Does NAFTA 2.0 close the door on Mexico & China? Or on US & TPP?


When news of a bilateral agreement between the US and Mexico was announced, with the expectation that Canada would join, we notedthat several clauses were pointedly aimed at giving China market access. This week, Canada agreed to joinNAFTA 2.0 (or what the US administration is insisting on calling the "United States-Mexico-Canada Agreement"), and there text of the agreement was revealed, in order to comply with the US fast-track (“trade promotion”) ratification law.

Japan has applauded that the agreement would allow the auto companies that have established supply chains in the Bajío and elsewhere to keep running.

Observers of China’s trade with the Western Hemisphere quickly zeroed in on clauses deep within the agreement, namely Article 32.10: Non-Market Country FTA:

1. At least 3 months prior to commencing negotiations, a Party shall inform the other Parties of its intention to commence free trade agreement negotiations with a non-market country. For purposes of this Article, a non-market country is a country that on the date of signature of this agreement at least one Party has determined to be a non-market economy for purposes of its trade remedy laws and is a country with which no Party has a free trade agreement...

4. Entry by any Party into a free trade agreement with a non-market country, shall allow the other Parties to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement).

While not named, the phrase “non-market country” reads as “China,” which the US and EU have so far not let the World Trade Organizationdesignate as a "market economy." Canada-based observers see the agreement as limiting the Great White North’s ability to deepen trade with China: “The USMCA has an axe to grind — what does this mean for the future of the Sino-Canadian trade?” (美墨加协议藏杀机 加中贸易前路更难). Juan Pablo Castañón, head of Mexico’s Business Coordinating Council (CCE) noted that in agreeing to stick with NAFTA, Mexico was “slamming the door” on a Free Trade Agreement (FTA) with China. Even Russian propaganda outlet Sputnik is piling on: 俄罗斯专家:美国企图建立全球反华经济联盟("Russian expert: U.S. attempt to establish a global anti-China economic alliance”).

So is this a dagger "aimed" by the administration of US President Donald Trump at China’s growing global economic presence? Certainly Trump and his team think so.

Which brings us to the question: Was there ever that big of a door to open between China and Mexico? Fierce competitors in the global value-added manufacturing chain, beyond Mexican oil and increased Chinese interest in avocados, they never had much to export to each other. So while Mexico had been exploring an FTA with China, it was more casting about in desperation in case Trump blew up NAFTA than looking for a large new market. Former Mexican Ambassador to China Jorge Guajardo summed it up best:

Regarding the non-market economy clause on the NAFTA Agreement, the biggest winner with this is Mexico. Of the 3 partners, Mexico’s economy is the least complimentary with China. We were the most displaced when China joined the WTO. We have no interest in entering a FTA w China.

While many have noted the similarities of the improvements of NAFTA to TPP clauses that had been spurned by Trump, the article represents a hardening of trade stances against China. As former US treasury official Brad Setser notes:

TPP countries agreed to liberalize trade among themselves (which in some cases thanks to the liberalization of the rules of origin would have meant new opportunities for China too), not to coordinate any actions v China.   personally think that is an important distinction

Many have hoped that the US would eventually pursue a more pragmatic route and rejoin the TPP, which could provide a framework for China to fully-integrate into a rules-based system if it chose. This clause gives the US a say over the trade relations of three of the world’s biggest economies. Refusing to give up that leverage this could close the door on the US ever joining the TPP.

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