US, Mexico and Canada sign new trade deal

December 3, 2018 - The heads of state of the U.S., Mexico and Canada on Friday signed a new trade deal at the 2018 G-20 Leaders Summit in Argentina. 

The United States-Mexico-Canada Agreement (USMCA) will replace NAFTA once the three countries' legislatures have ratified the treaty.

"The USMCA is the largest, most significant, modern and balanced trade agreement in recent history. All of our countries will benefit greatly," U.S. President Donald Trump said prior to signing the treaty.

The news marks a milestone for the three nations and their respective heads of state, which have been negotiating to modernize the North American Free Trade Agreement (NAFTA) since 2016.

President Donald Trump made it a campaign pledge to renegotiate NAFTA, threatening to withdraw from the agreement several times if a deal was not struck. Mexican President Enrique Peña Nieto sought to reach a new trade deal before his term expires on Dec. 1, 2018. Canadian Prime Minister Justin Trudeau, meanwhile, sought a deal that did no harm to Canada, but also one that pushed forward greater labor and environmental rules in the region.

They ended up with a deal that, to over-simplify, is quite similar to NAFTA. Now, each head of state must take the text of the deal to their respective legislatures for approval.

In Mexico, the path to ratification is expected to be easy. The president-elect, Andres Manuel Lopez Obrador, won with a majority of the popular vote, allowing his party to claim a majority in both legislative chambers. After he was elected, he immediately joined trade talks, helping to push the USMCA past the finish line.

In Canada and the U.S., however, the trade deal may take longer to approve. The two countries are facing federal elections in 2019 and 2020, which may slow consensus on the deal and delay ratification. The treaty cannot enter into effect until all parties have ratified it.

Nonetheless, Mexico's Economy Secretary Ildefonso Guajardo recently told a radio station he believes the USMCA could enter into force as early as the second half of 2019, Reuters reports.

On Saturday, President Trump seemed to confirm this timeline. On the flight back from the G-20 summit, the president told reporters he planned to terminate NAFTA in a "short period of time." He said, "And so Congress will have a choice of the USMCA or pre-NAFTA, which worked very well," according to Politico.

The NAFTA text includes a provision wherein a head of state can notify the other countries of an intent to withdraw, six months prior to taking the action. If Trump were to submit a notification this week, he could withdraw by June 2019.

Some experts say he needs Congressional approval to withdraw in the first place. But it's an untested theory, with murky legal waters and even murkier consequences. As a result, there is high uncertainty over what would happen if the U.S. exits NAFTA without a new deal in place.

Such uncertainty puts pressure on Congress to ratify the USMCA well before a withdrawal can take effect.

Source: Supply Chain Dive