“If you can’t enforce the provisions in any treaty, then you really are not protecting American workers,” says House Speaker Nancy Pelosi. So are the provisions of the Trump administration’s rewrite of the North American Free Trade Agreement (NAFTA)—set forth in the United States-Mexico-Canada Agreement (USMCA) enforceable? As written, the answer is no.
NAFTA included a dispute settlement mechanism—Chapter 20—under which most NAFTA provisions were supposed to be enforced, but the mechanism was inherently flawed and proved to be utterly unworkable. Unfortunately, Chapter 20’s successor, the USMCA’s Chapter 31, does not fix those fatal flaws.
When written in the early 1990s, Chapter 20 was groundbreaking. It established a process that begins with consultations between the disputing parties and eventually leads to the establishment of a five-person panel that issues a determination and recommendations for resolving the matter. However, only three panel decisions were rendered in the twenty-five year existence of the NAFTA and none since 2001. Why? Because the Chapter 20 process—with its “reverse selection process” and dependence on the good will of the parties to update rosters of panelists—was too easy to stymie, particularly by one party refusing to appoint panelists to hear a case. Indeed, the U.S. used this flaw in the Chapter 20 system to block Mexico’s repeated efforts to have a panel examine its claims over trade in sugar.
Unfortunately, the update to Chapter 20 makes very few changes and does not correct for the most significant problems. For a complete comparison of the provisions of NAFTA Chapter 20 and USMCA Chapter 31, along with an analysis of the needed changes, including important suggestions from NAFTA Chapter 20 panelist Ted Posner, click here. This failure means any party can block the enforcement of many of the most significant provisions of the USMCA, including its chapters on labor, the environment, digital trade, and more.
The initial response by U.S. Trade Representative Robert Lighthizer to concerns from a number of Democrats was not reassuring, as he made clear that, just like under NAFTA, panels endeavoring to enforce provisions of the USMCA could be blocked from convening and that the U.S. would instead rely on unilateral action (Section 301) to enforce our USMCA rights, even though such action is likely to provoke retaliatory responses from Canada or Mexico.
It appears that the nine Democrats on the working group appointed by House Speaker Pelosi to resolve concerns over USMCA provisions on labor, environment, drug pricing, and enforcement have appreciated the need for changes and have been trading texts with USTR. Until the revised enforcement provisions are revealed, it is impossible to know whether the flaws have been corrected. Should working out new text prove too difficult, policymakers should take the simpler and easier path of replacing Chapter 31 with the dispute settlement provisions of the Trans-Pacific Partnership (TPP), now in effect as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Canada and Mexico are already parties to the CPTPP. Its dispute settlement chapter was negotiated with the goal of correcting for the flaws in NAFTA Chapter 20 already in mind. The TPP’s provisions are designed to be faster, more transparent, more comprehensive and not subject to blocking over naming panelists. Using the TPP dispute settlement mechanism instead of USMCA Chapter 31 would go a long way to meeting the Democrats’ goal of a more enforceable agreement.