The USMCA has been signed – what comes next?

Lawrence Herman is a former Canadian diplomat who practices international trade law at Herman & Associates. He is also a Senior Fellow of the C.D. Howe Institute in Toronto.

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So, it’s done. The three heads of government put their signatures on the United States–Mexico–Canada Agreement Friday in Buenos Aires.

But not in any real celebratory way, certainly not by Justin Trudeau, given the terrible way the Trump administration treated Canada during the entire North American Free Trade Agreement renegotiating exercise. There was a remarkable difference in tone compared with the “Three Amigos” celebration when the NAFTA was signed by Jean Chrétien, Bill Clinton and Vicente Fox in 1994.

Signature in itself doesn’t make the USMCA legally binding, as other commentators have pointed out. It’s only a step in the process. It now requires each country to complete internal legislative steps to get the treaty approved. Only after all that is done can it be formally ratified and enter into force.

For Canada, the process is pretty straightforward, given our parliamentary system. The treaty will be sent to a parliamentary committee for review, accompanied by an implementing bill. With a Liberal majority in Parliament, approval of the package is assured. The Senate isn’t likely to raise objections or otherwise delay its passage.

In Mexico, it’s trickier. While the agreement was signed by Enrique Pena Nieto, he’s now out of office and Andres Manuel Lopez Obrador is President. He heads the National Regeneration Movement (Movimiento Regeneración Nacional or MORENA), part of a left-wing coalition that controls both houses in the Mexican congress. Will they go along with the agreement? In the end, probably.

All eyes will be on Washington, however, with the Democrats having gained control of the House of Representatives in the midterm elections. There’s no way the current (lame-duck) congressional leadership will try to force approval of the USMCA before the new Congress is sworn in in January.

While there’ll be the usual Washington theatrics, it’s expected that by mid-2019, the required congressional approval will be given and the USMCA will enter into force soon after, ending the NAFTA era, consigning it to an interesting 25-year chapter in Canada-U.S. history.

The question is: What happens after that? How will the treaty and its many organs work in practice? Trade agreements depend on good faith and mutual accommodation if their rules are to effectively function. Can we depend on that from the “America First” Trump administration? Can we put all the acrimony in the negotiations behind us? That remains to be seen.

The first signal of goodwill will be ending the Trump steel and aluminum tariffs, a major roadblock to restoring any semblance of constructive bilateral co-operation.

Beyond that, the USMCA will require continuing co-operative engagement of all three governments, particularly given the wide array of new trilateral treaty institutions – a development that has gone largely unnoticed in the flurry of commentary on the more attention-grabbing parts of the deal.

For starters, even though the White House has shown disdain for the very idea of “free trade” and of multilateral and regional arrangements, the USMCA establishes a new Free Trade Commission, with broad supervisory powers over the entire agreement. While there was a similar body in the NAFTA, giving it that same title and operational mandate seems at odds with Mr. Trump’s unilateral, America First approach.

There are other joint USMCA committees on a whole range of things: trade in goods, rules of origin, financial services, procurement, transportation services as well as one on North American competitiveness.

There’s a new Macroeconomic Committee, for example, put in the agreement at the insistence of the United States, that relates to the recognition that exchange rates and monetary policy are as important as tariffs in the scheme of things.

All of these bodies have a fair degree of supervisory power. At least on paper, this includes mandates for smoothing out differences in treaty interpretation and application, including, in some cases, mediating and settling trade irritants before they descend into legal battles and political acrimony.

I don’t want to overstate their significance, but having these bodies integrated in the treaty architecture, if they function effectively, could signal a greater degree of three-way collaboration and a more positive North American vision than would have been expected from the unilateral America First bombast of the Trump White House. But who knows?

Making this all work – and work effectively – will depend on goodwill and mutual respect from all sides, with the leading role coming from Washington. Can we rely on the Trump administration for this? Or will these institutions and committees look good on paper, but amount to little in reality?

That is the challenge for all three countries.