On November 30th 2018, at 9am the United States-Mexico-Canada Agreement (USMCA) will have been signed; however, the issue is that the average citizen will either have not heard of it, or will know very little about this deal, and thus an analytical review is merited.[1] This recent trade agreement has been making waves in the news, and thus has been under intense scrutiny. Involving the United States, Mexico and Canada, this new free-trade deal was unveiled this past October, after being under private negotiation for the thirteen months’ prior.[2] This deal presents itself as a revised NAFTA among these three nations, and has been receiving major coverage in the media due to the weighty clash of opinions. One of these views stems from neoliberalist theory that considers this deal to be an international institution, and therefore, favours this agreement due to its ability to foster international cooperation. However, upon closer analysis there are some concerning underlying issues for a neoliberalist. Although the USMCA does encourage international cooperation in an anarchical system, due to certain clauses, specifically the ‘non-market’ economy trade agreement under the ‘sunset clause’, and the unbalanced power dynamics, I will argue that neoliberalists would have in reality a challenging time supporting this agreement. [3] In addition, by analyzing this new trade agreement under a neoliberalist lens one can have a better understanding of it, while also helping to connect it to the fundamentals of neoliberalist theory and why such theorists have such a strong connection to institutions.
The USMCA has sparked major debates since its press release this past October.[4] This agreement was presented as a continuation of the trio’s previous free-trade agreement, the North American Free Trade Agreement (NAFTA)[5], but with some key additions: such as new arrangements in the dairy, oil, automotive, and steel sectors, as well as changes in employment and import regulations.[6] Some of these additions have received more media coverage than others due to their potentially one-sided trade nature. For example, Canadian dairy farmers are quite concerned that the USMCA would enable American dairy farmers to materially grow their market in Canada by making 3.6% of the Canadian market tariff-free for them.[7] On the other hand, an agreement arguably would not have been reached at all if such provisions were drafted so that they were perceived as damaging to these states. As a result, it is important to look overall at the key positive additions that the USMCA will bring to these three nations. One of these key negotiated, but overall positive changes is in the automotive sector, where the nations have agreed that a minimum of 75% of all automotive parts must be made in North America as a means of increasing employment and GDP.[8] Thus, one can argue that the USMCA incorporates a wide range of agreements that, in theory, will benefit all the parties.
Due to the two-sided nature of this agreement, significant opinions have been raised by both opposing and supporting sides. Some articles, as seen in the National Post, argue that the USMCA is extremely profitable for all states. They see it as a process that will strengthen each nation’s economy. The idea is that this three-way agreement will foster international cooperation, and its success will trickle down to each of the nation’s citizens.[9] On the other hand, media editorials, such as the ones presented by CBC, suggest the opposite. They view this agreement as more of a short-term arrangement, and that over time it will in fact create unfairness. Their main concern is that this deal is too one-sided, and gives one nation, the United States, too much power over the other two nations’ economies, and as a result, will not promote proper cooperation due to the imbalance of power.[10] This is important to keep in mind when analyzing this deal, specifically when looking at it from a neoliberalist perspective.
Neoliberalism is considered one of the key theories for understanding and explaining international relations, due primarily to how this theory was formulated. This theory was developed through a combination of neorealism and liberalism as a continuation of pluralist ideas with a more state-centric approach. It gained popularity when Robert Keohane brought it to the theorist table as a contender against neorealism, in what is known as the neo-neo debate during the 1980s.[11] Neoliberalist’s, such as Robert Keohane, Robert Axlerod, and Joseph Nye, key focus was on international cooperation, and specifically how states can cooperate in an anarchical system. Other theorists, such as neorealist, are also concerned with international cooperation, but they believe that such cooperation in practice is really not feasible. Neoliberalists also recognize this concern, but believe that due to certain key historical development in the 20th century international cooperation is achievable. Developments such as interdependence and hegemonic stability have therefore become central to this theory and offer key insight into why neoliberalists have a strong connection to institutions.
Institutions act as a unit of measurement for neoliberalists, and as such will be the focus of this post. As defined by the author, Sterling-Folker, international institutions are “sets of norms and rules designed by states to structure and constrain their behaviour and to facilitate cooperation.” Further, institutions fall into two categories, formal and informal, with the USMCA falling into the latter.[12] This is because informal institutions “consists of sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors’ expectations converge in a given area or international relations.” This is unlike formal institutions, which must also constitute a physical location, for example the United Nations whose main office is in New York, US. [13] This is important to keep in mind while analyzing this deal under a neoliberalist view.
As stated by one of the key neoliberalists, Robert Keohane, “institutions make it easier to share information, reduce transaction costs, facilitate bargains across issue areas, provide mechanisms for dispute resolution, and supply processes for making decisions,” and thus, work to institute cooperation in an anarchic system.[14] According to this definition, the USMCA would increase cooperation amongst the United States, Mexico, and Canada because these states collaborated to meet each other’s needs by forming this agreement, a type of bargaining known as ‘issue-linkage.’ Keohane introduced this term as a way to understand and promote international cooperation, as it works to better facilitate equal cooperation by engaging in a give-or-take negotiation to ensure that all parties receive what they want.[15] This is a strong component of the USMCA deal, as the negotiation process seemed to spark a give and take agreement where certain sections were established to create a fair balance. For example, Canada fought hard to continue the current NAFTA agreement’s provisions for nurses, doctors, and engineers traveling to the US and Mexico. In return, however, the United States was not so easy going in granting the same easy traveling for other professions, such as those in technology.[16] This is a perfect example of balancing both sides of an agreement to make it more equal, and thus, creating international cooperation.
Another key aspect of neoliberalism is game theory, specifically Prisoner’s Dilemma. This game demonstrates that by cooperating, players will be better off, but due to the nature of an anarchic system they opt to choose instead the outcome that would be better for themselves at the expense of others, which results in all players being worse off.[17] Robert Axelrod, another notable neoliberalist, emphasizes the impact that Prisoner’s Dilemma has on initiating international cooperation. The Prisoner’s Dilemma emphasizes a concern for the future. This can be seen in the USMCA as it takes the future into account, because the parties knew that the payoff will be better working as a team rather than as separate parties. This is best seen in the fact that the key driver for this agreement was the concept of free-trade among these three nations. As stated by Prime Minister Justin Trudeau:
“USMCA will give our workers, farmers, ranchers, and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region. It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home.”[18]
Given that the parties’ economies were already quite tied together, their geographical closeness and their long, interrelated historical past, it made sense to create a new free trade deal.[19] However, the USMCA is not without flaws, all of which will be discussed below. Yet, it remains hard to argue against the underlying principle of advancing this new deal; namely to put its citizen’s livelihoods first by improving their respective country’s economic outlook.
As much as there has been significant praise amongst global leaders about the USMCA, there has also been notable backlash. From a neoliberalist view, there are two primary concerns that would worry them due to the possibly of inhibiting international cooperation. One critical addition not found in NAFTA is an expiry date. The USMCA provision provides that this deal will end 16 years after its signature, but further requires a joint review of the deal six years from execution to ensure all states want to continue; a clause known as the “sunset clause.”[20] What is most notable about this clause is that one of the reasons for a state’s departure can be legitimized if another state engages in free-trade agreement with a ‘non-market country.’ If any of the members of the USMCA want to form a free-trade agreement with a ‘non-market country,’ such as China, the other USMCA states must review the deal prior to an agreement, and if the deal does not fit with their standards, the members of USMCA can remove the state in question from the deal with only six months’ notice.[21]This portion of the USMCA was hotly debated by Canada and Mexico, and was one of the primary reasons for a lengthier negotiation process.[22] A neoliberalist would oppose this provision because it would be regarded as an unsatisfactory resolution of a bargaining issue. A key focus of international institutions is bargaining, which means that states actively work together to foster a balanced agreement.[23] However, because of the lack of attention given to Canada’s and Mexico’s concern, as well as a lack of inclusion of other states to this deal, in my view, a neoliberalist would not support the USMCA on those terms.
The second major concern of the USMCA is its power dynamic, specifically in regards to the prominent voice of the United States. For neoliberalists, anarchy is a central concern, and it is why they constantly put institutions as the forerunner of solutions because they believe that by setting norms and regulations it can help lessen the effects of anarchy and induce international cooperation.[24] However, by creating an agreement with one state dominating in power, in this case the United States, this can create an uneven balance and thus affect the norms and regulations the institution puts in place. This can already be seen in certain sections of the USMCA, such as the addition of a hefty 25% tariff for Canada and Mexico on steel and 10% on aluminum, a tariff that clearly benefits the United States, resulting in Canada and Mexico being given the short end of the stick.[25] These USMCA provisions demonstrate the negative effects that poor power dynamics can have on an international institution. Institutions are supposed to help guide states in a system that lack a central government, and by having one powerful state imposing its own agenda on other states, this would not be considered a correct neoliberalist application. Even before its enactment, the USMCA had a power relations issue, one that would instill poor negotiation standards, result in unequal regulations and therefore would not be supported by neoliberalists.
The USMCA will replace the old free-trade agreement, NAFTA, between the United States, Mexico, and Canada. The premise of the agreement is to encourage free-trading among these nations to better their economies, with their citizens’ income and businesses in mind. Neoliberalists, such as Keohane, Axelrod and Nye, would favour the agreement on the premise that it coincides with their key focus of creating international cooperation through forming institutions. A neoliberalist can see that the USMCA would follow their concepts in regards to issue-linkage and game theory. However, due to some major concerns, such as the sunset clause and power dynamics, a neoliberalist would be unable to support the USMCA in my opinion. The sunset clause, which would inhibit international cooperation with other states, and the strong power hold of the United States, makes the USMCA unfavourable for neoliberalists. In order to gain neoliberalist support, the three nations would need to reconsider these two issues, but since the deal is already inked, the likelihood of such change at this time is doubtful. It is worth mentioning that days after this agreement was signed, Canada has chosen to rename the trade deal to the Canada, United States, Mexico Agreement, CUSMA, which drives home the point about the lack of equality and fairness this deal creates, and thus, I would argue that although neoliberalist have not explicitly expressed their concern, they would vote to reject this free-trade deal in its present form.[26]
Bibliography
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Dunne, Tim, Kurki, Milija, and Steve Smith. International Relations Theories: Discipline and Diversity. Oxford: Oxford University Press, 2013.
Government of Canada. “Canada-United States- Mexico Agreement.” Last Modified November 30, 2018. https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cusma-aceum/index.aspx?lang=eng.
Jackson, David, and Michael Collins. “Trump celebrates ‘historic’ trade deal with Canada and Mexico, but hard work isn’t over.” USA Today, October 1, 2018, https://www.usatoday.com/story/news/politics/2018/10/01/nafta-despite-new-trade-deal-hard-work-isnt-over/1489998002/.
“Keohane, Robert” in International Encyclopedia of the Social Sciences, edited by William A. Darity, 256-57. Detroit: Macmillan Reference, 2008.
Moscrop, David. “The USMCA keeps Canada in America’s thrall.” Maclean’s, October 1, 2018, https://www.macleans.ca/opinion/the-usmca-keeps-canada-in-americas-thrall/.
National Post (Online), “How the new USMCA strengthens Canada in future trade deals.” Postmedia Network Inc, October 22, 2018, http://ezproxy.library.ubc.ca/login?url= https://search-proquestcom.ezproxy.library.ubc.ca/docview/2124103896?accountid= 14656.
Proudfoot, Shannon, and Jason Markusoff., “The USMCA explained: Winners and losers, what’s in and what’s out.” Maclean’s, October 1, 2018, https://www.macleans.ca/economy/the-usmca-explained-winners-and-losers-whats-in-and-whats-out/.
Simpson, Kate. “Canada and U.S. clash over sunset clause in ‘forceful’ NAFTA talks.” CBC, April 25, 2018, https://www.cbc.ca/news/politics/canada-us-sunset-clause-1.4635056.
“The United States Mexico Canada Agreement: What they’re saying about it.” CBC News, October 1, 2018, https://www.cbc.ca/news/politics/official-statements-usmca-deal-1.4845897.
Vomiero, Jessica. “USMCA to be signed Friday outside G20 with Trudeau, Trump and Nieto in attendance.” Global News, November 29, 2018. https://globalnews.ca/news/4713714/usmca-signed-g20/.