On September 30, 2018, Canada, Mexico and the United States reached a deal to replace the North American Free Trade Agreement (NAFTA) with the United States-Mexico-Canada Agreement (USMCA). The USMCA is the product of almost one and a half years of talks between the three regional partners. Throughout the renegotiation process, Canadian financial service professionals have watched with a keen eye to see what changes could be made to the original NAFTA provisions and what the possible implications might be for the industry. With an agreement in place, it is possible to begin to evaluate the new elements of the USMCA and point to the kinds of first and second-order effects of which financial risk managers should be aware.
In the first analysis, the USMCA largely resembles the original NAFTA in its reference to financial services trade. However, it does include a few key amendments to the rules and standards that govern the industry, and to other trade-intensive sectors of the economy. In so doing, the USMCA presents challenges for a variety of stakeholders, including institutional lenders, equity investors and insurers. Risk managers could stand to re-evaluate their exposure to the multi-sectoral effects of the new agreement, particularly with respect to market, credit and regulatory risk, and adjust their governance strategies accordingly.
This report offers only a preliminary assessment of the USMCA, given the draft text made available to the public as of October 2018. Circumscribed by the shear length and complexity of the document, the insights herein are limited to the core Financial Services Chapter (17) and to provisions in other sections that feature most prominently in the initial public and professional commentaries on the agreement. Ultimately, a complete accounting of the risks introduced by the USMCA will not be discernable until the agreement is ratified and in full force, and so institutions should conduct active monitoring in order to identify and respond to new threats as they arise.