Summary: If any USMCA country enters into a free trade agreement FTA with a non-market economy, the other USMCA countries could turn the USMCA into a bilateral agreement.
Who is a Non-Market Country?
There is no definition stated. Any country could designate any other specific country a non-market country. No reason nor justification is required. I doubt that the US, Canada or Mexico has as yet defined this legal term.
Could the USMCA automatically turn into a bilateral agreement?
No, the other two countries have the ability to but do not necessarily have to terminate the trilateral agreement.
Implications
- China-Canada Free Trade Agreement
It is obvious that China is targeted with this clause. China is, without a doubt, a non-market country. Canada and China could begin negotiations for a FTA. If the FTA is agreed to by Canada, US and Mexico, then the new FTA would not affect the USMCA. This means that China needs to negotiate and get approval with the North American block and not only Canada. That said an agreement is still possible.Despite the USMCA non-market country clause, there is nothing stopping Canada from doing more trade with China, as we do today, without a FTA. - What about other countries such as Vietnam, Cambodia, Myanmar?
All these countries are communist, totalitarian and non-market. If none of the USMCA members designates them non-market countries, or does not mind, then Canada could enter into a FTA with them. If all three USMCA countries approve of the new FTA then the USMCA is unaffected. There is flexibility here. I do not think that this clause was intended to exclude all non-market economies, only those that unfairly trade, such as China. - This is a really nice blueprint to use with other trading blocks, specifically with the EU and with the TPP. Australia and New Zealand, for example, have an existing FTA with China, they would be exempt from this clause. For the EU, only Switzerland has a China FTA, making this clause easier to implement.
Article 32.10: Non-Market Country FTA
- At least 3 months prior to commencing negotiations, a Party shall inform the other Parties of its intention to commence free trade agreement negotiations with a non-market country. For purposes of this Article, a non-market country is a country that on the date of signature of this agreement at least one Party has determined to be a non-market economy for purposes of its trade remedy laws and is a country with which no Party has a free trade agreement.
- Upon request, the Party shall provide as much information as possible regarding the objectives for those negotiations.
- As early as possible, and no later than 30 days before the date of signature, that Party shall provide the other Parties with an opportunity to review the full text of the agreement, including any annexes and side instruments, in order for the Parties to be able to review the agreement and assess its potential impact on this Agreement. If the Party involved requests that the text be treated as confidential, the other Parties shall maintain the confidentiality of the text.
- Entry by any Party into a free trade agreement with a non-market country, shall allow the other Parties to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement).
- The bilateral agreement shall be comprised of all the provisions of this Agreement, except those provisions the relevant Parties decide are not applicable as between them.
- The relevant Parties shall utilize the six-month notice period to review the Agreement and determine whether any amendments should be made in order to ensure the proper operation of the bilateral agreement.
- The bilateral agreement enter into force 60 days after the date on which the parties to the bilateral agreement have notified each other that they have completed their respective applicable legal procedures.