Foreign Policy Watch: India-United States

[op-ed snap] The new deals — on U.S.-Mexico-Canada pact


Mains Paper 2: IR | Effect of policies & politics of developed & developing countries on India’s interests, Indian diaspora

From UPSC perspective, the following things are important:

Prelims level: NAFTA, USMCA

Mains level: Protectionist approach being taken by the US and its impact on global economy


Replacing NAFTA

  1. After more than a year of intense negotiation, the U.S., Canada and Mexico managed to arrive at a revised trade agreement on Sunday to replace the quarter-century-old North American Free Trade Agreement (NAFTA)
  2. The deal does not do anything new to promote the cause of free trade among the North American nations but it achieves the objective of averting any significant damage to the international trade system
  3. This is the best anyone could possibly hope for in the midst of the global trade war that began this year

Details of the new deal

  1. The U.S.-Mexico-Canada Agreement (USMCA) makes several changes to NAFTA
  2. There are tweaks to production quotas applied to Canada’s dairy industry
  3. Under the new deal, Canada will have to allow American dairy producers to compete against locals, a move that will favour Canadian consumers
  4. The U.S. agreed to retain Chapter 19 and Chapter 20 dispute-settlement mechanisms as a compromise
  5. This will help Canada and Mexico deal with protectionist duties imposed by the U.S.

Why the deal is not a big achievement?

  1. Not all the amendments are congenial to the prospects of free trade
  2. Unlike other free trade deals entered into by governments, the present one attempts to micromanage trade in a way that benefits specific interest groups at the cost of the overall economy
  3. The new labour regulations and rules of origin will add to the cost of production of goods such as cars, thus making them uncompetitive in the global market
  4. The USMCA mandates a minimum wage that is above the market wage on labour employed in Mexico, yet another move that will make North America a tough place to do business
  5. Foreign investors may now have fewer protections from unfriendly local laws as the accord does away with resolutions through multilateral dispute panels for certain sectors

Prospects for India

  1. Announcing the USMCA, Mr Trump signalled he would now extend his ‘all or nothing’ approach to resetting trade ties with the European Union, China, Japan and India
  2. Terming India “the tariff king”, he said it had sought to start negotiations immediately
  3. India’s trade negotiators will now have their task cut out if they want to protect exporters’ access to one of the country’s largest markets for its services and merchandise
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