Is NAFTA 2.0 Better than Nothing? Would Americans be better off if their government simply repealed NAFTA rather than replace it with the USMCA?

• Author: Lemieux, Pierre
• Position: COMMERCE & TRADE

Late last September, the governments of the United States, Mexico, and Canada announced agreement on the United States-Mexico-Canada Agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA). The standard reaction of free traders to the announcement was that the new deal isn't as bad as they had feared. A Wall Street Journal editorial put it succinctly: "The new trade deal could have been worse given Mr. Trump's protectionist beliefs, but that's about the best we can say for it."

More interesting was the tepid response to the announcement from groups that are not known as free traders. The president of the International Brotherhood of Teamsters, a large American union with a Canadian presence, applauded the USMCA's "considerable progress on workers' rights," but said that more information, notably on enforcement, was required "before the Teamsters can give it our unqualified support." The United Auto Workers were pleased but not ready to give their blessing until all the details are released. The AFL-CIO, the largest labor organization in America, called the agreement "a good start," but said they "simply do not have enough information at this time to know whether [it] is in the economic interests of the United States."

In truth, nobody at that time had enough information to make such a judgment. The final language wasn't set until November 30--after this article went to press--when representatives of the three governments were scheduled to sign the agreement. Until then, analysts made due with a draft "Subject to Legal Review for Accuracy, Clarity, and Consistency." Even with the formal signing, the proposed treaty will still have to be approved by the legislatures of the three countries, and it is not certain what the new Congress will do with the deal.

The draft agreement is made of a preamble, 34 chapters, 15 annexes, and 33 "side letters"--all of which add up to 2,082 pages. The USMCA is an even more complex piece of legalese than the roughly 600 pages of NAFTA.

In comparison, free trade should be simple. Any pair of individuals or their intermediaries or corporate bodies should be free to exchange a good or service on their own terms. The very complexity of the USMCA suggests that it is not free trade.

POSITIVE POINTS IN THE USMCA

The USMCA is often described as being very similar to NAFTA, which is why some people are calling it "NAFTA 2.0." Among the things that have been substantially maintained is the dispute settlement mechanism of the original NAFTA's Chapters 19 and 20, which allows each national government to challenge antidumping or countervailing duties before arbitration panels.

Much of what the USMCA does not borrow from NAFTA it copies from the Trans-Pacific Partnership (TPP), a trade agreement that the Trump administration abandoned and that the other 11 involved nations then rechristened the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and signed. One lawyer's estimate puts at two-thirds the number of chapters of the USMCA that can be traced to the CPTTP.

One can find positive changes in the USMCA, but they are small. One such change is a prohibition on currency depreciation intended to produce a trade advantage, although it may be difficult to...