global trade what ever happened to the “new nafta” and the transpacific partnership

By Dr. Jim Castagnera, Esq.

Partner, Portum Group International, LLC

Seems to me that almost every day I’m reading reports of Biden-Administration officials visiting Bejing to make nice with the Chinese government.  At the same time, the U.S. also looks to be making strenuous efforts to build stronger economic relationships with Australia, Taiwan and South Korea.

Closer to home, Uncle Sam seems to be walking a similar love-hate tightrope with Mexico.  Biden’s plan to make it tougher on asylum seekers from south of the border was shot down this week by a federal judge.  But he continues to play hardball with Mexico on the issue of illegal migrants who use Mexico as their pathway to the U.S.  The Texas Governor is acting even tougher.  Pictures of kids on barbed wire didn’t make relations with our southern neighbor any more cordial.

In the midst of all this controversy, I find myself wondering what ever happened to the multi-lateral trade deals or happier days.

The “New NAFTA”

The (original/old) North American Free Trade Agreement (NAFTA) was ratified by the U.S. Senate and the enabling legislation enacted by the U.S. Congress as a whole in 1993. It created an enormous free trade zone consisting of Mexico, the United States, and Canada—essentially all of the North American continent. The main purpose of NAFTA was to meet the perceived economic threat of the European Union (EU) on the other side of the Atlantic.

NAFTA is supplemented by two significant side agreements:

1.The North American Agreement on Labor Cooperation; and

2.The North American Agreement on Environmental Cooperation.

Then-candidate Trump expressed dissatisfaction with NAFTA and vowed to make a major change, if elected President. After winning in 2016, he acted on that promise. The United States-Mexico-Canada Agreement (USMCA), the “new” NAFTA, was completed among the three North American nations on September 30, 2018. The USMCA went into full force on July 1, 2020.

Agreement highlights include:

• Creating a more level playing field for American workers, including improved rules of origin for automobiles, trucks, other products, and disciplines on currency manipulation.

• Benefiting American farmers, ranchers, and agribusinesses by modernizing and strengthening food and agriculture trade in North America.

• Supporting a 21st century economy through new protections for U.S. intellectual property, and ensuring opportunities for trade in U.S. services.

• New chapters covering Digital Trade, Anticorruption, and Good Regulatory Practices, as well as a chapter devoted to ensuring that Small- and Medium-Sized Enterprises benefit from the Agreement.

[https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement]

As the USMCA celebrated its birthday in summer 2022, the Brookings Institution released a report on the pact's progress thus far. According to Brookings:

“Over the last two years, trade among the North American partners has recovered to pre-pandemic levels having grown 22 percent since 2020 to a total of 1.26 trillion in 2021. It is also worth recalling that for each party to USMCA, trade with the other two parties represents their most important international trade relationship. Over the last two years, the effectiveness of USMCA in managing economic relations has also been demonstrated repeatedly. For instance, the new USMCA Rapid Response Mechanism for labor complaints has been used four times to strengthen free voting and union representation at manufacturing facilities in Mexico. The USMCA State-to-State Dispute Mechanism has delivered results on U.S. complaints over access to the Canadian dairy market, and Canada and Mexico are challenging the U.S. approach to rules of origin for motor vehicles. Trade disputes are to be expected in a $2.6 million-per-minute trade relationship—what is significant is the turn to USMCA arbitration to settle disputes. This signals the importance governments are placing on compliance, which also increases certainty for investors and traders. There has also been a lot of below-the-radar work done by officials from all governments that supports implementation, overcomes technical issues, and can identify ways to further expand opportunities for trade and investment. In addition, there have now been two Free Trade Commission meetings at the ministerial level, as well as a deputies meeting in January this year.”

[https://www.brookings.edu/research/usmca-at-2-visions-for-next-steps/]

On March 1, 2023, the Office of the United States Trade Representative (USTR) released President Biden’s 2023 Trade Policy Agenda and the 2022 Annual Report. According to the report:

The United States – Mexico – Canada Agreement (USMCA) brought concrete outcomes that leveled the playing field for workers and defended the interests of U.S. energy and agricultural producers. In particular, Ambassador Tai worked with labor representatives in Mexico to invoke the Agreement’s Rapid Response Mechanism to resolve multiple violations of workers’ rights, which included securing reinstatement and backpay to workers who were allegedly terminated for participating in union activity. Strong cooperation with Mexico and Canada to enforce the USMCA will raise labor standards across North America and drive a race to the top.

[https://ustr.gov/about-us/policy-offices/press-office/press-releases/2023/march/ustr-releases-president-bidens-2023-trade-policy-agenda-and-2022-annual-report]

The full text can be accessed here: https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between.

The USMCA also includes a Mexico-specific annex, requiring an overhaul of Mexico's labor justice system. The agreement creates an independent body to regulate collective bargaining agreements in Mexico.

In order to improve the enforcement of labor rules, the participating countries have agreed to ensure that they respect the rules and obligations set out in the USMCA, and failure to meet those obligations may require a participating country to activate the dispute resolution process outlined in the USMCA.

The agreement also contains “re-opener” language that could potentially lead to new regulations, so employers should monitor the regulations as necessary.

[https://www.mondaq.com/unitedstates/Employment-and-HR/886256/USMCA-Review-A-New-Deal-For-Labour-In-The-New-NAFTA39]

Unlike NAFTA, the USMCA requires parties not only to enforce their own laws, but also to adopt and maintain laws on core worker rights related to the International Labor Organization (ILO) 1998 Declaration on Fundamental Principles and Rights at Work. The USMCA also commits the parties to:

• not waive or otherwise derogate from labor statutes or regulations to promote trade and investment;

• not fail to effectively enforce labor laws through a “sustained or recurring course of action or inaction” (with the exception of worker violence) in a manner affecting trade or investment between parties; and

• promote compliance with labor laws through appropriate government action, such as appointing and training inspectors or monitoring compliance and investigating suspected violations.

The USMCA also prohibits imports of goods made by forced labor, and adds new commitments related to violence against workers, migrant worker protections, and workplace discrimination. It maintains standard U.S. FTA language that each party would retain the right to “exercise reasonable enforcement discretion and to make bona fide decisions” on the allocation of enforcement resources. Additionally, it specifies that the labor chapter shall not be construed to empower another party to undertake labor law enforcement in the territory of another party.

The most recent changes to the agreement in regard to labor provisions are:

• Prevention of panel blocking in dispute settlement. Ensures the formation of a panel in dispute cases where a party refuses to participate in the selection of panelists.

• “In a Manner Affecting Trade and Investment.” Shifts the burden of proof by stating that an alleged violation affects trade and investment, unless otherwise demonstrated.

• Rapid Response Mechanism. Adds a new rapid response mechanism to provide for an independent panel investigation of denial of certain labor rights at “covered facilities,” as opposed to a government inspection. This dispute settlement mechanism provides for expedited enforcement of workers’ free association and collective bargaining rights at the facility level. The first step of the mechanism is for a country to submit a request for review to the other country to determine whether there is a denial of rights and attempt to remediate any issues it finds.  In certain situations, the mechanism also provides for panelists to assess complaints about conditions at specific facilities, and, in cases of non-compliance with key labor obligations, provides for the suspension of USMCA tariff benefits or the imposition of other penalties, such as denial of entry of goods from businesses that are repeat offenders.

[https://ustr.gov/issue-areas/enforcement/dispute-settlement-proceedings/fta-dispute-settlement/usmca/chapter-31-annex-facility-specific-rapid-response-labor-mechanism]

• Mexico's Labor Reform Monitoring. USMCA implementing legislation creates a new interagency committee, labor attachés, and reporting requirements to Congress on Mexico's implementation of labor reforms.

• New or amended provisions on Rules of Procedure for dispute settlement, forced labor, and violence against workers.

[https://fas.org/sgp/crs/row/IF11308.pdf]

The Trans-Pacific Partnership

The Trans-Pacific Partnership (TPP) is a 12-nation trading partnership that includes much of the Pacific Rim. According to the Office of the United States Trade Representative, the TPP would:

• Eliminate or reduce tariff and non-tariff barriers, which will create new opportunities for businesses.

• Facilitate “the development of production and supply chains, and seamless trade.”

• Address “new trade challenges,…including the development of the digital economy, and the role of state-owned enterprises in the global economy.”

• Help “small and medium-sized businesses” take advantage of regional trade.

• Create a platform to allow countries in the Asia-Pacific region to enter into the agreement in the future.

[https://ballotpedia.org/The_Trans-Pacific_Partnership_trade_deal:_An_overview]

The TPP was signed by the United States and 11 other Pacific nations on February 4, 2016. However, on January 23, 2017, newly inaugurated President Trump signed an executive order withdrawing the United States from the Trans-Pacific Partnership. The other 11 trading partners have gone forward with the TPP. Newly inaugurated President Biden has indicated that he will not be reentering the agreement too hastily.

[https://www.cfr.org/article/presidential-candidates-trans-pacific-partnership]

Rechristened the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the massive trade pact sans U.S. participation in 2018 was ratified by Australia and Canada, completing the negotiation phase and poising the massive trade deal for implementation by the 11-member nations. These include Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

[https://qz.com/1441027/the-cptpp-trade-deal-is-ready-to-go-into-effect/]

Where does that leave the United States? According to the Federal News Network, “President Joe Biden faced a dilemma on trade in Asia: He couldn't just rejoin the Trans-Pacific Partnership that his predecessor had pulled the U.S. out of in 2017. Many related trade deals, regardless of their content, had become politically toxic for U.S. voters, who associated them with job losses.”

“So Biden came up with a replacement. During Biden's visit to Tokyo, the U.S. on Monday announced the countries that are joining the new Indo-Pacific Economic Framework. In the tradition of trade deals, it's best known by its initials: IPEF. (Pronounced EYE-pef.)”

[https://federalnewsnetwork.com/government-news/2022/05/explainer-whats-in-bidens-proposed-new-asia-trade-pact/]

The Indo-Pacific Economic Framework for Prosperity (IPEF) launched on May 23, 2022 with a dozen initial partners: Australia, Brunei, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Together, the partnership represents 40 percent of world GDP. 

According to a fact sheet, “IPEF will enable the United States and our allies to decide on rules of the road that ensure American workers, small businesses, and ranchers can compete in the Indo-Pacific. As the President has said, tackling inflation is a top economic priority, and this framework will help lower costs by making our supply chains more resilient in the long term, protecting us against costly disruptions that lead to higher prices for consumers.”

The framework will focus on four key pillars to establish high-standard commitments that will deepen the U.S.'s economic engagement in the region:

• Connected Economy: On trade, we will engage comprehensively with our partners on a wide range of issues. We will pursue high-standard rules of the road in the digital economy, including standards on cross-border data flows and data localization. We will work with our partners to seize opportunities and address concerns in the digital economy, in order to ensure small and medium sized enterprises can benefit from the region's rapidly growing e-commerce sector, while addressing issues is such as online privacy and discriminatory and unethical use of Artificial Intelligence. We will also seek strong labor and environment standards and corporate accountability provisions that promote a race to the top for workers through trade. 

• Resilient Economy: We will seek first-of-their-kind supply chain commitments that better anticipate and prevent disruptions in supply chains to create a more resilient economy and guard against price spikes that increase costs for American families. We intend to do this by establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts.

• Clean Economy: We will seek first-of-their-kind commitments on clean energy, decarbonization, and infrastructure that promote good-paying jobs. We will pursue concrete, high-ambition targets that will accelerate efforts to tackle the climate crisis, including in the areas of renewable energy, carbon removal, energy efficiency standards, and new measures to combat methane emissions. 

• Fair Economy: We will seek commitments to enact and enforce effective tax, anti-money laundering, and anti-bribery regimes that are in line with our existing multilateral obligations to promote a fair economy. These will include provisions on the exchange of tax information, criminalization of bribery in accordance with UN standards, and effective implementation of beneficial ownership recommendations to strengthen our efforts to crack down on corruption.

[https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/23/fact-sheet-in-asia-president-biden-and-a-dozen-indo-pacific-partners-launch-the-indo-pacific-economic-framework-for-prosperity/]

More recently, on May 20, 2023, the leaders of Australia, India, Japan and the United States convened to reaffirm their steadfast commitment to work through the Quad to support a free and open Indo-Pacific that is inclusive and resilient. The four countries met in an effort to look toward the future, and committed to the following principles as they responded to the challenges ahead:

• We are deeply invested in the future prosperity and stability of the Indo-Pacific, and are committed to bringing enduring benefit to the region by providing options that build resilience, open communication and economic growth.

• We seek to maintain and strengthen stability in the Indo-Pacific where competition is managed responsibly, in accordance with international law, including the United Nations Charter, and we will work to strengthen and reform the multilateral system to ensure all nations, large and small, continue to have a voice. We seek to uphold the international order based on the rule of law.

• We acknowledge and respect the centrality, agency, and leadership of regional institutions, including ASEAN, the Pacific Islands Forum, and the Indian Ocean Rim Association, and will work in and alongside them to complement their efforts and advance our shared interests.

• We will work transparently and in open dialogue to implement a practical agenda that delivers sustained economic and social value, is responsive to regional partners, and contributes to global priorities by advancing the United Nations’ 2030 Agenda for Sustainable Development and its Sustainable Development Goals, noting the transformational power of technology to help meet these goals.

[https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/20/quad-leaders-vision-statement-enduring-partners-for-the-indo-pacific/]