Trade Deals Across the World: January Edition
It’s been quite the year when it comes to trade deals, as you may have read in our earlier editions (links at the bottom of this post). The month of December has been a bit slower when it comes to news on the trade deal front. We still found enough interesting snippets to share with you in this update.
The United States with Mexico and Canada
After a bit of pushback at the start of the month by Mexico, and the same from Canada at an earlier stage, the USMCA trade deal was finally approved by all countries. Mexico had already ratified the deal, but came back on that decision after the US started talking about changes to the agreement. It will now go through the various parliaments and senates in each country, after which it will be ratified. The deal will replace the NAFTA deal which had been in place for 25 years.
- Country of origin rules: Automobiles must have 75 percent of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (up from 62.5 percent under NAFTA).
- Labor provisions: 40 to 45 percent of automobile parts must be made by workers who earn at least $16 an hour by 2023. Mexico agreed to pass new labor laws to give greater protections to workers, including migrants and women. Most notably, these laws are supposed to make it easier for Mexican workers to unionize.
- US farmers get more access to the Canadian dairy market: The US got Canada to open up its dairy market to US farmers, a big issue for Trump.
- Intellectual property and digital trade: The deal extends the terms of copyright to 70 years beyond the life of the author (up from 50). It also includes new provisions to deal with the digital economy, such as prohibiting duties on things like music and ebooks, and protections for internet companies so they’re not liable for content their users produce.
- Sunset clause: The agreement adds a 16-year sunset clause — meaning the terms of the agreement expire, or “sunset,” after 16 years. The deal is also subject to a review every six years, at which point the US, Mexico, and Canada can decide to extend the USMCA.
Read the full article here
The main differences between NAFTA and the USMCA deal are described in this article on CNN: Labor laws, market access for dairy farmers, the digital era, environmental protections, biologic drugs.
India and the RCEP
As we shared in the December update of Trade Deals Across the World, India has pulled out of negotiations for the Regional Comprehensive Economic Partnership free trade deal. The RCEP is one of the biggest trade deals ever and includes countries like Japan, China, and South Korea.
Japan intends to continue efforts to persuade India to remain in the initial 16-country framework for the agreement of the regional trade talks. However, as there is still strong opposition to the RCEP within India, it remains to be seen whether the negotiations will go smoothly.
Japan sees the participation of India as indispensable for the RCEP because India is a huge market with a population of more than 1.3 billion people, and it is expected to see future economic growth. An increasingly urgent concern for Japan is that without India, China could enhance its relative influence.
Read the full article here.
This article by Brink outlines the main reasons India has for pulling out of the RCEP.
Indeed, India’s experience has been that following each FTA it has negotiated, its trade deficit has expanded. It also fears that the RCEP would undermine its ambitions to develop its historically weak manufacturing sector.
Moreover, some of the more competitive sectors of the Indian economy, notably IT and pharma industries (India is the world’s largest supplier of generic medicines), face great restrictions in attempting to enter the Chinese market, as Beijing protects its own companies. These restrictions have not been solved by RCEP.
Another area of concern for India is agriculture, especially the dairy industry. It was worried about a surge of imports from Australia and New Zealand that could disturb its agricultural sector, which remains very backward. Today, about half of India’s workforce is still employed in agriculture and has relatively low levels of education, which means that alternative work opportunities are very limited.
The United Kingdom and Trade Deals Post-Brexit – The EU
If there is one country that will be extremely busy this year when it comes to negotiating trade deals it is the United Kingdom. If Brexit is finalized they will have to negotiate new Trade Deals with almost everybody. Those negotiations can and will be tough…
One of the biggest and most complex negotiations will be with the EU. Just before Christmas EU’s chief Brexit negotiator Michel Barnier wrote a collumn on Project Syndicate:
The EU – including its trade commissioner, Phil Hogan – will engage in these negotiations in a positive spirit, with the willingness to make the most of the short time available. But, like the UK, we will keep our strategic interests in mind. We know that competing on social and environmental standards – rather than on skills, innovation, and quality – leads only to a race to the bottom that puts workers, consumers, and the planet on the losing side. Thus, any free-trade agreement must provide for a level playing field on standards, state aid, and tax matters.
These are our three goals for 2020: to maintain a capacity to cooperate closely at the global level; to forge a strong security partnership; and to negotiate a new economic agreement (which, most likely, will have to be expanded in the years to come). If we achieve these three objectives, we will have made the most of the next year. As soon as we receive our mandate from the 27 EU member states, our team will be ready to negotiate in a constructive spirit with the UK – a country that we will always regard as a friend, ally, and partner.
Read the full article here.
In the meantime Johnson seems less flexible:
Mr Johnson has ruled out any extension of the transition period — in effect a standstill arrangement that temporarily preserves Britain’s EU market access — despite the fact that the deadline creates the risk of Britain losing preferential trading arrangements with the union at the end of next year.
Read the full article here.
British Prime Minister Boris Johnson said … there would be no alignment with EU rules under the terms of a trade deal he wants to strike with the bloc next year.
Read the full article here.
Another interesting read on the UK-EU negotiation by the BBC can be found here.
The United Kingdom and Trade Deals Post-Brexit – The United States
Another challenging one for Johnson is the negotiation with the United States. One demand by the United States caught our eye. As a company that has sustainability as one of its core values, it is not one we like to see at all.
The US has banned mention of the climate crisis in trade talks with the UK, an analysis of leaked documents has revealed.
In negotiating a trade deal, the UK acknowledges that there will be pressure to ensure that any agreement meets its climate commitments. But to the anger of environment groups, analysis of a 451-page dossier leaked last month confirms that the Trump administration has told the UK that the climate crisis cannot be mentioned.
“Recent trade deals with North America have increased climate-destructive industrial agriculture and the flow of tar-sands oil into Europe. But in a US-UK deal, US negotiators have been clear that they’re not remotely interested in even listening to discussion of climate change. Either we allow policies which will further devastate the environment, or the deal is dead.”
Read the full article by the Guardian here.
How different is the stance on sustainability in the EU:
The EU’s trade deal with four South American countries will not be ratified in its current form because it contradicts Europe’s plans to confront the climate emergency, a leading MEP has said.
Read more about it in this article by the Guardian on the Mercosur deal here.
Earlier editions of Trade Deals Across the World
Photo by Ben White on Unsplash