Sizing up the USMCA Compromise Package – How Various Industries Will be Impacted
On December 10, Speaker Nancy Pelosi, the Trump administration, along with leaders in Mexico and Canada, announced a compromise to the new North American trade deal, known as the U.S. Mexico and Canada Agreement. Eleventh-hour concessions by the Administration and Mexico are likely to result in a win for labor, President Trump, and ultimately market stability.
The final deal gives Democrats in Congress a few big wins in the pharmaceutical and labor industries, as well as environmental standards, and gives President Trump the victory of having his new trade deal on the path to ratification by all countries involved. Canada managed to receive much of what they requested, despite the slight opening of the Canadian dairy market to U.S. producers.
One of the biggest changes from the original draft USMCA in the compromise trade agreement is the negotiated labor monitoring and penalties for noncompliance. While the original draft required Mexico to change its laws to make it easier for workers to unionize, the compromise created an interagency committee that will monitor Mexico’s labor reform, established benchmarks and penalties for Mexico’s labor reform process, and established labor attachés in Mexico for on-the-ground reporting about Mexico’s labor practices.
Below is an outline of the changes to the USMCA – the House is expected to vote on the deal next week, though the Senate will likely not address the bill until the impeachment process has concluded:
For workers, language was removed that made it difficult to prove that trading partners are not protecting workers from violence in their respective countries. Now, Mexico has agreed to a “rapid-response labor mechanism” (see ANNEX 31-A) that allows independent, multinational three-person panels to investigate Mexican factories. Mexico, too, can have a panel investigate factories in the U.S. If a violation of union rights is found, a complaint can be filed, and the country making the accusation can determine the period of time that the accused county can have to address the concern. Provisions against Forced Labor also remain strong in the agreement. The deal is expected to also create 176,000 new jobs in the U.S. (See Article 23.3-23.4, ‘Labor Rights.)
For the environment, Democrats have promised that the deal has an added commitment that all the countries will have seven multilateral environment agreements (MEAs), alongside language that will allow the list to grow over time. Provisions include prioritization and monitoring of MEA commitments, and maintain and strengthen the protection of endangered species, the Montreal Protocol, prevention of pollution from ships, regulation of whaling, protection of the Ozone Layer and more (Article 1.3 Amendment and Article 24.9 Amendment)
For the pharmaceutical industry, the deal’s former provision that gave biologics a 10-year exclusivity period on the market is now entirely taken out. Democrats argued against the exclusivity period, concerned it could increase the cost of drugs, and succeeded in eliminating language that allows patent evergreening – when brand-name drug manufactures extend patents an additional to maintain power in the market when a new or related drug is created. (See the deletion of Article 20.49 ‘Biologics’)
For the internet, a Democratic concession led to maintained protections in the USMCA for technology companies, giving legal immunity for content posted by their users, as well as legal protections when these companies seek to moderate platforms. These provisions remain the same from Section 230 of the Communications Decency Act of the USMCA.
For the steel industry, while the deal already exempted the Canada and Mexico from steel and aluminum tariffs, the revised agreement has strict rules of origin in the automotive industry. The deal states that seven years after entry into the USMCA, all steel manufacturing must occur in one or more of the countries involved, except for the refinement of steel additives. Ten years after the agreement, the countries will consider appropriate requirements in the interest of all parties for aluminum to also be considered. (See Chapter 4, ‘Rules of Origin’)
For Canada and dairy, the U.S. will be able to export 3.6% of Canada’s dairy market, currently at 1%. Dairy companies in the U.S. can sell their products into Mexico duty-free, with access to common-named cheeses, while Canada is opening its market with more duty-free quotas for U.S. dairy products. The deal eliminates Canada’s 6/7 milk pricing system, and holds Canadian export of dairy to the standards of international trade rules.
And for the auto industry, in order to avoid tariffs, a car or truck must have 75% of its components made in the U.S., Mexico or Canada, up from 62.5% today. Also, workers making the cars or trucks, at least 30% of the work, must be earning at least $16 an hour. By 2023, that number is 40% of the work done on cars.
With the United States positioning itself to negotiate several more trade deals, labor hopes that these last-minute changes set a benchmark for labor standards and enforcement moving forward and, likewise, the President hopes it demonstrates he can close a major trade deal.
Note: Ryan Bernstein, formerly chief of staff to Senator John Hoeven (R-ND) is a senior vice president with McGuireWoods Consulting federal public affairs group.Mariam Eatedali is a research associate at McGuireWoods Consulting; she previously consulted with former representatives and senators to address foreign economic and diplomatic concerns while she was a fellow for the U.S. Association of Former Members of Congress