Is USMCA dead in the water?

2019 Global Investment Conference coverage

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Ambassador Bruce Heyman/ Michelle NuanceWhile Canada and the U.S. used to be best friends, that friendship is now on rocky ground, said Bruce Heyman, former U.S. ambassador to Canada who served under former president Barack Obama.

“When I left, I felt our relationship was in good hands, and you can imagine how jarring it has been for me over these last two years to see headlines in the world where it says ‘Canada U.S. Trade war,’” he noted.

The North American Free Trade Agreement has been politically toxic in the U.S., he said. “NAFTA actually is the reason for a large part of why [Donald Trump] got elected,” Heyman said, noting that in the Midwest during the early days of NAFTA, many jobs were lost because a number of factories moved away to Mexico to reduce labour costs. And although job loss today is largely due to automation, many people assume it’s due to NAFTA.

Conversations about updating NAFTA began before Trump’s inauguration and timing was important to consider, he said. “If you’re a trade representative, you know that a trade deal is the toughest vote in Congress. It’s the hardest thing. Maybe next to a health care bill.”

However, the deal wasn’t finalized during the optimal time around mid-terms and now that it’s finalized, it’s up to the Democratic-run Congress to pass. Yet Nancy Pelosi, speaker of the House of Representatives, has made it clear that the deal will not pass unless certain changes are made, Heyman added.

“This deal as it’s currently written will not pass. It’s dead on arrival,” Heyman said.

There’s a provision in NAFTA that the president can withdraw from the current NAFTA with six months’ notice, said Heyman. And he thinks Trump may do this. “It will not surprise me if you hear that the president has made the notification six months in advance of the withdrawal from NAFTA.”

Yet, it’s unclear whether he has the authority to actually withdraw, Heyman noted. “And that will be a fight between Congress and the President.”

While this is all unfolding, what’s clear is there are storm clouds ahead, he said. “There’s a lot of distraction going on politically on both sides of the border right now but very soon people are going to start saying, ‘Wow, this is actually not going to pass.”

Even if the deal does get fixed up, no one will want to vote on it in 2020 so there will be a short window to pass it potentially in fall of 2019, he added.

*This speech was made at the Canadian Investment Review’s Global Investment Conference on April 4, 2019. Note: After Heyman presented at the conference, the U.S. and Canada reached a deal to lift the U.S. steel and aluminum tariffs, the Mexican government passed a labour reform bill and both Canada and Mexico have made moves toward ratifying the new trade deal.*

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