“China Clause” in USMCA is American Posturing, Not a Veto

“China Clause” in USMCA is American Posturing, Not a Veto
US Secretary of State Rex Tillerson, Canadian Foreign Minister Chrystia Freeland, and Mexican Foreign Secretary Luis Videgaray hosted a joint press conference in Mexico City, Mexico, on 2 February 2018.State Department Photo

There is a strong narrative developing around the non-market economy article 32.10 in the proposed United States–Mexico–Canada Agreement (USMCA). Various commentaries have gone as far as saying that the clause is in effect a choice between the United States or China, or that it presents a near-insurmountable obstacle to a free-trade deal with China, or even that it essentially gives the power of veto to our neighbours on a potential Canada–China free-trade agreement.

Yes, the clause was clearly written with China in mind. And there is not much to like about it. But USMCA’s article 32.10 is no veto. It is more about signalling and posturing by the US administration than real curtailing of Canada’s sovereignty to negotiate. It is certainly not about Canada sending a message to China: we all understand which side was pulling in which direction on this clause.

The clause contains three noteworthy components. First, “at least 3 months prior to commencing negotiations, a Party shall inform the other Parties of its intention to commence free trade agreement negotiations with a non-market country.” Second, “no later than 30 days before the date of signature, that Party shall provide the other Parties with an opportunity to review the full text of the agreement.” Third, “entry by any Party into a free trade agreement with a non-market country, shall allow the other Parties to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement).”

Remember that the North American Free Trade Agreement (NAFTA) had a withdrawal article as well (2205): “A Party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties.” The fact that US President Donald Trump could even make credible threats to “terminate NAFTA” was because of the existence of such a clause. So there is nothing new about the capacity of the United States (or whichever party) to terminate the agreement, for any reason.

In fact, there is also a withdrawal clause in the USMCA (34.6). In this respect, article 32.10 is superfluous. Formally providing for the United States and Mexico to replace the USMCA with a bilateral agreement is a new nuance, but here Mexico would need to agree. This situation may not be that materially different from where we were in August, when the United States and Mexico had reached a preliminary bilateral deal to replace NAFTA. The meaningful variable here is the character of the US administration, with or without article 32.10.

What is new, then? Informing the United States and Mexico of Canada’s intention to commence negotiations on a free-trade agreement (FTA) with China three months in advance. This is an unusual addition to a FTA, but these are unusual times. In itself, this is not entirely difficult to deal with. The United States and Mexico are already aware that this is a possibility.

Providing the other parties with an opportunity to review the full text of the agreement is also new, and potentially more significant. There are circumstances under which Canadian officials share information with their US counterparts, but this clause goes further, entailing a formal opportunity for a full review of the text (including highly confidential elements). Given that a potential FTA with China would likely not be completed even under a second Trump administration, exactly how this would play out is uncertain. The duty to inform also goes both ways.

What is certain is that it does not curtail Canada’s ability to go ahead and chart its course within the context of our close relationship with the United States. The reality is that Canada’s economy is closely intertwined with our southern neighbour’s and that we would have to take this into account whether we are sharing full texts or not.

There is also a more mundane reason why this component may have less impact than we think. The current text of the clause calls for sharing of the full text “no later than 30 days before the date of signature,” at which point many free-trade agreements’ texts have already been made public anyway. Whether it would ever be sensible or even feasible for a US administration to terminate USMCA under these circumstances is unclear.

The clause is more about the US signalling and attempting to marshal support in the context of the current administration’s broader efforts to contain China.

The real danger lies in the possibility that Canada is siphoned into a higher-level sharp conflict against China. We ought to be more sophisticated than that. We ought to be more attuned to both the multifaceted nature of our interests as well as the quickly evolving nature of the world we live in.

Pascale Massot is an Assistant Professor in the School of Political Studies at the University of Ottawa.

This article was first published in the Globe and Mail on 15 October 2018.

 

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