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The USMCA – Beyond Labor & Autos

The USMCA – Beyond Labor & Autos

There’s been a tremendous amount of ink spilt as of late about the ongoing battle on Capitol Hill over the labor-enforcement provisions of the United States-Mexico-Canada Agreement (USMCA) and, more recently, about the degree to which the new Rules of Origin for autos will positively impact sector employment.

There is still no light at the end of the tunnel with respect to labor-enforcement impasse. While Mexico recently passed labor-reform legislation that will allow workers to vote on unions and their labor contracts through secret ballots, Democrats maintain the enforcement provisions within the USMCA are insufficient and are unlikely to create the conditions necessary to prevent the continued flight of American jobs south of the border. Republicans maintain the labor provisions are a cut above NAFTA and are America’s best chance of holding Mexican officials accountable (politically and financially).

Similarly, the White House maintains the automotive Rules of Origin, featuring significantly higher North American content requirements, will generate far more jobs the 28,000 highlighted by the U.S. International Trade Commission’s report released last month.

The result of the impasse is ongoing ambiguity over the fate of the beleaguered trade deal and, in turn, the fate of free trade in North America.

While there’s no question these are important considerations and that reconciling the impasse would serve to secure the longevity of the USMCA, there is significant danger in making these issues deal breakers.

There’s more to free trade than labor enforcement and auto-sector employment

The USMCA is about far more than updating or improving labor standards, or even refining Rules of Origin for North American automobiles. It’s is a wholesale modernization of a trade deal that has solidified North America’s position as the largest trading bloc in the world.

While impassioned pleas have been made by Republicans and Democrats, policymakers often fail to acknowledge the impact of the agreement and free trade in general across the broader U.S. economy.

The importance of free trade to America’s economy and industries presents an irrefutable argument for ratifying the USMCA and augmenting free trade in North America.

Canada and Mexico are among the top three export markets for 49 U.S. states, and either Canada or Mexico is the top trading partner for 39 U.S. states. Approximately two million American jobs are supported by manufacturing exports to Canada and Mexico alone.

Since NAFTA was enacted in 1993, U.S. services exports to Canada and Mexico have tripled from $27 billion to $91 billion. American farmers rely heavily on access to the Canadian and Mexican markets with one-third of U.S. agricultural exports going to their southern and northern neighbors.

Much of the prosperity generated by free trade in North America has directly benefitted small businesses in the U.S. which count Canada and Mexico as their top two export destinations.

Looking beyond labor provisions and automotive rules of origin

The aforementioned data should be reason enough to make the ratification of the USMCA a sure bet. And yet, the new deal has the potential to further expand trade across North America and provide real benefits to American businesses and workers.

The intellectual property protections will shield producers against counterfeit goods and spur activity in IP-intensive industries, which currently support 45.5 million jobs that generate 6.6 trillion in U.S. GDP, according the U.S. Chamber of Commerce.

The agreement also reduces red tape and puts forward fair and transparent regulatory procedures, further enabling America’s small businesses to engage in the import and export of goods.

And while the growth of e-commerce and digital products creates new challenges for international customs agencies and the World Customs Organization regarding the appropriate application of duties, the USMCA introduces new provisions for a digital economy that will help to secure cross-border data flows, prohibit customs duties on transmission of electronic products such as e-books, and see continental cybersecurity collaboration.

The USMCA streamlines customs procedures, harmonizes regulatory policies, promotes e-commerce, offers greater access to Canada’s dairy market and retains critical dispute-resolution provisions for country-to-country disputes.

Broadening Public Discourse of USMCA

Rarely are the benefits listed above mentioned in public discourse over the USMCA, which has become almost obsessively hinged to labor-enforcement provisions. This is not to suggest those provision aren’t important. Indeed, the very impetus behind renegotiating NAFTA was to level the playing field with respect to labor, particularly in the manufacturing sector.

Similarly, changes to the Rules of Origin for autos are important to consider. No other industry has seized on the benefits of NAFTA to create integrated, continental supply chains the way the automotive industry has. Changes to how these supply chains function will impact production and distribution models, as well as employment and consumption trends.

It’s critical to discuss these issues. But it’s equally important the many other wide-ranging reforms outlined in the USMCA aren’t lost or overshadowed by that discussion. Neglecting to consider these benefits would be a disservice not only to the many stakeholders and negotiators who fought hard to ensure their inclusion into the agreement, but to the millions of Americans who would stand to benefit from these inclusions. Given that these same Americans are the constituents of the men and women in Congress, failing to ratify the USMCA over any single provision would be a classic case of members of Congress cutting off their noses to spite their faces.

Candace Sider is vice president of Government and Regulatory Affairs North America at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations.

Pass USMCA Coalition Announces Newest Co-Chairman

The Pass USMCA Coalition announced former Congressman Erik Paulsen will serve as the group’s latest honorary co-chairman this week, adding to the robust lineup of representatives focusing on supporting the swift passage of the USMCA.

“I’m thrilled to welcome my former Republican colleague, because USMCA must be a bipartisan priority,” added Pass USMCA’s honorary co-chair, Joe Crowley. “The new trade pact will create jobs, open new markets for U.S. creators and innovators, and grow America’s economy.”

Paulsen is well known for his ten years representing Minnesota in the U.S. House of Representatives between 2009-2019 in addition to his time in Congress on the House Committee on Ways and Means and Subcommittee on Trade. Current leaders of the group include former Congressman from New York, Joe Crowley, former Washington Governor Gary Locke, and Rick Dearborn.

“Erik’s experience in Congress will be an asset for the Coalition as lawmakers prepare to vote on USMCA,” said Gary Locke, honorary co-chair of Pass USMCA.

“I’m thrilled to join the Pass USMCA Coalition,” Paulsen commented. “USMCA will strengthen America’s economy and boost opportunities for American workers. My former colleagues should move this deal across the finish line quickly.”

ITC Report on NAFTA Revision Doesn’t Impress Democrats

President Trump got a gift from the U.S. International Trade Commission Thursday – a mostly positive assessment of the probable economic effects of the US-Mexico-Canada Agreement, formerly NAFTA.

That won’t appease congressional democrats, though. They’re concerned about the extent to which the USMCA’s rules on labor and environmental protection would be enforced. And there’s not much in the agreement to assuage them.

“USMCA would likely have a positive impact on U.S. trade, both with USMCA partners and with the rest of the world,” the ITC said in a 379-page report.

“[T]he agreement would likely have a positive impact on all broad industry sectors within the U.S. economy. Manufacturing would experience the largest percentage gains in output, exports, wages, and employment, while in absolute terms, services would experience the largest gains in output and employment,” the report said.

It predicts nominal gains in employment and GDP, which is the most that one can expect from any trade agreement.

While not explicitly saying so, the report strongly suggests that the agreement’s benefits will only be realized if its rules are enforced.

“If fully implemented and enforced, USMCA would have a positive impact on U.S. real GDP and employment,” the report said.

Caveats like that appear throughout the report:

– “The agreement, if enforced, would strengthen labor standards and rights.”

– “The Commission assesses that full implementation and enforcement of the IPR (intellectual property rights) chapter’s provisions would benefit U.S. industries that rely on IPR protections.”

– “Overall, labor organizations and other observers express the view that USMCA labor obligations will have no impact on wages or labor conditions if member countries fail to enforce these provisions. Despite the agreement’s new and strengthened labor provisions, some groups criticize the agreement’s lack of measures guaranteeing the enforcement or monitoring of its labor obligations.”

– USMCA holds that “parties must enforce their environmental laws, while also retaining the right to exercise discretion with respect to enforcement of those laws.”

Now there’s a loophole you could drive an 18-wheeler through; sure, we’ll enforce our environmental laws, subject to our discretion. It’s glaringly obvious how much enthusiasm the Trump administration has for enforcing environmental laws and regulations – none whatsoever. Dozens of environmental regulations imposed during the Obama administration have been put off or repealed – all for the benefit of business and industry.

And business and industry liked what they saw.

“This comprehensive analysis shows that all broad industry sectors across the U.S. economy will benefit from USMCA,” the Business Roundtable said in a statement.

“[M]embers of Congress reviewing the ITC report and considering their vote on USMCA should look at the big picture. Liberalized trade with Canada and Mexico has been tremendously important to the U.S. economy,” the U.S. Chamber of Commerce said before the report was released. “A vote for USMCA is a vote to continue these far-reaching benefits. To recap, U.S. trade with Canada and Mexico.”

U.S. Sen. Ron Wyden, D-Ore., the ranking democrat on the Senate Finance Committee, said, “This report confirms what has been clear since this deal was announced – Donald Trump’s (USMCA) represents at best a minor update to NAFTA, which will offer only limited benefits to U.S. workers. As I’ve said for months, the administration shouldn’t squander the opportunity to lock in real, enforceable labor standards in Mexico and fix the enforcement problems that have plagued NAFTA.”

The Finance Committee has jurisdiction over U.S. trade policy, as does the House Ways and Means Committee. It’s chairman, Rep. Richard E. Neal, D-Mass., said it was “notable that the Commission consistently highlights the inclusion of enforcement provisions as the key factor in determining whether labor standards and rights will actually be strengthened in Mexico.”

“Before the release of the ITC report, I believed that the renegotiated NAFTA, as written, needed to be improved before House consideration. Nothing in this report alleviates those concerns,” said Rep. Earl Blumenauer, , D-Ore., chairman of the Ways and Means Trade Subcommittee. The House requires stronger provisions on labor, the environment, access to medicine and enforcement.”

NAFTA has no chapters on labor rights or environmental protection. They are addressed in side agreements that are only marginally enforceable. USMCA negotiators agreed to move those side agreements into the body of the agreement and to make them fully enforceable. But there’s a big difference between “enforceable” and “enforced.” Enforcement costs money, and in some cases it’s difficult to do.

For example, USMCA stipulates that at least 40% of a car built in Mexico be built by workers earning at least $16 per hour. Good luck enforcing that.

In order to add enforcement language to USMCA that will satisfy congressional democrats, U.S., Canadian and Mexican negotiators would have to reopen the negotiations and spend weeks or even months hashing it out. That’s not going to happen.

What will happen is that Trump, now in re-election mode, will claim that he transformed what he once called “the worst trade deal in the history of the world,” into what now says is “the largest, most significant, modern, and balanced trade agreement in history.”

Hyperbole aside, Congress still has to approve USMCA and that is far from a foregone conclusion.

John Brinkley was speechwriter for U.S. Trade Representative Michael Froman and for Korean Ambasador Han Duk-soo during the Korean government’s quest for ratification of the Korea-US Free Trade Agreement.

This article originally appeared in Forbes.

Understanding Washington’s Move to Exclude India from the GSP

On 4 March 2019, The Office of the United States Trade Representative announced through a letter to U.S. Congress that the U.S. intends to terminate India’s designation as a beneficiary developing country under the Generalized System of Preferences (GSP) Scheme.

The move will have direct implications on U.S. businesses that import either finished or intermediate goods from India, increasing their landed costs and further complicating their customs administration.

What is the GSP?

For the uninitiated, GSP is a trade preference program introduced in the U.S. Trade Act of 1974 that provides opportunities for many of the world’s poorest countries to use trade to grow their economies. Several products imported from these countries are extended a preferential treatment, including reduced or waived tariffs. One of the discretionary criteria the U.S. considers when determining the eligibility of a country as a beneficiary of the GSP is whether or not the country being evaluated will provide equitable and reasonable access to its markets and basic commodity resources.

Washington’s recent move to exclude India from the GSP means India-origin goods that were hitherto eligible for preferential treatment will now have import duties imposed, making them more expensive for U.S. importers. 

What caused the change?

U.S. goods and services traded with India totaled an estimated $126.2 billion in 2017. Exports were $49.4 billion and imports were $76.7 billion. The total trade deficit with India was $27.3 billion in 2017. The current U.S. administration is heavily focused on reducing trade deficits, and has taken the view that India has not assured the United States that it will provide equitable and reasonable access to the Indian market.

News reports suggest this was triggered by petitions from the National Milk Producers Federation, the U.S. Dairy Export Council, and the Advanced Medical Technology Association. India requires dairy products to be certified as being sourced from animals that have not consumed internal organs, blood meal or tissues of ruminant origin. The U.S. does not provide such a certification although other exporting countries such as the EU and New Zealand do. India has also recently placed a cap on the prices of medical devices, such as stents, which directly impacts U.S. exporters of these devices to India.

What will be the likely impact?

Experts believe the exclusion of India from the GSP will have a negligible effect on India’s industrial performance as it is expected to affect only about $5.6 billion worth of exports with benefits of about $190 million; an amount that could be absorbed by exporters as an additional cost; or supported by the Indian government through subsidies or similar measures. Others however, note that while the actual duty benefits of the GSP program may be small relative to the country’s total trade activity, they could disproportionately affect India’s small and medium businesses who export intermediate goods – products that are low on the manufacturing value chain and thus not made competitively in the United States. Upcoming national elections in India may also play a part in the government’s approach to the issue.

What happens next?

A mandatory 60 days must now pass after notice has been given to the beneficiary countries and to Congress, during which time the countries can, at least technically, negotiate the changes. After the 60-day period, a beneficiary country can be taken off the GSP list by a presidential proclamation. Sources from the Indian Ministry of External Affairs (MEA) have indicated India will “continue to talk” to the United States government over the 60-day period in hopes of coming to a mutually acceptable agreement.

It must be noted that the two countries are already in discussions to resolve a range of other trade tariff issues, primarily those stemming from the U.S. Administration’s decision not to exempt India from its new steel and aluminium tariffs. India had retaliated by raising import tax on U.S. imports worth $10.6 billion. For example, a tariff of 100% will be applied on imports of U.S. origin almonds and walnuts (up from 30%), and a tariff of 50% will be applied on apples (up from 40%). However, India has delayed implementation of higher tariffs. This is seen by several observers as a sign of India’s willingness to negotiate and arrive at a mutually beneficial solution. On the other hand, the U.S. Administration’s intentions to bring down the overall U.S. trade deficit could see these negotiations fail. 

U.S. importers who bring in products from India should consult with their trade services partners to determine the impact on their overall landed costs and possibly explore alternative sourcing markets that could offer a more favorable tariff regime, shorter transit times or less onerous customs requirements.

Jayachand Pachakkil,is a senior consultant in the Global Trade Consulting division of trade services firm Livingston International. He can be reached at jpachakkil@livingstonintl.com

USMCA Coalition Formed During 116th Congress

In an effort to support fastidious implementation of the United States-Mexico-Canada Agreement, a group consisting of trade associations, businesses, and other advocacy groups joined forces to create what is now known as the “Pass USMCA Coalition.”
The bipartisan group is led by Democrat Gary Locke, known for his previous role as a former ambassador for China between 2011-2014 and his former role as Washington’s governor.
“The USMCA sets a modern precedent for freer and fairer trade not only in North America, but throughout the world,” said chairman Gary Locke. “Ratifying the agreement quickly will improve our trading relationships with Canada and Mexico, create more jobs for American workers, and propel international trade into the 21st century.”
“The USMCA is a win for America,” said Rick Dearborn, executive director of Pass USMCA. “It will launch the nation into a new era of economic and creative prosperity. Congress must seize this opportunity to strengthen our North American trading partnerships.”
For more information visit http://www.PassUSMCA.org.

Trade Economist Appointed to U.S. – China Economic and Security Review Commission

Less than a year after becoming President for the Economic Policy Institute, Thea Lee was appointed to the U.S. – China Economic Security Review Commission at the request of Senate Minority Leader Chuck Schumer. Lee will provide her trade expertise as well as counsel to Congress in regards to U.S. – China trade initiatives and legislative decisions.

“Thea Lee is laser-focused on how U.S. trade policy impacts working families, and her years studying China’s abusive trade practices make her an excellent addition to the U.S. China Commission,” said Schumer. “Thea has and will continue to provide thoughtful counsel to Congress, and I trust she will stand up for American workers in her new role.”

Additionally, Lee brings over a decade of experience with EPI, beginning in the 1990s as an international trade economist. Lee brought an extensive amount of economic research with her from her previous role as deputy chief of staff AFL-CIO. She also played an important role at the AFL-CIO through overseeing policy agenda and guiding the company through a series of changes.

“I’m delighted to have the opportunity to join the U.S.–China Commission,” said Lee. “Our relationship with China is critical, and indeed vital to the economy, but it’s important to gather and review evidence from a wide range of sources and perspectives on how this important relationship is evolving—and how that evolution is impacting workers in the U.S. and China. I look forward to working with the commission to shed light on these issues.”

Source: EPI.org

 

Partisanship Alone Unlikely to Decide the USMCA’s Fate

With the U.S. Congressional elections rapidly approaching, there’s been a fair bit of public analysis on the impact a Democrat-controlled Congress might have on the fate of the recently negotiated United-States-Mexico-Canada Agreement or USMCA.

Some have suggested a blue wave in Congress would almost certainly result in the quashing of a trade deal whose fate must be determined by a straight up or down vote. In fact, Mexico’s incoming trade secretary, Luz Maria de la Mora, recently opined that Democrats – who have traditionally viewed free trade in less favorable terms than Republicans – are likely to use the USMCA as a bargaining chip. Others have suggested Democrats may vote down the agreement as a means of spitefully derailing what is widely regarded as one of the Trump administration’s key accomplishments.

Such predictions are certainly plausible given the polarized political dynamic in Washington. But there may be more to quashing the USMCA than political partisanship. After all, each member of Congress, whether Democrat or Republican, represents a defined constituency characterized by its own local needs and considerations. If the USMCA is a stellar agreement that will widely benefit a Congressman’s or Congresswoman’s constituents, it would be politically damaging for him or her to vote against it simply out of spite.

Just how well Americans are embracing the USMCA is an open question. There’s still substantial ambivalence about the benefits of the new trade agreement and the degree to which it will improve Americans’ lives or prospects for employment. A poll carried out by POLITICO/Morning Consult 10 days after text of the USMCA was released by the Office of the United States Trade Representative (USTR) shows 38 per cent of Americans believe the USMCA will have a better or much better impact on manufacturing workers while 29 per cent feel it would have either a neutral or negative effect; the remainder had no opinion. And even fewer (32 per cent), believe the agreement would have a better or much better impact on consumers. Less than half (43 per cent) believe the USMCA is very or somewhat different than NAFTA.

Early reaction from industry groups suggests widespread relief the handshake agreement remains trilateral in nature and lifts the air of uncertainty over trade that had clouded investor confidence over the preceding 13 months. But mitigated anxiety is a far cry from resounding endorsement of an agreement few outside the U.S. Administration were itching to refurbish in the first place.

Given that ambivalence, a nullification of the USMCA’s ratification by Congress wouldn’t exactly be an act of tone deafness, though it would certainly earn it the ire of those groups for whom the agreement won modest concessions (e.g. dairy farmers, manufacturers, retailers, labour groups etc.). And it’s worthwhile noting that Congressional opposition to the USMCA wouldn’t necessarily be the exclusive domain of Democrats. There has been vocal opposition to tampering with NAFTA by Congressional Republicans whose constituents could be adversely affected by changes to select provisions within the trade deal.

Timing is also a critical consideration. A Congressional vote on the USMCA is unlikely to occur before the summer of 2019, after the International Trade Commission has filed its report on the anticipated economic impact of the trade deal. Much can change between the Congressional elections and the ratification vote with respect to how the trade deal is perceived by its most affected stakeholders, and how those stakeholders choose to air their accolades, annoyances and antipathies.

The risk in a ‘no’ vote isn’t just a return to an outdated agreement. The president has already publicly stated his intent to withdraw from NAFTA should Congress fail to ratify the deal his team has negotiated. It would leave Congress with a choice – the new USMCA or no free trade agreement at all, and therefore a return to trade uncertainty.

In addition, a ‘no’ vote would almost certainly secure the USMCA’s place as a 2020 presidential campaign wedge issue. Any candidate who votes in opposition to the USMCA will have to convince his or her constituents the concessions extracted from Mexico and Canada will not benefit the U.S. economy.

All this to say, the ratification of the USMCA does and should hinge on far more than a shift in the composition of Congress. A blue wave on November 6th shouldn’t necessarily be interpreted as a death knell for the budding trade deal. With any luck, members of Congress – regardless of their political stripes – will decide the USMCA’s fate based on the ITC’s economic impact report, combined with feedback from industry groups and their own constituents. That would not only serve to solidify the merits and/or risks embedded within the agreement, but would tangibly demonstrate to Americans that their political representatives are truly working on their behalf.

 

Candace Sider is vice president of Government and Regulatory Affairs North America at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations.

 

U.S. Holds Advantage as Auto Industry Shifts to Autonomous Vehicles, New Report Shows

The United States is well-positioned to emerge as a global leader in connected and autonomous vehicles (CAVs), but a new report released today by the Information Technology and Innovation Foundation (ITIF), the world’s top-ranked science and technology policy think tank, shows that tariffs on automotive imports would threaten its competitive advantage in the automobile industry. The report recommends that, rather than impose tariffs, Congress and the administration should adopt a more robust set of innovation policies to strengthen and secure America’s CAV leadership.

“The automobile industry is moving in a new direction focused increasingly on connected and autonomous vehicles. Because the United States already has a competitive advantage in IT hardware and software, the U.S. auto industry has a significant opportunity to reemerge as a global leader,” said ITIF President Rob Atkinson, lead author of the report. “The goal now should be to continue building on America’s strengths, not to impose tariffs that disrupt the market. In order to leverage America’s competitive advantage, the administration should make sure it is the most attractive location in the world to develop, test, and produce autonomous vehicles.”

The new report offers a series of policy recommendations to ensure America’s continued leadership in CAVs, including: ensuring the U.S. regulatory system tilts toward experimentation, testing, and deployment of AVs, harnessing the tax code to enable AV innovation and competitiveness, ensuring companies in the United States have access to a world-class engineering and computer science workforce and supporting industry cooperative, pre-competitive research and development.

“Autonomous vehicles may still be in early development, but there is little doubt they are the future of transportation,” said Caleb Foote, ITIF research assistant and co-author of the report. “The administration should make the most of this opportunity by ensuring the country’s regulatory and innovation policies related to AVs are the best in the world.”