IBL Symposium Examines Impact of USMCA, the 2020 Treaty that Replaced NAFTA

By Teresa Novellino

In 2020, the United States-Mexico-Canada Agreement (USMCA) replaced the often-criticized North American Free Trade Agreement (NAFTA), but three years later, has the new treaty achieved its goals of creating a more level playing field among its three signatory nations, fostering innovation, and incorporating stronger labor and environmental standards?

Scholars, practitioners, and policy experts who gathered at Brooklyn Law School on Oct. 6 for the Brooklyn Law School Dennis J. Block Center for the Study of International Business Law symposium sought to answer that question by dissecting the treaty’s impact in four areas: labor; energy and climate policy; gender, race, and trade policy; and dispute resolution.

In discussing its impact on labor, the scholars on a morning panel that was moderated by Professor Alberto Rodriguez gave the treaty a mixed review.

On the positive side, there was more than $1.5 trillion dollars in trade between the three trading partners last year, said panelist Diego Marroquin Bitar, a senior research analyst in global economy and development at The Brookings Institution. Canadian exports to Mexico and the United States grew 43 percent, Mexican exports to the United States and Canada rose 22 percent, while U.S. exports to Mexico and Canada rose 28 percent, he added.

“The three countries together account for almost a third of global GDP, and trade alone supports almost 10 million jobs across the region,” Bitar said. Politically, the treaty garnered bipartisan support, with over 90 percent of Republican and Democrat lawmakers in Congress approving its passage, compared to 53 percent for NAFTA. Unions also approve of the treaty, which “is not something we’ve seen before,” and in Mexico, a new labor center was created with 21 outlets around the country to address labor disputes, Bitar added.

Still, there are problems with the treaty, speakers noted. One of them is that it was crafted under the Trump administration when “there was this huge emphasis on trade deficits, and [the motivation was] how do we close our markets to redress what was perceived as unfair trade deficits using the rules of trade to justify that?” said panelist Desirée LeClercq, an assistant professor of law at Cornell University’s School of Industrial and Labor Relations. Under the Biden administration, trade policy is designed to be worker-centric, but that goal is difficult to achieve in the current way USMCA is being implemented, LeClercq said.

“The Biden administration must make a choice: Is it going to help workers in Mexico by for instance, augmenting its technical assistance and training programs, much like we saw in the Trans-Pacific Partnership (TPP) agreement? Or does it want to punish workers by leaving them voiceless, opening the door to retaliation, and ultimately failing to give them a meaningful seat at the table?” asked LeClercq, whose research places marginalized workers at the center of global and economic policies.

Much discussion centered on the treaty’s “Rapid Response Labor Mechanism,” often referred to as the RRL, which allows the U.S. government to crack down on individual factories in Mexico — by, for example, suspending tariff exemptions for their products – if they violate Mexican labor law. The treaty does not allow similar crackdowns on U.S. manufacturers unless a facility has been subjected to an enforced order of the National Labor Relations Board, which can take years to happen, creating an asymmetric power structure, LeClercq said.

Inu Manak, a fellow for trade policy at the Council on Foreign Relations, noted that the treaty was put together quickly and without a lot of transparency during the Trump administration and then was inherited to implement after the Biden administration took over.

“Because it was put together really fast, there was a lot of language, that is probably not meant to be the way it is, and there are a lot of lawyers in this room, who know that there could be some additional scrubbing of this that would have made it a little better and given it more clarity, and that just really didn’t happen,” Manak said.

One issue that the treaty does not address is Mexico’s employment realities, Bitar said. He explained that there is a formal economic and employment sector, primarily located in the northern part of Mexico, and a larger informal one, based more in the central and southern parts of the country. In the formal sector, Mexican workers can form unions that are subject to minimum wage laws, gain access to pensions, health insurance, and sometimes even housing, Bitar said. Such firms are larger, more productive, more innovative, and have established relationships with North American supply chains, allowing them to benefit from USMCA. But only about 10 percent of Mexico’s workers are in such formal employment.

The informal sector, which represents more than half of the nation’s economy, includes the other 90 percent of workers, who are mostly self-employed, or working for family-run businesses. These businesses are much less productive and innovative and offer less job security to workers. There is greater incentive for businesses to be part of the informal economy because workers can be hired and fired more easily, are paid less, and employers don’t have to contribute to social welfare programs.

“Without addressing this divide, USMCA won't get us very far,” Bitar said. “This device needs to be addressed through a fiscal reform, to programs to help SMEs (small and midsize enterprises) in southern and central states to fully connect with the supply chains. And that's not something that USMCA can do on its own, so we need to really temper our expectations.”

Dean’s Research Scholar and Professor Robin Effron, in introducing the symposium, said its theme was inspired by a desire to shed light on a large yet overlooked area of trade. “Understandably, there's tremendous interest in hosting events, and writing about Asia, in particular, China, and there is huge interest in the growing markets and trade with the continent of Africa, and the usual discussions about Europe,” Effron said. “But I felt like, for whatever reason, we know the least about our trading partners who are right to our north and ourselves and make up just an enormous portion of U.S. trade.”