USMCA Can Ensure North America’s Success, if a Few Disputes Are Resolved


Photo: Google

By EARL ANTHONY WAYNE, former U.S. ambassador to Mexico

In 2022, trade between the United States, Mexico and Canada amounted to over $1.5 trillion, or close to $3 million per minute. This milestone underscores a remarkable double-digit growth over the past two years. It also marks an excellent start for the United States-Mexico-Canada Agreement (USMCA), which came into force on July 1, 2020.

So far in 2023, Mexico and Canada remain the United States’ top trading partners, making up over 30 percent of U.S. trade with the world in April. Moreover, the three countries also account for almost a third of global GDP, and intra-regional commerce supports over 12 million U.S. jobs, according to one

To sustain the track record of this vibrant partnership within the bounds of USMCA, the three countries should now showcase their ability to swiftly resolve existing disputes, particularly those in the important agriculture, automotive and energy sectors.

These three areas are vital building blocks of the region’s long-term economic success. By proactively tackling these issues, the trilateral partnership can ensure continued growth and opportunities for all, as the USMCA enters its third year in operation.

The USMCA, which replaced the North American Free Trade Agreement (NAFTA) in 2020, lays out a robust framework for promoting trade and investment between the three countries.

To date, all parties maintain active involvement in implementing the USMCA. they have held regular discussions about a range of sectors covered in the agreement.

The three trade ministers and key USMCA committees are slated to meet again in the weeks ahead. Notably, the United States and Mexico have emphasized progress made in resolving eight labor disputes in multiple Mexican facilities, in accordance with the USMCA’s labor provisions.

Importantly, building on the foundation of USMCA, the United States, Canada and Mexico are forging new avenues for collaboration to enhance North America’s long-term global competitiveness.

Through the North American Leaders Summit, the U.S.-Mexico High-Level Economic Dialogue (HLED) and the U.S.-Canada road map, the “three amigos” are providing incentives for private companies to engage in reshoring and nearshoring efforts. They are prioritizing the strengthening of strategic supply chains, including semiconductors and critical minerals, and promoting sustainable investments in electric-vehicle value chains. Ministers from the three countries met in May to promote work on semiconductors and launched a cabinet-level committee to enhance North America’s economic competitiveness.

Nonetheless, the three North American governments must also effectively use the USMCA’s processes to address significant differences that arise. This is critical to solidify the credibility of the agreement and of collaboration enhancing North America’s competitiveness in comparison to other global players, particularly China.

Left unresolved, disputes have the potential to generate uncertainty around the region’s ascendant trajectory and cast doubt on the agreement’s 16-year sunset clause and the USMCA’s required performance review in 2026.

Some business groups privately express worry about what might emerge from the forthcoming review of USMCA’s performance, citing the time it takes for new investments to yield results and the importance of having a well-functioning framework of trade rules and norms.

Importantly, Mexico is widely thought to have a generational opportunity to attract new investment as governments and corporations aim to diversify key supply chains from China, among others. The Inter-American Development Bank (IDB) estimates that Mexico potentially could add up to $35 billion in exports of goods and services through nearshoring, particularly in sectors such as the auto industry, textiles, pharmaceuticals and renewable energy.

While Mexico is attracting investment, the consensus among experts is that the opportunities may not reach their full potential unless Mexico successfully resolves major differences with the United States and Canada over its energy and agricultural policies. U.S. and Canadian companies, farm groups and officials maintain that Mexican policies and practices violate USMCA commitments, potentially risking billions of dollars in trade and investment. Consultations on both issues have been underway for over a year.

On June 2, the U.S. Trade Representative requested USMCA dispute-settlement consultations with Mexico over Mexico’s agricultural biotechnology policies, after months of discussions. The announcement followed a letter from over 60 members of Congress asking the Trade Representative to act.

After 75 days (in August), the United States could request a formal panel of experts to review the U.S. complaints. On June 9, Canada announced it would join dispute settlement consultations on biotechnology and agriculture as a third party.

Neither the United States nor Canada seems inclined to initiate a dispute settlement panel on energy differences soon, but the step on agriculture is a welcome signal of using the USMCA to find solutions.

The unresolved disputes serve as a litmus test of commitment to the rules- and science-based principles of the USMCA. Without solutions, uncertainty may lead businesses to seek investment opportunities outside of Mexico, especially when compounded with other worries about Mexico’s investment environment, including public security and rule of law.

The unresolved USMCA disputes also include differences between Canada and the United States. The United States has requested a second dispute panel over Canadian dairy policies, alleging that Canada did not abide by the findings of the initial USMCA dispute settlement panel. The second panel is scheduled to issue its findings in October.

Finally, the United States is also in the spotlight. U.S. inaction after losing a USMCA panel decision related to autos also sends a worrisome signal. More than 150 days have passed since the United States lost a panel initiated by Mexico and Canada, which concluded that the United States was not adhering to the USMCA in its application of rules of origin to North American vehicles. This dispute is important: Auto trade represents the largest component of USMCA commerce, over 20 percent.

Thus far, USMCA has provided an excellent framework within which trade across North America has flourished. However, if this positive trend is to continue, all three countries need to demonstrate a commitment to fully implementing the agreement, to solving problems such as the ones mentioned above and to developing other opportunities within the USMCA.

While finding solutions through negotiations is the preferred course, delaying the use of dispute settlement can result in significant losses and generate uncertainty regarding the effectiveness of the USMCA. Similarly, when a party loses a dispute settlement case, the credibility of the agreement is called into question if the losing party does not implement the panel’s findings.

These issues will be important in determining whether the 2026 review of USMCA becomes an opportunity to improve the current situation or opens the door to a Pandora’s Box of doubt about the agreement’s future in a rapidly changing global landscape. And the environment will also be complicated by the 2024 elections in the United States and Mexico.

The USMCA holds immense potential to drive good outcomes, particularly when combined with other avenues for economic cooperation among Canada, the United States and Mexico. It promises to bolster North America’s competitiveness globally and contribute to job creation and prosperity. Failures to abide by the agreement’s commitments will harm support for the USMCA in the longer term, however, even if steps to fix problems require tough decisions in the near term.

To fully capitalize on the current trade momentum under the USMCA, it is imperative that the “three amigos” jump in with both feet and fully engage on the trilateral trade and competitiveness agendas, including effectively addressing disputes. Through such concerted efforts, North America will position itself for success in the years ahead.

In closing, I would like to express my thanks to Diego Marroquín Bitar for his insightful comments on versions of this op-ed.

EARL ANTHONY WAYNE is a Distinguished Diplomat in Residence at American University, co-chair of the Wilson Center’s Mexico Institute Board and former U.S. ambassador to Mexico.

The above article first appeared in The Messenger magazine and is being republished in Pulse News Mexico with express prior permission.


One comment

Leave a Reply