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USMCA: Where Do We Go from Here?


Photo: movesmartly.com

By EARL ANTHONY WAYNE

(The following article was written for the Atlantic Council and is being  republished in Pulse News Mexico with specific prior permission.)    

On Nov. 30, the leaders of the United States, Canada and Mexico signed the United States-Mexico-Canada Trade Agreement (USMCA), modernizing the 1994 North American Free Trade Agreement (NAFTA) and “rebalancing” trade relations between the three countries, according to the U.S. administration.  Before the new pact officially takes effect, however, the legislatures of all three countries need to approve the agreement.

The USMCA would preserve the massive trading and shared-production networks that support millions of jobs in the United States, Mexico and Canada. Those networks support North America’s ability to compete effectively with China, Europe and other economic powers. Approving the USMCA this year would thus appear to be in the economic interest of all three countries, providing certainty for the $1.3 trillion in three-way trade and for the many businesses, workers and farmers that depend on the commerce and coproduction that interlinks North America. Since the USMCA will last at least 16 years, its approval should provide certainty to encourage private sector investment in strengthening North America’s continental marketplace.

The USMCA effectively updates NAFTA to reflect the changes in trade practices and in North America’s three economies since 1994. For example, it now covers internet-based commerce and modernizes key areas such as trade in services, protection of intellectual property rights (IPR) and the treatment of environmental and labor issues — a priority for U.S. unions. The biggest “rebalancing” changes initiated by U.S. negotiators increase the amount of North American content required in vehicles and specify that 40 to 45 percent of that content must be produced by workers making at least $16 an hour. United States Trade Representative (USTR) Robert Lighthizer and his team argue these new rules for the auto sector will add more jobs and investment in the United States. There are also significant U.S.-driven changes in how investor-state disputes would be settled and in how the reviews and possible termination of the agreement would be handled.

U.S., Mexican and Canadian business and farm organizations have welcomed the new agreement. Prospects for approval in Mexico and in Canada seem good, although Canada’s October elections and Prime Minister Justin Trudeau’s political problems may make that harder.

Before the agreement can move ahead, however, the three countries must find a solution to the tariffs the United States put on steel and aluminum imports from Canada and Mexico in 2018 for “national security” reasons. In response, those countries imposed equivalent tariffs on a range of U.S. exports, spreading economic pain across all three countries. The governments of Mexico and Canada, as well as key Republican members of the U.S. Congress, want this problem resolved before approving the USMCA.

The U.S. International Trade Commission must also first provide its assessment of the USMCA’s economic impact for the United States. This assessment is expected later this month.  The U.S. administration will then propose implementation legislation (and guidelines) before Congress formally considers the agreement.

Supporters hope the U.S. Congress will approve the USMCA this summer or at least before the political window for action in the United States closes later in the year, due to the approaching 2020 presidential and congressional elections. The U.S. administration and business and farm stakeholders have begun efforts to win congressional approval, but serious questions remain about whether the U.S. House of Representatives will act this year.

Democrats and unions have raised concerns about the need for stronger enforcement of the agreement’s labor provisions regarding Mexico. These concerns are shared by U.S. unions. In addition, some Democrats are worried that adjustments to the USMCA provisions will raise drug prices for consumers and about the ability of the United States to enforce the environmental provisions in the agreement. Pundits have also argued that House Democrats may delay action until after the 2020 election.

To counter this, the U.S. administration and private sector supporters of the USMCA have already begun lobbying for the agreement. Lighthizer, for example, told the House Ways and Means Committee on Feb. 27 that not approving the USMCA would mean the United States has “no trade program” and that it “can’t do trade deals,” sending damaging messages to China and others. He has begun a series of outreach meetings to win support for the agreement, including with U.S. labor unions.

Regarding labor practices in Mexico, the USTR and other supporters of the new agreement contend that the new labor chapter and the specific commitments by Mexico are a major advance and sufficient to address the concerns being raised. They argue that the United States will have good leverage and tools to assure compliance. They also highlight the fact that Mexico’s new government is committed to significant labor sector reforms. Mexican President Andrés Manuel López Obrador (AMLO) has long championed labor and union rights. AMLO has already initiated increases in the minimum wage and is supporting major labor reform legislation that is now before Mexico’s Congress, where his party National Regeneration Movement (Morena) party has majorities in both houses. Passage in Mexico’s Congress of the labor reform is also expected this month. The new legislation will likely address at least some of the concerns flagged by congressional Democrats and unions in the United States. Mexico has also reached out to the AFL-CIO to discuss labor issues.

While congressional briefings and discussions are still in early stages, U.S. President Donald J. Trump previously threatened to withdraw from NAFTA as a way to force congressional action. Withdrawing from NAFTA would be a very high-risk path, however. Congressional Democrats would likely bring a legal challenge against the president’s right to act unilaterally, arguing that NAFTA is a mixed executive-congressional agreement, involving legislation the president cannot disregard. Various studies also project very serious costs for pulling out of NAFTA, with potential job losses estimated to range from 1.4 to 4 million for the United States, 1.5 to 10 million for Mexico, and 0.5 million to 1.2 million for Canada. It is hard to imagine that the USMCA’s business and farm supporters would welcome actions with such dire potential consequences.

One good sign: The U.S. public increasingly views trade in North America as positive. According to the Chicago Council on Global Affairs, for example, the number of people who view NAFTA — and now the USMCA — as “good” for the U.S. economy has grown significantly, rising from 53 percent in 2017 to 70 percent in early 2019. This is a firm basis for a rapid approval of the USMCA.

Debates and discussions in the months ahead will be particularly consequential. Given the enormous economic benefits of approving the USMCA, the U.S. Congress, the Trump administration and nongovernmental stakeholders should make every effort to find ways to address concerns and come together around an approach that can be a win for all three countries and bolster the global competitiveness of all three economies.

Earl Anthony Wayne is a public policy fellow at the Woodrow Wilson Center and career ambassador (ret.) from the U.S. Diplomatic Service, where he served as U.S. ambassador to both Mexico and Argentina, as well as assistant secretary of State for economic and business affairs. He is also a nonresident senior fellow at the Atlantic Council.

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Categories: Diplomacy, International Relations, Latin America, Mexico, Mexico-U.S. relations, Opinion, PoliticsTags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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