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April 7, 2020

It’s increasingly difficult to get a handle on where U.S. trade policy is going at any particular time. The latest twist concerns ratification of the Canada-U.S.-Mexico Agreement (called CUSMA in Canada and USMCA in the United States because U.S. President Donald Trump hates the word “NAFTA”).

All three countries have passed internal legislation approving and implementing the agreement. But CUSMA only becomes legally binding 60 days after official ratification notices are exchanged by the three governments. Last week, Canada provided its notice. Mexico did the same a bit earlier. So far, there’s nothing from the American side. It’s not entirely clear why the U.S. is now holding things up. Media outlets in Washington are unable to find out.

The U.S. delay is puzzling. Earlier this year, it was the U.S. that was pushing Canada and Mexico to get these notices out so the deal could enter into force by June 1. Now the earliest date seems to be sometime in July, possibly even later.

Getting the agreement into effect before summer would seem to be an advantage in Mr. Trump’s re-election strategy, allowing him to campaign on successfully scrapping NAFTA, a dirty word, and bringing into effect this new “America first” trade agreement. But now the holdup is the White House itself.

Some of this may have to do with the enormous pressures in dealing with the COVID-19 crisis. But it’s hard to explain why Canada and Mexico have been able to provide their notices even with the pandemic in full flood and yet this couldn’t be handled by Washington. There’s probably something more behind this.

On March 30, a number of prominent senators wrote to the U.S. Trade Representative, saying the agreement’s entry into force needed to be delayed so business and labour could get ready to make needed adjustments. They asked the administration to work with Congress stakeholders to determine a more feasible timeline. It didn’t say what that schedule should be.

Chief among the concerns would be burdensome new rules of origin for the auto sector. Producers have to certify a higher level of North American content than under NAFTA. After phase-in, the content requirement rises to 75 per cent, particularly for what are described as “core” parts. And there’s another requirement that all steel components in the vehicle must be made from steel melted and poured in North America.

Because of the compliance burdens, given massive layoffs and continuing uncertainty faced by the auto industry, companies have been asking for some breathing space. The Canadian automotive parts manufacturers have also asked Ottawa to delay ratification.

There are other auto-related requirements to be met before CUSMA can enter into force. Uniform regulations for applying these origin rules have to be agreed on by the three governments, and while government-to-government meetings have been taking place, it may take more time before these can be worked out.

While the U.S. notice is being held up, one suggestion in Washington circles was for the three governments to agree on placeholder provisions for these automotive rules – with more specific rules to follow later – as a way to accelerate progress and make a June or July goal tenable. That could be a solution. While there’s nothing specific in the CUSMA allowing this kind of staged implementation, governments can always agree to a process by way of a side letter or separate protocol to do this.

It’s difficult to know how long this hiatus will last. Given the electoral situation in the U.S., getting the deal into full operation would seem to be in Mr. Trump’s political interest. For that reason, and to remove lingering uncertainties on the trade front, there’s every reason to get the CUSMA into full effect and to put this long and agonizing saga behind us.

If I may be forgiven by Winston Churchill for borrowing a phrase declared by him in a much different time and context, this won’t be the end or even the beginning of the end, but for Canada-U.S. trade, getting the CUSMA into effect will at least be the end of the beginning.

Published in the Globe and Mail 

Lawrence Herman, a former Canadian diplomat, is counsel at Herman & Associates and senior fellow of the C.D. Howe Institute in Toronto.