The CUSMA is still very much on the rails. Last Friday was another key date for North American free trade, as it was the very last chance for the outgoing Peña Nieto administration in Mexico to sign on the dotted line. It also satisfies a key date in the US legislative calendar, allowing critical dates to be met on the road to full approval and implementation of the deal. So, is the process smooth sailing from this point?
Smooth sailing? Not likely
It’s probably safe to say that high-profile, high-impact, multi-country deals like this almost never sail through smoothly. But so far, the pressure to deliver on key dates has been high, and the three countries have generally delivered – if, as in this case, at the very last minute. The signing in Buenos Aires is the starting line for all the legislative steps that follow. Not much is expected to happen between now and when the newly-elected US Congress sits on January 3. But a key clock started ticking last Friday, one that requires the US Administration to submit a list of changes to US law needed to accommodate passage of USMCA within 60 days, or by January 30. That part should be smooth.
Drafting the actual legislation is the next step. This is typically a joint effort of Congress and the Executive Branch. The final legal text of the trade agreement must be submitted to Congress by the President together with a Statement of Administrative Action 30 days prior to submitting implementing legislation to Congress, along with other key supporting documentation.
From here, the next key milestone is in mid-March, as the US International Trade Commission has 105 days from the signing to present its economic assessment of the agreement.
Provided all prior dates are met, we assume that the implementation bill will be introduced in the House and Senate in mid-April. US Trade Promotion Authority rules require that Congress act on the bill within 90 days, suggesting a mid-July vote. If Congress approves, CUSMA could be signed into law before the end of July, ahead of the October 21 final deadline for the next Canadian federal election.
What about the midterm elections?
It all sounds very smooth, but another parallel process has added doubt to the timeline. The US midterm elections gave the Democrats the House, virtually assuring that there will be very public jostling during the 90-day period, especially the first 60 days, where the House holds sway. Democrats have openly expressed their discomfort with the labour and environment chapters (23 and 24) and, in their view, the inability of the dispute-settlement mechanism to enforce the provisions in those chapters. The House Ways and Means Committee has 45 days to consider the bill (although it cannot be amended) and report out to the House, which then has 15 session days to vote on it. At that point, it goes to the Senate, which has 15 further session days to vote on it. Ultimate approval is expected within the timeline, as quite frankly it is in the best interests of not only the Trump Administration, but US business, the general American public and by extension, elected officials to do so.
Are Mexico and Canada on board?
For similar reasons, we also expect passage to occur without serious hiccups in both Mexico and Canada. While the new Lopez Obrador Administration in Mexico is something of a wild card, a significant interruption to inbound foreign investment, a mainstay of the economy in the post-recession years, would have adverse consequences that would rapidly wash through the world of average Mexicans.
In Canada’s case, remaining irritants like the steel and aluminium tariffs, greater US access to the dairy sector and the ongoing softwood lumber saga are not expected to prevent passage of a new CUSMA law. Under the current timetable, royal assent is easily possible before the ultimate federal election deadline of October 21.
The bottom line?
We are one significant step further to having a new North American free trade deal, one that upgrades, updates and modernizes the existing NAFTA deal. It has been a turbulent road, and there will no doubt be further moments of high drama. But we are also one step closer to ending the investment uncertainty that came at just the wrong moment in the cycle. That couldn’t come soon enough.
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