The view | "America First" will spoil future trade agreement negotiations

On September 30, the Canadian government agreed to sign a new U.S.-Mexico-Canada Tripartite Trade Agreement (USMCA), which would replace the North American Free Trade Agreement (NAFTA), which began in 1988. At the beginning of his presidency, the Trump administration ostensibly had "no feelings" for trade agreements, withdrawing from the TPP, abandoning the North American Free Trade Agreement and the United States-South Korea Free Trade Agreement, and threatening to withdraw from the World Trade Organization. But in his bones, he will never give up the contractual form of "trade agreement" to impose his own propositions on others and form binding "teeth", otherwise there will be no platform to reflect the "America First" policy in the international economic and trade field, and it is difficult to require trading partners to "follow the rules" to accelerate the realization of the goal of "making the United States greater".

It can be said that for free traders, the new USMCA is a bitter fruit that is difficult to swallow, and the ubiquitous "America First" spirit in the new agreement will damage future global international trade agreement negotiations.

First, the new agreement is complex and covers almost everything. The original NAFTA chapter 22, the TPP withdrew from the United States has 30 chapters, while the new agreement has 34 chapters, up to 1812 pages, the text content is three times the original agreement. In addition to the issues that have existed since the 1990s, such as labor, environment, and competition policy, which have been disputed between developed and developing countries, they also include digital trade, state-owned enterprises, and small and medium-sized enterprises, which have only been discussed in recent years. In addition, the new agreement has unprecedentedly incorporated macro policy and exchange rate elements, allowing for the imposition of so-called punitive tariffs on national security grounds. Most of the topics and content went beyond the scope of the existing WTO rules, while the field of intellectual property raised the existing standards of the WTO rules. This makes the existing multilateral trade rules system "dwarfed" at the same time, but also makes the United States's accusations of lagging WTO rule-making "have something to say" and "well-documented".

The question that arises is, in the face of the U.S. government, which has by far the most protectionist degree, the international trading system that has been running for decades, with the multilateral rule system of international trade and the WTO as the core, where will it go? As the agreement with the largest content and the widest coverage of the rules on new issues in international trade, the new agreement has the relevant standards far higher than the level of the TPP and CPTPP, reflecting the position and trend of the United States upholding the "America First" principle in the development of its new rules for international trade and investment, which will bring great challenges to the WTO's next reform path choice, especially the strong impact on the protection of the interests and demands of developing countries.

Second, the new agreement seeks to rebuild the U.S.-centric Value Chain in north America and promote the gradual return of key manufacturing companies to the United States. Based on this, the new agreement expands the scope of products that use quantitative restrictions such as quotas, TRQs are applicable to industrial manufacturing in addition to agricultural products, rules of origin are further tightened, local ingredient requirements are raised, and more automatic export quota management is encouraged. These protectionist measures have further enhanced the trade barriers within the agreement and the external trade barriers. This "bad precedent" will cast more "shadows" on future FTA negotiations in other countries, and will likely accelerate the global trade rules system away from the goal of "liberalization".

Third, the new agreement's provisions on non-market economy countries are clearly targeted and discriminatory, and what impact it will have on China's free trade agreement negotiations deserves in-depth study. Although the new agreement is only a regional economic integration agreement in North America, it should not have much trade diversion effect on China in itself. However, the agreement shows clear value chain transfer targets, which may have some impact on the manufacturing layout in Asia and competitive pressures.

The new agreement introduces discriminatory provisions against third parties that have rarely been seen in previous trade agreements. First, it defined the "term" that does not exist in the WTO rule system , "non-market economy", and then added a number of restrictive provisions. In addition to the discriminatory provisions on non-market economies in the provisions on settlement of investment disputes, it is more specific to stipulate that if a member negotiates a free trade agreement with a country whose trade law is considered a non-market economy in a member country, it should notify the other parties at least 3 months before the negotiation. If the party signs a free trade agreement with a non-market economy country, the other parties have the right to terminate the application of the agreement under the condition of 6 months' notice.

This provision is clearly directed at China. Based on the above provisions, it will be difficult for China and Canada to continue the FTA negotiations, and if China has the intention to join the CPTPP in the future, the provision will also pose an obstacle. If the United States reflects the above provisions in future trade agreements with the European Union, Japan and other countries, it will form a "round-up and interception" of China's free trade agreement negotiations outside the WTO rule system - the ongoing negotiations between China and Japan at the two levels of the RCEP and the China-Japan-Korea Free Trade Agreement will be blocked, and whether China and the EU can open free trade agreement negotiations in the future will also be questioned.

Source: Qin Xia, special commentator of China Trade News

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