Updates with changes throughout
The leaders of the US, Mexico and Canada today signed a new free trade deal that replaces the North American Free Trade Agreement (Nafta).
"This has been a battle, and battles sometimes make great friendships," US president Donald Trump said at the signing ceremony on the sidelines of the G20 summit in Buenos Aires, Argentina. "We have taken a lot of barbs and a little abuse. And we got there."
Trump came to office with a promise to rip up Nafta, and his pledges during the negotiating process to set it aside riled Mexico and Canada, as well as key stakeholders in the US energy sectors. But in the end, Trump praised the US-Mexico-Canada Agreement (USMCA) as the "most significant, modern, and balanced trade agreement in history" in addition to being "probably the largest trade deal ever made."
US energy companies back the new agreement overall, as it preserves free trade in energy commodities. But they are disappointed that the final text does not offer explicit guarantees for protecting the historic changes that opened Mexico's energy sector to foreign participation under Mexican president Enrique Pena Nieto.
The agreement reiterates that all oil and natural gas reserves in the subsoil are the property of the Mexican state, "including the continental shelf and the exclusive economic zone located outside the territorial sea and adjacent thereto." It protects Mexico's "sovereign right to reform its Constitution and its domestic legislation."
Mexican president-elect Andres Manuel Lopez Obrador, who is scheduled to start his term tomorrow, has given contradictory signals about the future of Mexico's energy reforms. But his key advisers said no major changes will be enacted for a two-year period, while the new government reviews upstream tenders awarded to foreign companies.
Another source of disappointment for the energy sector is the dilution of the so-called investor-state dispute settlement provisions that allowed US companies to have recourse outside of the Mexican legal system. Mexico agreed to preserve that dispute settlement mechanism for US companies, but the external arbitrators will no longer be able to award punitive awards. Washington and Mexico City for the past 22 months have had a contentious relationship highlighted by failed presidential summit attempts, Trump's angry tweets and his demands for Mexico to fund a border wall between the two countries. But the two leaders sought to set the acrimony aside today.
"I want to thank you on a personal note, and I want to wish you the very best," Trump told Pena Nieto. "This will be your last day in office, so that is a very auspicious day when you can sign something so important."
Prior to the signing ceremony, Pena Nieto awarded the Order of Aztec Eagle — the highest honor awarded to foreign citizens — to Trump's senior adviser and son-in-law Jared Kushner, who has served as a key go-between during the negotiation process.
Canadian prime minister Justin Trudeau, who has persisted in calling the agreement "the new Nafta" rather than using the USMCA designation preferred by Trump, said the deal lifts the uncertainty over the future of the North American economy. Trudeau noted automaker General Motors' plan to idle five North American plants while laying off up to 15,000 employees next year and told Trump "it is all the more reason why we need to keep working to remove steel and aluminum tariffs on our countries."
Tariffs on imports of steel and aluminum from Canada and Mexico to the US, and retaliatory tariffs imposed by Ottawa and Mexico City on US agricultural and other exports, will weigh on the ratification process in Canada.
Negotiators from the three countries will now focus on resolving the steel and aluminum tariff issue, US trade representative Bob Lighthizer said.
The ratification path appears easiest in Mexico, where president-elect Andres Manuel Lopez Obrador's Morena coalition has a majority in both chambers of the legislature.
Despite ideological differences, Trump appears to get along better with Lopez Obrador. "I look forward to working with president-elect Lopez Obrador for many years to come. And our relationship, I know, will be a very good one," Trump said.
The next step in the US ratification procedure, within 105 days following the signing of the agreement, is for the US International Trade Commission to prepare a cost-benefit analysis. US trade laws then set an expedited procedure for Congress to vote in favor of the agreement or to turn it down. Trump said he will work with Congress to ensure quick ratification. "It has been so well reviewed, I do not expect to have very much of a problem."
But ratifying the agreement will require the agreement of both the House of Representatives — switching to Democratic control beginning in January — and the Republican-led Senate.
House Democratic leaders did not reject the agreement outright, even though their rank and file traditionally opposed Nafta. "My assessment will focus on the content of the commitments that have been put on paper and whether those commitments, especially on worker rights and environmental protections, are enforceable," representative Richard Neal (D-Massachusetts) said. Neal is expected to chair the House Ways and Means Committee beginning in January, with jurisdiction over the ratification process.
