The USMCA and the Coronavirus Crisis
The Canadian parliament is set to ratify USMCA trade pact Friday, as part of its coronavirus response.
While this might reassure markets, there are reasons to be worried about what this template means for governments’ ability to respond to health crises.
As I wrote in December, the USMCA maintains or goes further than NAFTA 1.0 on setting constraints on countries’ public health regulations. (medium.com/@toddntucker/t…) We’re still in the process of figuring out how long the virus can survive outside the human body, but estimates have been getting revised upwards to 2–3 days.
That’s a long stretch in super efficient commercial / delivery markets — both domestic and intl (time.com/5801278/corona…)
This is where the USMCA’s rules for Sanitary and Phytosanitary measures comes into play.
The US, Mexico, and Canada agree that public health measures will be consistent with USMCA. (ustr.gov/sites/default/…)
The USMCA — as well as the WTO agreements — strongly preference international standards set by bodies like the World Health Organization. But in a rapidly evolving context, these standards don’t always exist, necessitating local experimentation.
These local efforts, in turn, face a battery of requirements that are anti-precautionary and put the finger on the scale in favor of trade flows.
As interpreted by international adjudicators, these constraints are pretty unforgiving. (See my paper here:
This isn’t great in situations where you might have good reason to explicitly restrict imports and favor local/national production, as some of the Green New Deal has proposed. (These weren’t SPS measures, but there are similar logics.) (washingtonpost.com/politics/2019/…)
Or in a situation where you actively want to reshore supply chains, as Joe Biden called for yesterday. (joebiden.com/covid19/)
But these “non-discrimination” rules also catch up regulations that are “origin-neutral,” meaning not intended as “protectionist” in the economic sense. Trade adjudicators have found against environmental and health regulations that had the potential to, at some point in time, even inadvertently, raise business costs for foreign producers relative to domestic producers.
This describes almost any regulation. Ironically, this is something the Trump administration — which pushed the USMCA rules — flagged just weeks ago in their critique of similar non-discrimination interpretations. (ustr.gov/about-us/polic…)
There other issues with the USMCA language, including encouragement to consider not regulating full stop (ustr.gov/sites/default/…)
To enshrining a fairly regressive approach to cost-benefit analysis and regulatory review. (ustr.gov/sites/default/…)
There are defenses a country can use if challenged over its public health measures, including this one on essential security.
Keep in mind, however, that Trump has been pushing this button repeatedly (including for steel tariffs), so countries’ deference will be pretty limited.
And international adjudicators have not tended to look favorably on commercial restrictions erected in emergencies that are partly created through the defendant government’s own incompetence, as @WaibelM09 writes here. (researchgate.net/publication/22…) These finer legal points won’t matter in the short run. Governments can and (hopefully) will do whatever they need to do, and figure the rest out later.
But, as there are medium run efforts to address roots causes of the crisis👇, expect some dissonance. (bostonglobe.com/2020/03/13/opi…)
(Adapted from this thread.)