Q: What are the biggest obstacles facing ratification of the United States-Mexico-Canada-Agreement (USMCA), the proposed replacement for NAFTA?

Daniel Ujczo: The first procedural obstacle is the issuance of the economic impact analysis by the U.S. International Trade Commission (USITC). This was scheduled to occur in mid-March but has been delayed because of the recent government shutdown. While it’s unlikely that there will be any major surprises in the report, it’s an important first step. 

Daniel Ujczo is an international trade and customs lawyer with cross-border law firm Dickinson Wright.

The next will be the passage of labor reform legislation in Mexico that will occur by the end of April. U.S. House Speaker Nancy Pelosi has advised that Mexico will need to pass the legislation (which is required by the USMCA) and implement it. Then the next major political temperature check will be in May to determine if the U.S. labor movement supports the USMCA with the changes made by Mexico. It’s likely that the Democrat-controlled House will still want to make changes to the USMCA labor chapter in order to put a “Democrat stamp” on the agreement. How many and how long this will take are the real questions, and it may require a narrow reopening of the deal. 

Q: What impact will upcoming elections, specifically in Canada in October and in the U.S. in November 2020, have on ratification?

DU: Everything in the U.S. is viewed with an eye to 2020. The simple course is that the Democrats will want to delay ratification to avoid giving President Trump a win and avoid their caucus from having to take a tough trade vote. Democrats in Congress likely will be willing to wait it out until they see the results of the 2020 elections. There is a very small window to get this done in May to September 2019 or else this will sit. The Canadian election is a timing issue. If this isn’t worked out by mid-June, Canada will not ratify the USMCA until after the October election. However, Canada will ratify the USMCA no matter the results. 

Q: If President Trump followed through with this threat to reject NAFTA, what would the trade situation look like?

DU: The President would withdraw from the existing NAFTA, which would start a six-month clock. Our view is that Congress and/or the courts would step in to prevent the withdrawal at the end of that time period. However, the uncertainty for the economy would likely trigger a North American recession. 

Q: What do you think will happen over the next few week and months?

DU: There is a very narrow time period for ratification in the U.S. from May to September. Everything will have to fall just right and there is little evidence that the relationship between the White House and Congress is working at that level. We predict ratification at less than 50% in 2019, with a likely lame-duck session in 2020 or 2021.