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USMCA’s Path to Passage Is Bumpy, but Its Promised Stability is Sorely Needed


Photo: Vox

By EARL ANTHONY WAYNE

(The following article first appeared on the website the Atlantic Council and is being republished in Pulse News Mexico with specific prior permission.)

U.S. Congressional Democrats and the U.S. Trade Representative (USTR) are inching toward agreement on key elements of the United States-Mexico-Canada Trade Agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA). The administration of U.S. President Donald Trump is aiming to achieve congressional approval of the new trade agreement during September or October, when it still may be possible to get it through the Democrat-controlled House of Representatives before 2020 electioneering is in full swing.

Stakeholders in the vast North American marketplace, and the Trump administration stress the benefits of the modernized USMCA, including in such areas as internet commerce and data protection, which could start boosting the economy in 2019, rather than waiting for ratification until after the 2020 U.S. presidential election. But supporters also privately stress that approving the USMCA now will bring critical stability and predictability for the continental commercial network that supports some 12 million U.S. jobs, with what are currently the United States’ two biggest trading partners — Mexico and Canada. These advocates cite the disruption generated by tariffs and tariff threats over the past two years, and express worry that more damage could be done unless the USMCA is set up to stabilize the partnership. Farmer groups in particular hope that the new agreement will help solidify exports to what have traditionally been two of three of the largest foreign markets for U.S. farmers, especially as demand from China is threatened by a continuing trade war with Beijing.

The USMCA will provide stability at a time when uncertainty is a top threat to U.S. growth and investor confidence. While much of the concern has to do with China, the approval of the USMCA would show investors and other countries in Europe and Asia that the United States is serious about solving trade issues in a way that does not hinder growth.

The Road to Passage

A number of barriers need to be overcome to “get to yes” on the USMCA, however. These include a busy fall U.S. legislative schedule, filled with contentious battles over spending caps, appropriations bills, and lifting the debt ceiling. Press reports suggest that some Democrats are already worried that a vote on the USMCA could divide the party and hand a victory to President Trump, on top of the objections many Democrats still have about the agreement itself.

U.S. Speaker of the House Nancy Pelosi has spoken of the need for “surgical” adjustments to the USMCA and has designated a group of House members to explore changes with U.S. Trade Representative Robert Lighthizer on labor rights, enforcement provisions (including dispute resolution), intellectual property rights for biologic drugs, and the environment. Initial exchanges have been positive. While President Trump is still calling for Congressional action immediately, it appears that after an internal debate, the administration is willing to keep working with the Democrats for a potential vote in the fall.

The Democrats have yet to agree on the specific changes they seek to ensure that Mexico will implement the agreement’s labor commitments. They specifically demand that the United States be able to take effective action to enforce the strong labor rights requirements in the USMCA. Mexico recently passed a major labor reform law, which should meet the USMCA standards and the Mexican government has shared its plans for implementing these reforms with the U.S. Congress.

Although Mexico’s Senate has already approved the USMCA, Mexican officials say that they are willing to find ways to make the mechanisms for resolving disputes under the USMCA more effective, if that can help alleviate Democrats’ concerns about being able to enforce the agreement. This would also address concerns that dispute settlement panels can be too easily blocked under the current USMCA text. A delegation of House members is reportedly traveling to Mexico to explore their concerns directly with Mexican officials.

Outside of their concern about Mexican standards, congressional Democrats also seek changes in the draft agreement to reduce the current time period for intellectual property protection for biologic drugs from the current 10 years, in order to speed reductions in drug prices.

Canada, the USMCA’s third party, is letting the United States and Mexico sort out their differences and is waiting to see if the U.S. Congress will ratify the agreement. Canada’s parliament has not approved the deal, while parliamentary elections are slated for Oct. 21.

Why the USMCA is Needed

In private conversations, many economic stakeholders are rooting for the Democrats and USTR to reach a compromise on the USMCA to help prevent further disruptions to the $1-million-a-minute trade between the United States and Mexico. While NAFTA would likely remain in place if Congress does not endorse the USMCA, a new USMCA could dissuade both Trump and Mexican President Andrés Manuel López Obrador (AMLO) from taking steps that undermine the massive U.S.-Mexico commercial relationship.

Many privately cite Trump’s threats in recent months to impose tariffs on Mexican imports over migration flows from Central America (and drug smuggling) as the type of actions they hope approving the USMCA will inhibit. Business leaders point out that the ups and downs of the U.S.-Mexico economic relationship over the past two years have been very disruptive for business planning and investment. Some experts are urging the U.S. Congress to insert language in the implementing legislation as they approve the USMCA that would put new limits on the U.S. president’s ability to impose such tariffs without the approval of Congress.

Having the USMCA fully in place would also serve as a check on AMLO, as he moves to implement his promised historic Fourth Transformation in Mexico through social, economic, governance and political reforms. Pundits and business leaders have been alarmed by a series of moves by the AMLO administration that they worry will undermine Mexico’s economy and business environment.

The surprise July 9 resignation of Mexico’s respected finance minister Carlos Urzúa is the latest example, as Urzúa cited conflicts of interest, unqualified senior officials and decisions not based on data or good analysis among his reasons for resigning: all red flags for the private sector. The resignation followed alarming government threats the week before to take international gas pipeline companies to international arbitration over existing legal contracts.

Approving the USMCA would not eliminate trade tensions or all of the problems between the United States and Mexico, but it wouldl provide a valuable institutional framework to manage them and protect this vital relationship as it continues to flourish.

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.

 

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