New North American Trade Deal Comes Into Effect Amid Political Tensions

A revamped trade deal between the United States, Canada and Mexico took effect on July 1, replacing the longstanding North American Free Trade Agreement (NAFTA).

However, while officially in force, the new trade deal is already causing friction among the North American signatories. As the deal starts, the Trump administration is threatening Canada with new aluminum tariffs, and a prominent Mexican labour activist has been jailed, underscoring concerns about crucial labour reforms in the replacement for the 26-year-old NAFTA deal.

The U.S.-Mexico-Canada Agreement (USMCA) includes tighter North American content rules for vehicles, new protections for intellectual property, prohibitions against currency manipulation and new rules on digital commerce that did not exist when NAFTA launched in 1994, an agreement U.S. President Donald Trump has lambasted as the "worst trade deal ever made."

The COVID-19 pandemic has all three countries mired in a deep recession, cutting their April goods trade flows - normally about $1.2 trillion annually - to the lowest monthly level in a decade. Issues dogging USMCA include hundreds of legal challenges to Mexico’s new labour law that enables workers to freely organize and unions to collective bargain with employers.

A ruling against it would harm Mexico’s ability to deliver on provisions aimed at ending labour contracts agreed without worker consent that are stacked in favour of companies and have kept wages chronically low in Mexico. Democrats in the U.S. Congress had insisted on the stronger labour provisions last year before granting approval, prompting a substantial renegotiation of terms first agreed in October 2018. The arrest of Mexican labor lawyer Susana Prieto in early June has fueled U.S. unions’ arguments that Mexican workers’ rights are not being protected.

U.S. national security tariffs on imported steel and aluminum - including from Canada and Mexico - were a major irritant during USMCA negotiations until a deal for exemptions was reached. But now, the U.S. is considering domestic producers' request to restore the 10% duty on Canadian aluminum to combat imports across the northern border.

Another source of disputes could be the energy sector, where the main U.S. oil and gas lobby has already complained that recent actions by Mexico favoring state oil company Pemex violate protections for private investors carried over from NAFTA. Canada has also complained about new Mexican rules formally threatening investment in renewable energy.