The free trade agreement USMCA (United States-Mexico-Canada Agreement) between the USA and its neighboring countries Mexico and Canada is hardly noticed. The small print of the new agreement contains a provision under which each country in the Pact is obliged to inform other parties three months in advance when it starts trading talks with a „non-market economy“.
This particular phrase is meant from the perspective of the US China. If a country concludes a free trade agreement with China or any other similar economy, each of the other two has the right under Article 32.10 to terminate the trilateral agreement six months in advance and to conclude its own bilateral agreement on the same terms.
Analysts see the clause as a major threat to China’s position in the global trading system. „This clause definitely aims to make it difficult for others to sign a free trade agreement with China – or at least on terms that the US does not see fit,“ said Scott Kennedy, director of the Center’s Chinese Business and Political Economy project for Strategic and International Studies in Washington opposite Politico.
The clause is intended to serve as a template for future US trade agreements with other countries. Kennedy says the Trump administration will try to use a similar wording for trade agreements with Japan, the European Union and the United Kingdom. „This seems to be part of the effort to build pressure against China with escalating tariffs, investment restrictions and export controls,“ he said.
US Presidium Donald Trump and Chinese President Xi Jingping join hands during their meeting in Beiing on November 9, 2017.
White House National Economic Council director Larry Kudlow stressed the importance of the provision and said it sends a signal to China „that we act as a single entity“.
Kotaro Tamura, an Asian fellow at the Milken Institute and former Senator and Parliamentary Secretary for Economic and Financial Policy in the Japanese Cabinet, said the USMCA „will definitely be the blueprint for circling China in terms of trade.“ The agreement must be approved by the governments of all three countries, including the US Congress, which is unlikely to negotiate until the beginning of next year.