriculture. The USMCA carried strong bipartisan Congressional support, imposed high environmental and labor standards, and expanded market access for U.S. agriculture exporters among other sectors. However, recent political changes may prevent other potential trade agreements from replicating USMCA’s high standards. In addition to a shift in political leadership in the White House and balance of power in Congress, 2021 ushers in the expiration of Trade Promotion Authority (TPA). Further, the proliferation of multiple U.S. mini-trade deals over the past four years leaves unfinished work for several potential comprehensive agreements that are ultimately subject to Congressional approval. Replicating USMCA provisions is not impossible, but increasingly arduous without significant political concessions from both Republicans and Democrats. As a result, trade agreements currently in negotiations: U.K., and Kenya, are all unlikely to achieve the baseline in new standards established by the USMCA without extended negotiations and political compromises. This will especially impact the agricultural sector as any mini-trade deals will remain narrowly focused on sectors or issues and eschew controversial ones such as agriculture market access or phyto and phyto-sanitary rules and regulations.

Strategic Significance of USMCA

USMCA was signed into law by President Trump on January 29, 2020, after receiving overwhelming bipartisan support in Congress. Passage of USMCA in the Congress was a watershed mark for U.S. trade agreements  setting the bar for Congressional approval of future trade agreements. On December 17, USMCA passed the House of Representatives  with overwhelming bipartisan support 385 – 41. The historic margin (344 votes), the largest of any major U.S. trade agreement, included 193 Democrats voting in support (38 opposed), 192 Republicans voting in support (two opposed) and  one  independent  opposing  the  agreement. As a reference, NAFTA passed the House by a margin of only 34 votes (234-200).

Passage of USMCA in the Congress was a watershed mark for U.S. trade agreements setting the bar for Congressional approval of future trade agreements.

Reaching Congressional ratification of the agreement marked a serpentine path of obstacles. Namely, a year lapse since the signing of the original agreement, a delayed statutory report by the independent U.S. International Trade Commission owing to government shutdown, the lifting of U.S. 232 tariffs on steel and aluminum imports from Canada and Mexico, and months of intense negotiations between the House Democrats and USTR principally over language on labor, environment, and enforcement in the agreement. The historic level of Democratic support is ascribed by many trade experts to the amended provisions of USMCA that addressed the House Democrats’ labor and environmental concerns, and the endorsement by the AFL-CIO, the first endorsement of a trade agreement by the organization in 20 years.

USMCA Importance for Agriculture

While nearly 99 percent of U.S. food and agriculture exports enjoyed duty free access to Canada and Mexico under NAFTA, USMCA increases market access to Canada’s dairy market, poultry, wheat, and alcohol, enhancing market access in several key agricultural industries. Moreover, USMCA maintains NAFTA’s zero-tariff treatment on other agriculture exports. Increased market access further promotes U.S. trading interests and ensures fair competition with our North American trading partners. Particular provisions in USMCA include:

  • Canada agreed to eliminate the unfair Class 6 and 7 milk pricing programs that allowed their farmers to undersell U.S. producers, resulting in expanded Canadian market access for U.S. dairy farmers.
  • U.S. poultry producers have expanded access to Canada for chicken, turkey, and eggs. Canada agreed to terminate its discriminatory wheat grading system, increasing U.S. growers’ competitiveness.
  • The three countries agreed to avoid technical barriers to trade through non-discrimination and transparency regarding sale, distribution, labeling, and certification of wine and distilled spirits.
  • USMCA maintains the zero tariffs that were originally achieved for corn wet milled products under NAFTA, which had allowed Mexico and Canada to become our number one and two markets in the sector, respectively.

USMCA strengthens the U.S. farm and agriculture economy and secures vital market access for U.S. farmers, ranchers, and agri-businesses.

Several new provisions in agriculture were introduced or expanded in USMCA to modernize NAFTA and to create a high-level standard for future agreements including enhanced sanitary and phytosanitary (SPS) enforcement, addressing biotechnology, additional protections on geographical indicators, and increased environmental obligations. Specifically, USMCA:

  • Strengthened disciplines for science-based measures that protect human, animal, and plant health while improving the flow of trade.
  • Specifically addressed agricultural biotechnology – including new technologies such as gene editing – to support innovation and reduce trade-distorting policies.
  • Included a new intellectual property (IP) chapter that offers enhanced protections for agriculture innovators and institutes a more rigorous process for establishing geographical indicators.
  • Added an environment chapter to ensure enforcement in environmental obligations including prohibitions on harmful fisheries subsidies and introduces articles to improve air quality, prevent and reduce marine litter, support sustainable forest management.

Replacing the 25-year-old NAFTA, USMCA further strengthened existing market access, expanding U.S food and agricultural exports and supporting food processing and rural jobs in America. Canada and Mexico constitute the second and third largest export markets for U.S. food and agricultural products, totaling more than $18.2 billion in exports in 2019. The increased market access under USMCA is expected to increase U.S. agricultural exports by $2.2 billion. USMCA strengthens the U.S. farm and agriculture economy and secures vital market access for U.S. farmers, ranchers, and agri-businesses.

Shifts in Political Environment

These modernized non-tariff provisions of USMCA set the next baseline and high standard for future U.S. trade agreements and provide a starting point for U.S. negotiators. Yet the expiration of TPA and shifts in the trade political environment in 2021 raises the bar and may incentivize narrow and palatable mini-trade deals over complex and time-intensive comprehensive deals. Several trade experts recently suggested the Biden Administration pursue limited sectoral trade agreements as building blocks to future comprehensive pacts, such as joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Ultimately, mini-deals may entail a series of future phased negotiations, such as the stalled phase two negotiations with Japan and China, to achieve the comprehensive and high standard agreement represented by the USMCA for increased market access and protection in the agricultural sector. The current U.S.–U.K. negotiations are an example of an agreement that could expand the USMCA provisions as the U.K. seeks to establish a post- Brexit independent food and regulatory framework. The enhanced USMCA provisions on agriculture, labor, environment, and enforcement provide U.S. negotiators an important baseline and signal to the U.K. and other potential trade partners seeking bilateral agreements of the bar Congress expects in order to ratify future trade treaties. However, the U.S.-U.K. agreement risks failing to materialize into the standard set by USMCA if the agreement is not implemented in early 2021 as TPA expiration and a shifting domestic policy priority for a new presidential administration may slow or preclude passage of a comprehensive trade deal in 2021.

TPA or the “fast track” streamlines legislative consideration of trade agreements and expedites trade negotiations. Under TPA, when the executive branch presents an agreement, Congress gives an up or down vote by a simple majority without amendments. This process is key to a timely comprehensive trade agreement. Crucially, TPA expires on July 1, 2021. The Trump administration already extended the TPA in 2018, forcing a vote in 2021 to avoid expiration. If TPA is not renewed, comprehensive trade deals would be subject to Congressional amendments which would alter and potentially suspend Congressional consideration of agreements that require taxing negotiations. Trade partners might be reluctant to negotiate with the U.S., especially on politically sensitive issues, unless they are confident that a trade agreement negotiated by the executive branch would receive timely legislative consideration, that it would not unravel by congressional amendments, and that the U.S. would implement the terms of the agreement reached.

Changes in the U.S. political environment suggest less emphasis on successfully negotiating and implementing comprehensive trade agreements, … USMCA may be the last high-standard comprehensive trade agreement until well into the Biden Administration.

Even if TPA is renewed in 2021, though most trade observers remain doubtful, trade agreements are still subject to changing executive and legislative priorities. President Biden has indicated his Administration’s priorities lie in domestic-centric policies particularly in ameliorating the COVID-19 pandemic and ensuring economic recovery. While Biden has offered support for future trade agreements, they are unlikely to be a policy priority until well after the administrations’ 100 days or even longer. In the meantime, mini-trade deals may provide opportunities to resolve trade disputes and keep the U.S. on offense on the global trade stage, as other countries proceed apace with new agreements, such as the Regional Comprehensive Economic Partnership (RCEP), which covers 30% of the world’s GDP. Further, such sectoral or limited trade deals would avoid expending the political capital and resources necessary to negotiate a comprehensive trade deal while the Biden Administration prioritizes domestic economic recovery. While Democrats control both chambers of Congress and the White House may strengthen political accord to pass comprehensive trade agreements, their expectations for environmental and labor provisions as laid out in USMCA may present a significant challenge for passage of comprehensive deals not aligned with similar provisions in USMCA. Amalgamated with the unwavering position that such agreements are not a named priority of the Biden administration as well as their passage remains further hindered by the expiration of TPA, USMCA may be the last high-standard comprehensive trade agreement until well into the Biden Administration.

Consequence

While USMCA sets a new standard in terms of negotiation provisions and political support, it is unlikely to be replicated in another comprehensive trade agreement in the next several years. Changes in the U.S. political environment suggest less emphasis on successfully negotiating and implementing comprehensive trade agreements, opening the door for increasing consideration of mini-trade deals that offer a path of least resistance and keep the U.S. in an offensive trade posture. This carries implications for currently paused U.S.-U.K. and U.S.- Kenya trade negotiations, along with any other prospective trade deals, which could fail to receive timely Congressional consideration if negotiations do not conclude under extended or renewed TPA authority.  This will carry a significant impact on U.S. exporters, including in the agriculture sector, who seek increased market access to enhance their global competitiveness and economic security.