China 'Threatened With Isolation' By Veto Written Into USMCA

Trade & Policy

China 'Threatened With Isolation' By Veto Written Into USMCA

A clause allowing any member of the North American trio to effectively block eachother's free trade deals seems aimed at China and is expected to feature in future US trade agreements

A special clause in the new US-Mexico-Canada trade agreement would give Washington a near-veto over any attempt by Canada or Mexico to agree to a free-trade deal with a "non-market economy", in what analysts have said is a major threat to China's position in the global trading system.

The United States-Mexico-Canada Agreement (USMCA), which will replace the 24-year-old North America Free Trade Agreement, stipulates that any of the three parties to the deal has the right to be informed about any negotiations on a free-trade agreement with a "non-market economy" at an early stage, and can review any such deal signed by another member.

If one of the three were to sign a free trade deal with a non-market country, either of the other two would have the right under article 32.10 to terminate the trilateral USMCA with six months' notice and form its own bilateral deal on the same terms.

The agreement needs to be approved by the governments of all three countries, including the US Congress, which isn't expected to take it up until early next year.

Despite repeated Chinese demands that they do so, the US and European Union have refused to classify China as a "market economy" - a technical distinction in the World Trade Organisation framework that would reduce the ability of Washington and Brussels to impose trade sanctions on Beijing.

With the power to review and then impede or effectively veto a possible free trade deal between China and Canada or Mexico, the US can block potential "backchannels" for Chinese products to enter US markets via its neighbours, and gain a significant advantage in weakening Beijing's negotiating power in future trade talks.

China says USMCA deal will prevent Canada from free trade with Beijing

China says it deplores the controversial new clause in the USMCA that calls on the countries to notify each other if they enter into trade talks with a "non-market" economy. In a scathing statement, the Chinese Embassy in Ottawa says section 32.10 of the new USMCA amounts to an act of political dominance by the US, which it blames for inserting the clause some argue gives the Americans a veto over Canada and Mexico pursuing free trade with China.

The Trump administration is embroiled in a trade war with China and has slapped tariffs on hundreds of billions of dollars worth of Chinese goods, prompting retaliation from Beijing.

In a statement to The Canadian Press, Chinese Embassy spokesman Yang Yundong calls the move "dishonest behaviour" that blatantly interferes with the sovereignty of other countries. China disputes that it is a non-market economy, saying it is a member in good standing of the World Trade Organization.