Latin America Advisor

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How Well Is the USMCA Working After Three Years?

Photo of Enrique Pena Nieto, Donald Trump and Justin Trudeau signing the USMCA. Then-Presidents Enrique Peña Nieto of Mexico and Donald Trump of the United States, as well as Canadian Prime Minister Justin Trudeau, signed the USMCA trade accord in 2018. // Photo: White House.

July 1 marks the three-year anniversary of the United States-Mexico-Canada Agreement, or USMCA, trade deal taking effect. The trade accord modernized the former North American Free Trade Agreement, or NAFTA, and incorporated a wide range of provisions including ones related to digital trade, intellectual property and labor conditions. How well has the USMCA functioned over the past three years? Who has benefited from it the most? What deficiencies have come to light with the trade accord since it took effect?”

Molly McCoy, associate deputy undersecretary at the U.S. Department of Labor: “The USMCA includes the strongest labor provisions in any trade agreement in force to date. The International Labor Affairs Bureau (ILAB) of the Department of Labor (DOL) works closely with the Mexican government to implement the historic labor reforms required in USMCA. Support from the U.S. Congress in the USMCA Implementation Act, which provided $210 million to DOL for technical assistance and staffing, has led to impressive progress. ILAB posted five full-time DOL labor attaches in Mexico and is partnering with Mexico’s government to develop federal and state institutions that assure freedom of association, collective bargaining and independent unions. ILAB has awarded nearly all of its technical assistance funding through projects that are helping Mexico’s new labor justice institutions and strengthening the capacity of workers and employers to engage in the new system. ILAB partners with USTR to review complaints under the USMCA Labor Chapter and Rapid Response Labor Mechanism (RRM). The RRM is a first-of-it-kind enforcement tool that allows for factory-specific actions in Mexico and is an effective method to address freedom of association and collective bargaining in priority sectors. The United States has referred 11 RRM cases to Mexico’s government for review. RRM resolutions have resulted in improved wages and working conditions for Mexican workers, enabled them to choose their union and vote freely on collective bargaining agreements. These efforts have seeded a more representative union movement in Mexico, which will continue to level the playing field for Mexican and U.S. workers going forward.”

Arturo Sarukhan, board member of the Inter-American Dialogue and former Mexican ambassador to the United States: “Even though the USMCA received broad support from key stakeholders in all three countries, its success is not preordained. That’s why as the partners head into the first review of the agreement in 2026 per its ‘sunset clause,’ two issues are critical. First, ensuring that USMCA rules and disciplines—and their enforcement and compliance—are upheld and observed. Second, as the discussion pivots to USMCA as a pathway toward greater and more holistic levels of cooperation and dialogue among the three nations to address pressing collective and global challenges such as pandemics, climate change or strengthening North American competitiveness, resilience and ally or friend-shoring, a sober assessment of the disconnect between potential and reality becomes an imperative. These two concerns will be essential in determining the USMCA’s future path. Full implementation and enforcement of the agreement is the only way to sustain broad political support for it. While there are notable demonstrations of the effectiveness of USMCA rapid response dispute mechanisms on labor, an underlying concern is the need for all three governments to effectively utilize established processes to address the significant trade differences that have arisen, particularly regarding energy and Mexico’s backward-looking energy policies and rules of origin for auto parts, where we are still awaiting signs from the Biden administration as to whether it will comply with the panel’s ruling. Kicking the can down the road or failure to abide by the agreement’s commitments will harm political support for the USMCA in the longer term. And if friend-shoring is indeed a key component of the reset of Washington’s ties with Beijing, the United States’ most important geostrategic recalibration since the end of the Cold War, Mexico under López Obrador—with the notable exception of migration flows—has been behaving as anything but an ally and friend on a series of global and regional fronts.” 

Dan Ciuriak, fellow-in-residence at the C.D. Howe Institute in Toronto: “The renegotiation of NAFTA was driven by the Trump administration’s threat to cancel the deal altogether on grounds that it was unfair to the United States. Formal analysis of the USMCA’s measures excluding the provisions locking in free flow of data and banning data localization concluded it would be negative for the United States. The United States International Trade Commission estimated a loss of annual real GDP of -0.12 percent compared to the NAFTA. While the USITC did not provide estimates for Canada and Mexico, a C.D. Howe Institute study reached a similar conclusion for the United States and larger negative impacts on Canada and Mexico. These negative impacts derive from the USMCA’s protectionist rules of origin, which dictate greater North American content in production at the expense of efficiency. Did these measures deepen North American value chains? The data are not supportive: intra-North American goods imports rose by 29 percent between 2019 and 2022, while the USMCA partners’ imports from the rest of the world rose by 32 percent. As regards the key new governance measures, the high-profile Rapid Response Labor Mechanism (RRLM) has been invoked six times by the United States. The generally prompt and positive settlements of the complaints has received a positive appraisal, but one case has had to be revisited, and overall the leverage of these measures on labor market conditions in Mexico is small and certainly not game-changing for North American labor markets as a whole. The data provisions loom large given the risk of fragmentation of the global data economy because of geopolitical and geoeconomic rivalry, but these advantages from the USMCA remain in the future. With the first formal review of the USMCA at the six-year mark already rapidly approaching, the uncertainty into North American trade relations injected by the Trump administration’s isolationism remains at this point perhaps the dominant effect of this agreement.” 

Beatrice Rangel, member of the Advisor board and director of AMLA Consulting in Miami Beach: “It is quite difficult to determine at this stage whether one or all members have benefited from the agreement as too many distortions have taken place since its inception. Notably among these distortions of course is Covid-19 and the ensuing breakdown of the logistics chain, the great resignation and most recently the war in Ukraine. These have created a temporary exchange system that has affected every tradable good. We thus need the waters to level before we can engage in a rightful assessment of the flaws and merits of the USMCA. We can, however, take note of several USMCA-induced developments. These are the measurable increases in small- and medium-sized enterprises that are now either engaging or planning to engage in trade-related activities across the members’ borders. This development has positive effects in terms of enhancing the market size for these companies but also in terms of fostering innovation inside these companies. As they adapt to foreign markets’ demand, they embrace innovation. This is key to enhancing competitiveness. Then there is the dispute resolution mechanism, which creates opportunities for companies to hone their competitive skills and resort to enhanced use of technologies such a blockchain to record all transactions. But these impacts will only be measurable over the long run and in particular after the supply chain returns to the levels of coherence and efficiency pre-Covid-19.” 

Jon E. Huenemann, member of the Advisor board, council member of GLG Inc. and former assistant U.S. trade representative: “The political environments for trade agreements and the national contexts in Mexico, Canada and the United States have changed dramatically when considering the origins and work programs of NAFTA and the USMCA, respectively. Moreover, the very political purpose regarding trade agreements has been modified by those overseeing the USMCA in just the last three years, most visibly in the United States. The worker- and national security-centric agendas have taken center stage while more traditional trade disputes with sufficient political ‘wind’—read biotech corn and energy—are bubbling in their cauldrons. From a U.S. political standpoint, ‘de-contaminating’ trade agreements has taken center stage regarding the USMCA via labor-related enforcement, while in parallel we have watched the degradation of market access in new efforts regarding U.S. trade agreements. Yes, the USMCA contains more robust intellectual property, labor, environment and regulatory provisions along with dairy market access, for example, while it has also tightened rules-of-origin and added novel wage requirements in autos and weakened investor dispute settlement rights. All these changes reflect a new political context for trade. Give the United States and Mexico high marks for effort on labor enforcement, and all three parties get an unknown on resolving trade and investment disputes in corn, energy and dairy. Organized labor constituencies have notably benefited from U.S. leadership attention while resolving what we have long known are tough disputes in trade and investment has proven vexing. Let’s hope that USMCA efforts to create a more prosperous, sustainable and competitive North America generates measurable economic gains.” 


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