On Wednesday, the U.S. announced its decision to reject the routine six-year extension of the United States-Mexico-Canada Agreement (USMCA), opting instead for annual reviews.
Reuters and AFP reported that Katherine Tai, U.S. Trade Representative, issued a statement declaring that the U.S. does not consent to the renewal of the USMCA in its present form. Consequently, the USMCA has not been renewed.
She further stated that the U.S. would continue discussions with Mexico and Canada to address the agreement’s flaws and trade deficit issues. The deadline for the USMCA extension was set for that day.
The USMCA, which replaced the North American Free Trade Agreement (NAFTA) in 2018 during Donald Trump’s first term, came into effect in July 2020. It has a 16-year lifespan with joint reviews every six years to determine extension.
If all parties agree during the review, the agreement is extended for another 16 years. However, without consensus, annual reviews continue unless a country decides to withdraw completely.
With the U.S. rejecting the extension, the agreement will remain in effect for the next decade, subject to yearly reviews by participating nations.
Unlike Canada and Mexico, which had expressed willingness to extend the USMCA for 16 years, the U.S. opposition was anticipated. Last month, President Donald Trump stated he had no intention of renewing the USMCA.
The primary reason for U.S. opposition is the trade deficit. Last year, the U.S. trade deficit with Canada was 46.4 billion USD, while with Mexico it reached a record high of about 197 billion USD, a 15% increase from the previous year.
A senior U.S. official stated that the trade balance gap, along with market access opportunities, remains a key concern.
AFP reported that this decision could increase uncertainty for businesses, given the integration of North American supply chains in sectors like automotive.
Benjamin Shoemith, chief economist at KPMG, noted that this decision would significantly impact investment sentiment, particularly in Mexico.
However, experts believe it’s unlikely that the USMCA will terminate after its 10-year validity period, despite U.S. opposition to renewal.
Matt Blunt, chairman of the American Automotive Policy Council, emphasized that North American economic integration provides significant regional competitiveness. As of 2024, trade in goods and services in North America is expected to reach about 2 trillion USD.
Shusmith predicted that the automotive industry and energy sector would be central to future negotiations.
An official noted that while there’s a 10-year grace period until the agreement expires, they believe a swift conclusion should be reached if possible, rather than waiting the full decade.
Marcelo Ebrard, Mexico’s Secretary of Economy, stated that unresolved U.S. complaints regarding the USMCA had decreased from 54 to 14 over the past year, asserting that no disagreements are insurmountable.
The U.S. has held two rounds of negotiations with Mexico, with a third round expected in the week of July 20. The schedule for negotiations with Canada has not been disclosed.
