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Bulletin | Covid-19

Canada-United States-Mexico Free Trade Agreement (CUSMA): A Prototype for Global Recovery Post COVID-19?

Fasken
Reading Time 5 minute read
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Introduction

Globalization has shaped the world economy for well over half a century. Trade liberalization, in the form of Free Trade Agreements (FTAs), has formed the underpinning to economic globalization.

Since the Financial Crisis of 2008-2009, globalization has come under close scrutiny, essentially breaking the world into polar-opposite camps. One camp - featuring any combination of nativism, populism, economic nationalism and protectionism - seeks to reverse globalization. The other, comprised of countries like Germany, France, Japan, South Korea and Canada, among others, favours the reform of globalization.

The focus of the reformist camp, while continuing to search for ways to extend trade liberalization through new trade deals, is to promote the social / labour dimension of globalization. The underlying belief of the reformists is that the alleviation, if not eradication, of the “social deficit” acknowledged to be embedded in globalization (and the main source of the current palpable discontent) would restore the lustre to globalization, thereby disarming the forces favouring reversal of our global economic system.

From the reformists’ perspective, the salvation of globalization hinges on achieving a proper balance between economic development and social progress. Globalization, it is believed, can be placed on a sustainable footing if and when the economic and social dimensions are brought into better alignment.  

A Case in Point: The Canada-US-Mexico Free Trade Agreement ("CUSMA") or the ("Agreement")

Where can one find an example of the movement towards achieving a sustainable global system through alignment of the economic and social components? For Canadians, there is no need to go further than the recently concluded North American Free Trade Agreement, known in this country as CUSMA (enacted July 1, 2020). A brief comparison of the social content found in the original NAFTA (1994), compared to the newly-minted replacement deal (CUSMA), twenty-five years on, makes the point.

1. NAFTA: 1994

In 1994, the drafters of NAFTA were operating without any internationally recognized social or labour standards - the ILO Declaration on Fundamental Principles and Rights at Work (the “Fundamental Declaration”) did not come into existence until four years later. As a consequence, the obligation of the signatory States under NAFTA (Canada/USA/Mexico) was simply to maintain and enforce relevant domestic laws then on the books in their own jurisdiction.

It is noteworthy that the social / labour provisions, under NAFTA, were not placed in the main body of the text but rather in a “side deal” known as the North American Agreement on Labour Cooperation (the “NAALC”). The NAALC, although serving a useful educational role, proved to be largely “toothless”. In a word, there was a barely discernible social aspect to NAFTA.

2. CUSMA: 2020

A review of the recently enacted CUSMA tells quite a different story than the original version of the trade deal - one consistent with the proposition that social progress, coupled with economic advancement, is a main thrust of contemporary trade deals.

To begin, the social provisions of CUSMA have graduated to the main body of the text. Chapter 23 - Labor contains extensive legal obligations for the three signatory jurisdictions centred on the ILO’s Fundamental Declaration. The reach of the labour content of CUSMA prohibits even the importation, by the three signatory States, of goods produced, in whole or in part, by forced or compulsory labour, including child labour.

Further, and significantly, violations of the provisions found in the Labor chapter by a signatory jurisdiction can be pursued under the dispute resolution mechanism found in the Agreement (Chapter 31), up to and including the imposition of proportional trade- related sanctions in the event of continuing non-compliance.

CUSMA then ventures into uncharted trade deal territory, beneath the traditional systemic government-to-government level, in crafting specific provisions aimed at reforming labour rights and the labour relations system in Mexico. These specific provisions, referenced below, are novel with all the details surrounding their application yet to be clearly defined and endorsed.

An annex to CUSMA entitled “Worker Representation in Collective Bargaining in Mexico” requires Mexico to reform its labour relations system to allow workers to genuinely organize and collectively bargain (consistent with the Fundamental Declaration of the ILO). To further bolster the labour requirements imposed on Mexico by CUSMA, two additional bilateral annexes (one between Canada and Mexico and the other between the United States and Mexico) have been attached to the Dispute Settlement chapter (Chapter 31) and are entitled “Facility-Specific Rapid Response Labor Mechanism” (the “RRLM”).

Under the terms of the RRLM, panels of labour experts can be deployed to investigate whether the impugned facility(ies) is in compliance with the requirements imposed on Mexico in terms of freedom of association and collective bargaining. If non-compliance is found by the appointed panel, proportional trade-related sanctions can be imposed in the event non-compliance persists.

The roster of labour experts, from each of the three States, as well as an initial elaboration of the process surrounding the RRLM, is contained in Decision No. 1 (dated July 2, 2020) of the Free Trade Commission established under the provisions of CUSMA.

Conclusion

The labour provisions found in CUSMA represent an ambitious attempt to strengthen the social content of this significant regional free trade agreement. As a result, CUSMA stands as a precedent for a contemporary trade deal that combines large scale economic integration, across multiple national boundaries, with real social progress.

CUSMA comes at a time when global trade - following decades of remarkable, virtually uninterrupted, growth - has been in recent decline with a precipitous drop occasioned by the economic fallout from COVID-19 in 2020.

All nations, including Canada, are presently engaged in the daunting task of rebuilding national economies and the global economic system. The question becomes: Is CUSMA, with its attention on both economic development and social progress -within the context of a search for a fine balance between the two - pointing the world towards the architectural structure of the next world order? Time will tell.

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