‘New Nafta’ greeted with relief if not delight

The announcement on October 1 that the US, Canada and Mexico had reached agreement on a deal to replace the North American Free Trade Agreement (Nafta) after more than a year of acrimonious negotiations ended the state of turmoil in which manufacturers, farmers and businesses in all three countries had been living almost since the day of president Donald Trump’s inauguration.

However, industry groups responded to the new agreement more with gratitude that an agreement had been reached than with ringing endorsements of its terms. Now that the dust is settling, it is not clear what the effect of the renamed United States-Mexico-Canada Agreement (USMCA) will be on FDI decisions. 

Lee Malleau, vice president at Edmonton Global, a regional economic development company in Alberta, Canada, said USMCA is advantageous, noting a slew of new announcements of FDI into Canada within 24 hours of the announcement of its completion. “There has been pent-up demand with all the trade friction,” she said. The most notable disclosure was of a $31bn liquefied natural gas export facility to be built in western Canada by an international joint venture.  

Hugo Perezcano Diaz, deputy director of international economic law at the Centre for International Governance Innovation in Ontario and a former Mexican trade negotiator, noted FDI into Mexico had slowed under Mr Trump because of uncertainty about his policies. 

Now there is certainty and a more stable framework, Mr Perezcano said he expected investors to regain confidence – even though he considers the new framework is not as good as Nafta. Nevertheless, he warned that investors will have to evaluate the policies of the incoming president Andres Manuel Lopez Obrador who takes office on December 1. “I would not be surprised if foreign investors play it cautiously until they have a better picture of the investment climate in Mexico,” he said.

In the US, reaction was a mixture of relief and criticism. C. Fred Bergsten, senior fellow and director emeritus at the Peterson Institute for International Economics in Washington, DC, said the USMCA (which still needs to be ratified by the US Congress) will have a small impact because the deal is very small. 

“It won’t make much difference,” he said. He added that the fact it is protectionist of industries like automobiles could mean more FDI to serve the US market. But USMCA also makes the auto and textile industry less competitive because it raises their costs. “This just keeps things going with the most changes at the margins.”