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New trade deal keeps NAFTA mostly intact, Rice analysis says

The United States-Mexico-Canada Agreement preserves and modernizes much of the North American Free Trade Agreement, according to a analysis from Rice University's Baker Institute for Public Policy.

If approved by all three countries, the USMCA will continue to allow North American manufacturers to compete effectively with Europe and Asia, preserving key aspects of an agreement that governs the trade of about $1.2 trillion of goods and services, wrote David Gantz, the author of the brief and fellow in trade and international economics at the Baker Institute.

The trade pact was signed in November at the G-20 Summit in Buenos Aires. It could go into effect as soon as Jan. 1, 2020, which would bring to an end the "chilling effect" on investment and hiring generated by two years of uncertainty over NAFTA's future, Gantz wrote. The trade dispute settlement mechanism survived, and Mexico's auto industry will probably survive "mostly intact."

NAFTA was 25 years old and badly in need of modernization, according to Gantz's analysis. The USMCA will include new provisions on data, e-commerce, labor and the environment, all of which were lacking in NAFTA, according to Gantz. Many of the USMCA innovations reflect the Trans-Pacific Partnership that was rejected by President Donald Trump in 2018. In a first for a trade agreement, the USMCA incorporates measures to guard against currency manipulation.

Differently from NAFTA, the USMCA has been criticized for its automotive rules of origin and rules about dispute settlement, but Gantz wrote that these are not the only provisions taking a step backward. Among these are Mexico's explicit right to change its hydrocarbon laws at any time, essentially allowing President Andrés Manuel López Obrador to, if he desired, re-establish a national petroleum monopoly; U.S. steel and aluminum tariffs and retaliatory tariffs by Canada and Mexico will stay in effect; and the ability of the U.S. to back out of the agreement with six months of notice if Canada or Mexico negotiated a trade agreement with a nonmarket economy.

"Mexico could benefit from a higher North American content requirement for auto production if some current Chinese production is shifted to Mexico," Gantz wrote. "Still, if the major threat to the U.S. economy in the future is China, a robust North American economy, which will be preserved by the USMCA, becomes critical."

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