A Really Big Button That Doesn’t Do Anything? The Anti-NME Clause in US Trade Agreements Between Law and Geoeconomics

Geraldo Vidigal

doi:10.1093/jiel/jgaa001

Abstract

Abstract The United States-Mexico-Canada Agreement (USMCA) features a clause, dubbed ‘anti-China’, which sets out legal consequences in case one of the parties negotiates or enters into a free trade agreement (FTA) with a nonmarket economy (NME). A similarly worded objective appears among the negotiating objectives of the US for FTAs with the European Union, Japan, and the United Kingdom. This article examines the anti-NME clause, arguing that its concrete legal consequences are less relevant than its symbolic effects. The USMCA clause itself is difficult to replicate in bilateral agreements, since it depends on cooperation between the two nonsigning parties. Its operation is nonetheless similar to that of two unilateral remedies available under the law of treaties, permitting a reasonable assessment that the clause, if it follows its original design, will aim to permit termination of bilateral US FTAs in response to the other party entering into an NME FTA. While such a clause would offer little in terms of concrete effects if added to agreements that already permit unilateral withdrawal, its greatest value may not be in its legal effects but in its legitimating and signaling properties, which push USMCA parties to establish a common front in the ‘geoeconomic’ dispute between the United States and China.

Highlights

In a corner of the World Wide Web lies the internet’s self-declared ‘most unusual artifact’: The Really Big Button that Doesn’t Do Anything.1 A large button colored red appears on the screen to be pressed at will, to no noticeable effect
The United States-Mexico-Canada Agreement (USMCA)’s anti-NME clause equates entering into an free trade agreement (FTA) with a country the US designates as a nonmarket economy to a fundamental change of circumstances in the trade relations between USMCA parties, allowing the nonsigning parties to react to this FTA as if the signing party had repudiated the agreement or reached a provision essential to the accomplishment of the object or purpose of the USMCA
By inscribing into its FTAs the entitlement to terminate the treaty in response to the other party signing an FTA with a nonmarket economy, the US legitimizes a future decision to adopt a severe response to the conclusion of such an agreement, preventing such a decision from being perceived as an illegitimate exercise of economic power

Summary

INTRODUCTION

In a corner of the World Wide Web lies the internet’s self-declared ‘most unusual artifact’: The Really Big Button that Doesn’t Do Anything. A large button colored red appears on the screen to be pressed at will, to no noticeable effect. In its negotiating objectives for future FTAs with Japan, the European Union and the United Kingdom, the United States Trade Representative (USTR) has included a formulated objective: to ‘[p]rovide a mechanism to ensure transparency and take appropriate action if [the other party] negotiates a free trade agreement with a non-market country’.5 This article analyzes this anti-nonmarket country—or nonmarket economy (NME)—clause, arguing that it operates in a manner similar to The Really Big Button: while invoking the clause changes virtually nothing in the rights and obligations of the parties under USMCA, its very presence alters the collective perception with respect to the permissibility of negotiating an FTA with an NME, on the one hand, and of adopting a harsh response to such an agreement being concluded, on the other.

The ANTI-NME CLAUSE IN THE UNITED STATES-CANADA-MEXICO TRADE AGREEMENT

THE ANTI-NME CLAUSE AND THE LAW OF TREATIES

The anti-NME clause in bilateral treaties: extrapolating design from purpose

CONCLUSION