Details of NAFTA's Replacement Remain Unknown
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Remember the USMCA? The United States-Mexico-Canada Agreement created plenty of buzz when it was finalised last autumn, giving a sense of relief to companies, especially those in the automobile and agricultural industries, that had been worried about the U.S. withdrawing from the North American Free Trade Agreement.
But things have changed. Attention has shifted to U.S.-China trade talks and Democrats have gained control of the U.S. House of Representatives, putting the future of President Donald Trump’s USMCA deal in jeopardy, to the point that it’s uncertain whether Congress will ratify the deal.
“It’s a little bit underappreciated that the momentum of the USMCA seems to be stalling or maybe even has stalled. Certainly there was a lot of fanfare last November when it was announced that it was done,” said international trade lawyer Sanjay Mullick, a partner at Kirkland & Ellis in Washington, D.C.
He added: “People need to realise that it isn’t done.”
And yet Mullick and other trade lawyers say their clients appear largely unconcerned about the USMCA’s fate.
“I don’t think people are nervous about it because they’re thinking that NAFTA is going to stay unless and until there’s a new agreement that has bipartisan support. Everybody’s just operating under the old rules,” said Judith Alison Lee, a partner in Gibson Dunn’s Washington, D.C., office and co-chair of the firm’s international trade practice group.
Warren Maruyama, former general counsel for the U.S. Trade Representative and now a partner at Hogan Lovells in Washington, D.C., said his clients, some of who are in the auto industry, are “waiting and hoping” for the USMCA to pass.
“I haven’t seen anyone hit the panic button yet. But I think they are broadly aware that it requires congressional approval and it’s not exactly clear how the House is going to deal with it,” he said. “If they don’t approve the USMCA, then it becomes: are we going to keep NAFTA 1.0 or is President Trump going to start the withdrawal process?”
Raising the spectre of pulling the U.S. out of NAFTA would likely aim the spotlight back on the USMCA, create further trade uncertainty, and possibly spur Congress to ratify the deal. But walking away from NAFTA would likely be an unwise political move for Trump.
“The way this has played out is you’d have to do the actual withdrawal in the middle of his re-election campaign. It would be disruptive for companies because their supply chain costs would go up,” Maruyama said. “Agriculture and rural voters are a big part of Trump’s base. So it would be shooting a big hole in his re-election effort.”
At this point, it seems that there’s not much that companies with a stake in the outcome of the USMCA can do, other than stay tuned, according to Maruyama.
“I think it’s way too early to start turning your supply chain upside down because you’re expecting NAFTA to end,” he said. “I think right now they’re just waiting and hoping.”
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