Panelists: USMCA Needs to Be Bolstered Ahead of 2026 Review

Canada's half-hearted attempts to comply with dairy tariff rate quotas and the refusal of the U.S. to comply with the auto rules of origin ruling are undermining the USMCA and could make its review more painful, panelists from Canada and Mexico said this week.

The panel, convened by the Wilson Center's Mexico Institute, agreed that free trade in the region builds wealth for all three countries, even though that idea has fallen out of favor.

Beatriz Leycegui, the former Mexican undersecretary for foreign trade, said that companies telling U.S. politicians about their North American activity will help, as will Mexican and Canadian lobbying to explain why their countries matter to the U.S. economy. She also said a Mexican decision to back away from favoring state-owned energy companies, or other actions seen as conflicting with the deal's commitments, could be beneficial.

But the fact that panel decisions aren't being complied with means "the legitimacy of the state to state dispute mechanism is being seriously questioned," Leycegui argued. She said that since Mexico is the weakest party in the trio, it particularly needs to promote that the countries should follow panel decisions rather than relying on their power to get their way. "This has become even more relevant today since the WTO dispute settlement mechanism is paralyzed," she said.

Carleton University Professor Meredith Lilly, who studies Canada-U.S. relations from the Canadian perspective, agreed. "I don’t believe that Canada is implementing the dairy TRQs the way it should be, and as a result, it’s putting a target on us for the review," she said.

The U.S. has tried to turn attention away from its lack of compliance with the auto rules of origin panel to the threat of Chinese firms building electric vehicles in Mexico to get around tariffs (see 2403070067).

Diego Marroquín Bitar, a North America scholar at the Wilson Center's Mexico Institute, acknowledged that Chinese involvement in Mexican manufacturing is a risk in the review, but said, "These concerns are mostly overblown. Chinese investment is 49 times smaller than U.S. investment in Mexico."

Marroquín and a former U.S. ambassador to Mexico, Earl Anthony Wayne, co-authored a white paper that was released July 11, which noted that USMCA supports 17 million jobs in the U.S., a 32% increase compared with 2020. New investments in the three countries have more than doubled since USMCA came into effect four years ago. But their paper noted that Mexico is lagging in foreign direct investment, particularly as a percentage of its economy, compared with other Latin American countries like Brazil.

"Unresolved disputes in the energy sector diminish Mexico’s and North America’s overall investment prospects and hinder the region’s potential for renewable energy generation, particularly affecting prospects for private sector investment in Mexico," they wrote.

Panelist Juan Carlos Baker, who was vice minister for trade in Mexico as the North American Free Trade Agreement was renegotiated to become the U.S.-Mexico-Canada Agreement, noted that the text is silent on how exactly the review unfolds. "We know very well when this is going to start," he said -- July 1, 2026 -- "but we just don't know when is it going to end."

If all three countries are not satisfied with the review, any one can call for an end to the pact. Then there would be annual re-assessments for 10 years.

He said, given bureaucracies, proposals for changes to USMCA will be sent to working groups or committees, but, he asked, what happens next? Do those groups take six months, a year, two years to digest them?

"Some clarity would be helpful," he said. Lilly agreed that the process needs to be developed now, ahead of the review's start. And, she said, government officials in Canada and the U.S. who will be responsible for the review should not wait until next year to begin, since there could be a change in administration in both countries. "Waiting is actually a really wrongheaded approach. It would increase the role and influence of whoever that president-elect is."

Laura Dawson, a Canadian and executive director of the bi-national Future Borders Coalition, was the most pessimistic about the review. She said if Donald Trump returns to the White House, it will be "an attempt to maximize U.S. interests, to clear [trade] irritants and to increase leverage." She said if NAFTA hadn't already existed, the three countries would not have negotiated a free trade agreement in this political environment.

"Can this agreement be saved?" she asked rhetorically. "It’s definitely taken some body blows."

She said Canada is using protectionism for its dairy industry and is discriminating against U.S. digital services companies. She said the U.S. is more interested in protectionism than strengthening an integrated North American supply chain.

However, she said, if policymakers can use USMCA to address illegal trade and irregular migration, it may be saved. She also praised Mexico's coordination with the U.S. to fence out Chinese steel so that it isn't processed in Mexico and thus benefit from duty-free entry. She said she'd like to see Canada do the same.

Dawson said the regular trilateral meetings between the trade ministries don't make that much sense, because "we have never acknowledged the fact that there are very few trilateral concerns," she said.

Lilly also acknowledged the protectionist mood, but said, "The more successful USMCA is perceived to be now, the more future-proofed it’s going to be from anti-free trade sentiment that we've seen at work."