“The greatest FTA ever negotiated”

If you know your French history, in 1789, Louis XVI, asked his courtiers “Is this a revolt” and they replied: “No Sire, it is a revolution”. In 2018 President Donald J Trump asked his courtiers to deliver a revolution in North American trade. What he got was a revolt of sorts, but one with limited impact, at least for now.

Channeling the Village People, “USMCA” (the US Mexico Canada Agreement) will replace the North American Free Trade Agreement (NAFTA) which entered into force in 1994. Business groups, especially in Canada, will breathe a sigh of relief. Despite tweaks here and there, USMCA is unlikely to disturb unduly the extensive integration between the three amigos in North America, except perhaps in terms of the motor vehicle industry where the changes are a little more extensive. Mostly though some of the world’s most competitive supply and value chains will continue as before and that is a good thing for industry, workers and consumers in that part of the world.

The deal does have some implications for New Zealand interests though:

• US dairy farmers will gain some additional access to the Canadian market, not a great deal more than under the former TPP and certainly not enough to bring down Canada’s extensive supply management for dairy
• Canada will phase out its “special milk class 7” scheme under which Canada was able to supply subsidised milk powder to global markets – that will be welcomed by New Zealand exporters
• Canada will rein in British Columbia’s scheme to allow sales of BC wine in supermarkets, while imported wines were relegated to specialty stores – this was a WTO dispute in the making and will assist NZ exporters. It remains to be seen whether Canadian restrictions on the distribution of wine in other provinces will be reformed
• The operation of controversial investor-state dispute settlement (ISDS) will no longer apply between the United States and Canada (but will continue between the United States and Mexico)
• The US has extended the intellectual property provisions of the former TPP which were stripped out of CPTPP.

The latter two elements make it both easier and harder to negotiate a future FTA between the US and New Zealand. While the elimination of ISDS will be welcomed by the NZ Government, intellectual property remains a real sticking point.

One other provision is potentially hu-uge. The USMCA parties have agreed to consult and potentially withdraw commitments if one of them negotiates an FTA with a non-market economy (read: China). This is unusual for an FTA and calls into question future Canadian and Mexican support for the Free Trade Area of the Asia Pacific (FTAPP) which has been on APEC’s agenda for over a decade.

Revolutions in international trade seldom happen overnight. The devil is in the detail and the effects accumulate over time. It will doubtless prove so with USMCA but that it got done at all in the current trade climate is probably something to raise a royal eyebrow.

This post was written by Stephen Jacobi, Executive Director of the NZ International Business Forum.