By: Gil Lan
The United States, Canada, and Mexico have ratified a multilateral trade agreement (the “USMCA”) that contains a highly unusual provision. This provision (referred to as the “Poison Pill”) is intended to deter the signatories from entering into a free trade agreement (FTA) with any “non-market country.” The Poison Pill was introduced by the United States in the wake of the US–China trade war and was most likely directed at deterring Canada from entering into an FTA with China.
This Article argues that the Poison Pill is functionally an expulsion clause (as opposed to a withdrawal clause) which violates the USMCA parties’ preexisting obligations under the WTO Agreement regarding FTAs. This is because the Poison Pill raises barriers to trade and is unnecessary for the formation of an FTA. Paradoxically the Poison Pill also depends on the WTO Agreement’s Most Favored Nation (MFN) provision to more effectively limit a nation’s ability to enter into FTAs with a “non-market country.”
It is troubling that the United States used the coercive and unjustified imposition of tariffs, under the guise of national security, as negotiating leverage in USMCA negotiations. The United States has also indicated that it may include Poison Pills in future FTAs. This
Article proposes two strategies for minimizing the impact of the Poison Pill on nations who may be coerced into accepting it: entering into overlapping multilateral FTAs and forging economic relationships outside of the “FTA-box.” If the United States cannot credibly commit to WTO rules then non-US nations will have to turn to other superpowers (e.g., China and the EU) and large trading blocs to counterbalance an overreaching United States. These strategies align with a broader imperative: dealing with a United States that will not commit itself to a rules-based trading order with even its long-standing allies.