Binding Dispute Settlement Hailed as Major NAFTA Upgrade

Rep. Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, said USMCA is crucial to the country's economic recovery from the pandemic "because it was developed with the future in mind."

Brady, who was speaking at a Wilson Center webinar July 20 commemorating two years since the USMCA came into force, said the upgrade of NAFTA makes American businesses more competitive relative to China. "So what do you call 25 years of free trade in North America? The answer is: a good start," he said.

One of the key upgrades from NAFTA was fixing the broken dispute settlement system, he said, and he noted U.S. Trade Representative Katherine Tai's successes in challenging Canada's dairy tariff rate quota implementation and on labor issues in Mexico.

"While it is important to enforce labor and environmental rules to prevent any race to the bottom, enforcement must be full and it should be balanced," Brady said, and said he was pleased that Tai announced consultations over Mexico's discriminatory energy investment policies and barriers to selling U.S. refined gas into Mexico.

"This action may be overdue, but it is very welcome," he said, while recognizing Tai had been raising these issues with Mexican government officials for two years. He said she should continue to engage on Mexican policy on approving biotechnology products, which affects agricultural exporters.

He also criticized the administration for not being willing to negotiate market-opening trade agreements. "Amidst this supply chain crisis, raging inflation, a war in Europe, a shrinking economy, we should seek new free trade agreements wherever possible, to find new customers, to get our economy moving."

In a panel of speakers after Brady, the director general of Mexican think tank El Instituto Mexicano para la Competitividad said Mexico needs U.S. and Canadian pressure to combat nationalism in the energy sector, because it is also a retreat from a clean energy transition.

Valeria Moy said, "We need the help of the U.S. and of Canada to keep moving forward instead of backward."

Moy said USMCA's small and medium enterprise chapter raised hopes in Mexico, but has achieved nothing so far. But, she said, Mexico has a tendency to put too much faith in free trade with the U.S. as a solution to all its economic woes.

"It’s pretty weird that we in Mexico believed that in 1994," she said, that NAFTA could solve inequality, differing growth rates in the South and North, as well as poverty generally. "And of course it didn’t happen," she said. "One of my fears is we are giving exactly the same expectations to this trade agreement."

She said advocates for trade in all three countries need to talk seriously about the sunset clause so that it doesn't become a narrative about ripping up the agreement, as the renegotiation of NAFTA did under the previous administration.