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How Global Subnational Relationships Promote Stability in Challenging Times

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How Global Subnational Relationships Promote Stability in Challenging Times

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Over the past several years, the leaders of America’s 55 states, territories, and commonwealths have taken more prominent roles on the world stage. State Governors have been advancing Americans’ interests in building strong economic and other ties across the globe.

Our state economies are intertwined with numerous nations to the point that many Americans have jobs because companies around the world invest in the U.S. and we sell countless products and services to other nations. International economic relationships are vital — so foreign officials, businesses, nonprofits, and community groups are turning more often than ever before to our states’ chief executives for insights and stability.

With this in mind, the National Governors Association (NGA) created a new program called NGA Global as a platform for governors to convene with their counterparts beyond U.S. borders. Our member governors foster mutually beneficial relationships to boost their states’ global competitiveness and fulfill their goals in infrastructure, energy, agriculture, tourism, innovation, workforce development, public health, law enforcement, human rights, education, the environment and more. Most importantly, Governors working with their fellow leaders in other countries and with companies across the Globe creates economic development and job creation in their states.

America’s governors certainly honor their role in the U.S. constitutional system by staying within the parameters of all federal treaties and policies, while adding depth and detail through their direct interactions with international colleagues. Their activities link their home-state communities with bustling global marketplaces and opportunities for capital – contributing to the $1.5 trillion the U.S. reaps from exports and the nearly $370 million we attract in annual foreign investment, according to SelectUSA.

As leaders of economies that rival most countries in size and prosperity, our state governors are continually sought out by heads of state, including Justin Trudeau of Canada, Nana Akufo-Addo of Ghana, and Malcolm Turnbull of Australia, each of whom addressed NGA meetings over the past year. Governors equally value the peer-to-peer contact made possible through important working relationships with the Governors association equivalents from all over the world including Japan, Mexico, Canada, and Kenya. Governors also partner with global organizations such as the German Marshall Fund, Council for The Australian Federation and the World Economic Forum to create important relationships and leverage their expertise to improve economic development and create jobs in their states.

The relationships developed through these organizational alliances position the U.S. for success on many fronts. For example, earlier this year, just as NAFTA discussions faltered, NGA Global was convening its North American Summit. Governors from Mexico and the U.S. and Premiers from Canada cordially shared information, seriously discussed even controversial topics and developed important professional relationships. The event underscored the cross-border commitment that unites the continent and encourages necessary continued cooperation.

Governors are working to expand these healthy international relationships. Idaho Governor Butch Otter recently embarked on a trade mission to Canada while Arizona Governor Doug Ducey traveled to Mexico, which connected major commodity groups from their states with Canadian and Mexican business leaders and government officials. While there, they provided their local companies significant venues to pursue potential business partnerships, network and develop trade opportunities.

Similar progress is being made in Europe. Governor Phil Murphy was recently on hand for the opening of a Choose New Jersey office in Berlin, Germany, which will leverage investment possibilities in Garden State manufacturing, biotech, and technology startups, among other sectors. Similarly, Indiana Governor Eric Holcomb is developing a Hoosier presence in the EU through interactions within Switzerland, Austria, Germany and France.

Last month, Louisiana Governor John Bel Edwards went to Israel to promote economic development and research partnerships. He’s already sealed an agreement tapping Louisiana’s water-technology industry and is keen to tie in cybersecurity as well. Governor Edwards also demonstrated global leadership on non-economic issues, having visited the Vatican, for instance, on an anti-human trafficking mission.

In a time of uncertainty in Washington and around the world, America’s governors are reaffirming the country’s value as a trading partner and ally. As governors forge and deepen their relationships with counterparts and business leaders around the world, NGA Global will continue to help them break down international barriers and expand the opportunities available to their constituents worldwide.

Mr. Pattison is Executive Director and CEO of the National Governors Association.

Archives, Global Trade Daily, International Trade

Asian Investment in Latin America: What you Should Know

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As China and Latin America continue making news headlines with high-profile summits and ever-growing investment relations, critical factors driving investment movements take shape, paving the way for successful initiatives between the two countries and ultimately creating an increase in overall diversification of investment in sectors from transportation infrastructure to natural resources, and technology. Relations between Latin America and China continue to strengthen, and we see the relative involvement of the United States slowly tapering off as its commitment to free trade and traditional investment promotion vehicles such as the Export-Import Bank of the United States are in question. So, what exactly does this mean for Latin America and how is the U.S. affected? Gaston Fernandez, partner at Hogan Lovells, weighs in on the subject.

“The numbers in terms of Chinese investment in the U.S. show that such investment has fallen off significantly. The enactment of the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) has placed more scrutiny on foreign investment, and I think there is a perception that national security review has been expanded to something on a broader scope, perhaps more than it was in the past. One example from the headlines would be the U.S. imposing steel and aluminum tariffs on the E.U., Canada and Mexico for national security reasons. I think it’s hard to pin down the motivations for the decline in Chinese investment in the U.S. but there has certainly been a decline, and as a result we’re seeing the same amount of overall Chinese outbound investment going to other regions in the world such as Europe, Latin America, and other developing countries.”

This poses the question of how Mexico will be involved. NAFTA may soon be a thing of the past upon ratification of its replacement, the USMCA, but uncertainty remains in the minds of global trade leaders and investors alike. In this new environment, diversification of investment sources might very well be the key to success if the government wants to see its vision of development projects come to fruition, such as railways extending from the Pacific to the Caribbean and expansion of electricity transmission infrastructure. It’s not a question of opportunity as much as it is a question of lessons learned from recent history in the region, claims Fernandez.

“For many years in Mexico there was a natural tendency to focus on development through NAFTA because it was in many ways taken for granted as the simplest and most effective option for promotion of foreign direct investment. Considering the recent rise of foreign investment from other sources throughout Latin America, there may be some value in diversifying and trying to attract more investment from other countries.”

Diversification presents opportunities when the right investors are involved. Smart selection of projects and partners will determine success in Mexico as plans move from policy goals to implementation.

“In the last 20-30 years, China has built an incredible amount of infrastructure in terms of rail, electricity transmission, and highways, so they have the recent experience and in general China tends to subsidize project costs through loans that are below market rates to promote exports. That combination of attributes has made China an attractive partner for countries throughout Latin America, and I think that could appeal to Mexico as well,” added Fernandez.

The most critical element of global diversification will ultimately lead to a greater economic impact. As more countries are involved with each other to collaborate on economic development, the sources of investment become more diverse. Not all countries are open for investment in the current political environment, and that provides more opportunities for developing countries to tap into the open market to capture the overflow of investment which may have originally ended up elsewhere. Many countries in Latin America are currently looking promising.

“I think now we’re seeing a wider range of Chinese commercial banks and project owners willing to invest their equity, as well as Chinese insurance companies looking to invest insurance assets and Chinese tech startups that are now expanding their offerings of products into Latin America. There’s going to be increased diversification of where the money is coming from, which is good. Going forward, investment will be reaching more sectors of the economy than just the traditional perception of Chinese investments being principally related to natural resources and transportation infrastructure. We’re starting to see investments across a more diverse range of industries, and I think that’s going to be a good thing for Latin America,” Fernandez concluded.

___________________________________________________________________________

Gaston P. Fernandez is a partner at Hogan Lovells.  He often represents Latin American national governments and companies and has worked on matters involving Asian investment throughout Latin America in the petrochemical, power generation, transportation, and mining industries. He has been involved with the negotiation and successful closing of credit facilities for Latin American national governments and companies from U.S., European, and Asian banks, including China Development Bank, The Export-Import Bank of China, Bank of China, Industrial and Commercial Bank of China (ICBC), The Japan Bank for International Cooperation (JBIC), and The Export-Import Bank of Korea.

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The USMCA – Beyond Labor & Autos

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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.

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Pass USMCA Coalition Announces Newest Co-Chairman

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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.”

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ITC Report on NAFTA Revision Doesn’t Impress Democrats

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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.

kelly international trade policy SelectUSA
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Ratifying USMCA the Only Responsible Option at this Point

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The fate of free trade in North America is hanging in the balance.

That sentiment would have been true 18 months ago when negotiations of NAFTA began. It would have been true six months later when the parties failed to meet their self-imposed first deadline. It would have been true last October when it appeared the U.S. was prepared to sign a bilateral deal with Mexico and exclude Canada. And it’s still true today as the agreement gets lost in the fracas of politicking in Washington.

The impending release of the U.S. International Trade Commission (ITC) report, which provides members of Congress with in-depth analysis of the potential economic impact of the proposed United States-Canada-Mexico Agreement (USMCA), may very well have minimal impact in swaying Congressional opponents of the deal.

According to a recent report in Politico, the ITC’s analysis is likely to suggest the USMCA will have a negligible impact to U.S. GDP, which won’t serve as a bulwark against complaints by House Democrats that the agreement is short on enforcement mechanisms for its labor provisions. If that weren’t threatening enough, Ottawa has now suggested it may not ratify the USMCA unless Washington removes the Section 232 tariffs on aluminum and steel imports.

Yet, regardless of the ongoing warfare on Capitol Hill and the potentially uninspiring data in the ITC report, the reality is that at this point in time the ratification of the USMCA is the best possible option. The handful of alternatives available will only serve to further destabilize confidence in and certainty around the future of trade within North America.

Renegotiation

Democrats have been demanding stronger enforcement of the USMCA’s labor provisions. These demands are in keeping with the party’s longstanding complaint that NAFTA offered Mexico’s low-wage, low-regulation economy a leg up on attracting manufacturers. While the USMCA’s new labor provisions are intended to address this, Democrats argue the agreement lacks teeth in ensuring Mexico holds up to its end of the agreement.

However, creating an enforcement mechanism means going back to the negotiating table, something none of the parties are interested in doing, particularly since it took a great deal of intense negotiation over more than a year to come up with the agreement that’s currently on the table. It’s quite likely Canada and Mexico will demand significant concessions in exchange for a stronger enforcement mechanism, which may negate some of the agreement’s other benefits.

The Trump card

Whether or not the agreement is negotiated is, in some ways, irrelevant. U.S. President Donald Trump has already threatened that if Democrats attempt to quash the USMCA – either before or after a renegotiation of its enforcement provisions – Washington will simply pull the U.S. out of NAFTA, pitting the administration against Congress in a legal battle over trade-agreement decision making that is certain to become a wedge issue in the 2020 presidential campaign. The president recently reiterated his threat to withdraw from NAFTA during a recent interview on the Fox Business Network.

The result would be a return to a trade environment of uncertainty that would surely result in reduced cross-border investment that would adversely impact the economies of all three USMCA countries and potentially stymie Washington’s efforts to negotiate bilateral trade deals with Japan, the European Union and the United Kingdom – all important trade partners.

Forget the whole thing

If the threat to withdraw from NAFTA is simply bluster on the part of the President and ratification of the USMCA ends up locked in a Congressional stalemate, the other alternative is to simply do away with the renegotiated agreement and revert back to the original NAFTA deal. While that would certainly be a viable – and minimally disruptive alternative – the truth is that the USMCA made substantial gains in modernizing free trade in North America, addressing critical issues such as regulatory harmonization, the digital economy and intellectual property protection and host of other aspects that are not addressed in NAFTA. Whether these updates result in tangible gains to GDP and/or employment only time will tell. But at the very least they serve to incentivize those engaged in cross-border trade to continue doing so and perhaps even broaden the scope of their activity. Given that North American trade represents more than a trillion dollars annually, it’s critical to – at the very least – maintain the gains already made over the past 25 years. The USMCA does exactly that and more.

It took very seasoned negotiators and trade experts more than a year of intense talks to arrive at the agreement that’s currently on the table, including the chapters that serve to bring free trade into the 21st century in a fair and equitable manner. It would be irresponsible to do away with these gainful additions in the name of partisanship, and voters would presumably hold their elected representatives to account should they choose to do so.

The best course of action

The responsible and most advantageous thing for Congress to do at this point would be to ratify the USMCA. That’s the opinion of approximately 400 businesses and business associations that are now part of the USMCA Coalition, a collective of like-minded enterprises that believe in the importance of free trade to the U.S. economy and to U.S. jobs, and of which Livingston International is a member.

Given the impressive gains made by the USMCA in fostering an environment of fair and free trade across the continent, and the risks associated with returning to the negotiating table and/or drawing out the ratification of the agreement into the political fray of the 2020 election campaign, it is critical that lawmakers on Capitol Hill make ratification of the new deal a key priority in the coming months.

Failing to do so would put into peril the advantages of free trade on which so many jobs rely, and would serve to reinforce the perception that lawmakers are all too eager to put partisanship ahead of effective representation. 

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.

Archives, Global Trade Daily, International Trade

Five reasons the USMCA won’t be passed easily by Congress

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In his recent State of the Union address, U.S. President Donald Trump described the North American Free Trade Agreement (NAFTA) as a “historic trade blunder” and a “catastrophe”. He recounted recent meetings with unemployed Rust Belt workers who have been on the front lines of America’s deindustrialization, imploring Congress to rid America of the NAFTA burden by passing the recently signed United States-Mexico-Canada agreement into law.

Ratification of the agreement, however, is far from certain, and not just because the government is divided along party lines. While it’s true Democrats are leveraging their newfound House majority power to insist on enhancements to the USCMA, there are other factors at play that could stymie the President’s efforts to ratify the trade deal, not least of which is the ongoing row over funding of a border wall, which forced the longest government shutdown in history.

Labor provisions

Perhaps one of the most controversial aspects of the USMCA are the labor provisions outlined in Chapter 23 of the new agreement. The USMA demands that all imports, but particularly automobiles, be manufactured using laborers that have the right to collective bargaining and representation by independent unions. Those labor provisions are critical as much of the impetus behind renegotiating NAFTA was the establishment of a more balanced labor environment between the U.S. and Mexico to minimize the flight of U.S. manufacturers to Mexico where labor wages are only a fraction of those in the U.S. Democrats have noted the Chapter 23 provisions lack enforceability and are unlikely to result in tangible reforms.

The challenge is that putting in place more robust enforcement provisions would require reopening negotiations with Mexico. The governing party in Mexico today is not the same as the one that had negotiated and signed the USMCA. In fact, the conclusion of the negotiations was hastened specifically to ensure the agreement could be signed by then Mexican Prime Minister Enrique Peña Nieto as incoming President Andrés Manuel López Obrador was less inclined to expend his political capital on the new trade deal. Since then, López Obrador’s administration has signalled its support for the USMCA but also that it has no desire to reopen negotiations.

Automotive Content Requirements

Democrats’ demands for stronger labor provision aren’t the only objection to the changes imposed on automotive trade. Republicans have also taken issue with the changes, noting the content requirements are too onerous and against the spirit of open trade.

The content provisions, which require automobiles to have 75% North American content and which prescribe minimums for the use of U.S. steel and aluminum, were the most hotly contested changes in the agreement. While both Canada and Mexico were keen to keep automotive content requirements fairly low and may be receptive to seeing some the changes clawed back, there’s likely little political appetite to reopen negotiations over an issue that was so divisive and which complicated the negotiations from beginning to end.

Section 232 Tariffs on Steel & Aluminum

One of the issues the USMCA agreement failed to address was that of the ongoing steel and aluminum tariffs the Trump administration has imposed on Canada and Mexico, and the associated countermeasures with which each of those countries reciprocated.

Now, Republicans such as Senator Patrick Toomey and Ron Johnson, who chairs the Senate Homeland Security and Governmental Affairs Committee, are echoing the concerns of many U.S. businesses about the impact of the tariffs and stressing their support for the USMCA will be contingent on the tariffs’ repeal. The President, however, has dug in his heels and refused to do away with the tariffs, suggesting instead that he will simply withdraw the U.S. from NAFTA if Congress refuses to ratify the USMCA.

Pharma

Politco Pro recently reported that a group of House Democrats have suggested they cannot support the USMCA if it maintains its current provisions over pharmaceutical intellectual property.

The USMCA increased the period for which drug makers can maintain a patent on high-cost biologics from eight years to 10 years. Democrats fear this will prolong what they see as a period of monopoly for drug makers, enabling them to keep costs high for life-saving drugs.

Environment

The USMCA was an improvement over the 1993 NAFTA agreement in terms of environmental protections. There is specific language about the protection of marine environment and reduction of marine litter and ship pollution, as well as recognition of fishing issues, air quality and the ozone layer. Furthermore, the removal of NAFTA Chapter 11 eliminated the ability for private corporations to sue governments and seek damages for the implementation of environmental laws and regulations that impeded their profits.

But environmental groups and many House Democrats aren’t happy the USMCA excludes mention of climate change and say that – much like the automotive labor provisions – the environment rules lack enforceability and they want to see more definitive language to ensure profit won’t supersede protection.

ITC Report

The aforementioned concerns are only those that have emerged from the text of the agreement itself. Congress has not yet seen the International Trade Commission’s report (the due date for which has been extended to April 19 due to the government shutdown), which will outline the economic impact of the agreement and which could conceivably raise a number of other unforeseen apprehensions.

Only time will tell precisely what sorts of volleys the parties will exchange over the course of the USMCA’s ratification process. What’s certain, however, is that the passing of the USMCA legislation won’t be easy and bi-partisan support may require concessions on the part of an administration that has hitherto been able to govern unimpeded on the trade file.

 

David Rish is president of Global Trade Management at customs brokerage, freight forwarding and trade consulting firm Livingston International. He can be reached at gtmleader@livingstonintl.com.

 

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USMCA Coalition Formed During 116th Congress

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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.

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The USMCA: State of Play on Internet Intermediary Liability

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Two important elements of U.S. law that protect internet intermediaries are reflected in the United States-Mexico-Canada Agreement (USMCA, signed November 30, 2018).  Under the first element, section 230 of the Communications Decency Act, online service providers are not considered “publishers” of third-party content that is posted or shared through their sites.  Under the second, the “safe harbor” provisions of the Digital Millennium Copyright Act, online service providers can take certain specified actions to protect themselves from monetary liability for copyright infringement arising from the actions of their users.  Because the USMCA reflects these principles and is likely to be used as a template for future trade agreements, it is reasonable to suppose that current U.S. law on intermediary liability is poised to make inroads around the world.

There will, however, be pushback, and it is possible that the agreement might be modified or that U.S. implementing legislation will introduce refinements.  Organizations dedicated to protecting potential victims of indecent online communication, for example, will seek to limit and/or clarify the section 230-type immunity built into the USMCA.  Similarly, digital content industries consider the incorporation of existing safe harbor provisions to be a missed opportunity to reinforce the effort against online piracy, and they will press for requiring internet intermediaries to be more proactive in policing such theft.

One cannot know at this juncture how these issues will ultimately be resolved, especially given the changeover in the leadership of the U.S. House of Representatives resulting from the 2018 elections.  Nevertheless, the dynamics of the debate – explained below – are important to potentially affected companies.

The Digital Trade section of the USMCA closely tracks Section 230 of the Communications Decency Act.  It provides in Article 19.17(2) that the member states shall not “adopt or maintain measures” that create civil liability for suppliers or users of “an interactive computer service as an information content provider … except to the extent the supplier or user has, in whole or in part, created, or developed the information.”  Note, however, that the agreement also grants immunity for good faith actions taken to limit access to “harmful or objectionable” content, and – in any event – the restriction on imposing liability for indecent content merely confers immunity from civil liability “as an information content provider.”  In other words, the internet service provider cannot be treated as if it supplied the content, but there remains the question of whether it can be held liable for damages under a theory of secondary liability.

Consequently, one can expect organizations dedicated to protecting potential victims of indecent online communication to seek clarification of the extent to which internet providers can be held liable for harms resulting from “knowing” or “reckless” failures to act to prevent abuses on their platforms.

Turning to digital piracy, back when the internet was in its infancy, in 1998, Congress passed the Digital Millennium Copyright Act, which established what is known as “notice-and-takedown.”  Under that approach, if someone uploads a work to a website, the owner of the work may send a notice of copyright infringement to the relevant internet intermediary, pointing to a specific violation and identifying the internet address of the allegedly infringing material.  Once the intermediary receives the notice, it must “expeditiously” disable access to, or remove, the material and inform the entity that posted the material of its action.  If the entity that posted the material believes it has a legal right not to be subject to takedown, it may file a counter-notification.

Upon receipt of the counter-notification, the intermediary must inform the copyright holder that it will restore the status quo ante after ten days unless the intermediary is notified that the copyright holder has “filed an action seeking a court order to restrain the [entity] from engaging in infringing activity.”  By following these and other procedures, the intermediary is shielded from copyright infringement liability for unknowingly posting infringing content.

The USMCA embraces the notice-and-takedown concept and generally requires internet service providers who have not already done so to implement such a system.  There is an exception, however, that preserves Canada’s current “notice-and-notice” system – under that approach, internet service providers are merely required to forward notice of infringement to the host of the pirated material.

Content industries have been seeking greater protection from the USMCA.  They tend to favor what is known as “notice and stay-down,” which requires a more proactive approach from the intermediary than notice-and-takedown.  Under notice and stay-down, when the intermediary receives a notice of copyright infringement, it would be required to search out and delete all copies of the material in question and block that material from being uploaded again.

Content industries believe this is necessary to address the fact that copyright-infringing material can be transferred easily from website to website, thereby putting the content producer in the position of trying to “whack-a-mole” and being forever a step behind the infringer.  As one might expect, however, internet service providers argue that notice and stay-down is overly onerous and would, if legally required, cripple the commercial exploitation of cyberspace.

The debate will go on regarding limitations on the liability of online service providers for indecent or infringing content posted on their platforms, and stakeholders are advised to pay close attention as the relevant provisions of the USMCA are debated and implementing legislation is formulated.  If those provisions are implemented as is, the USMCA would represent a move in the direction of international adoption of current U.S. principles governing the liability of intermediaries for online content.

 

Dean A. Pinkert is a partner in Hughes Hubbard’s International Trade practice. He is a former Commissioner of the U.S. International Trade Commission. Dean was nominated by President Bush and confirmed by the U.S. Senate in 2007,and was designated Vice Chairman by President Obama in 2014.

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With NAFTA redo, Mexico looks to boost economic growth

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More than twenty years ago, Ross Perot warned that removing trade barriers with Mexico would create a “giant sucking sound,” as jobs left the United States for its southern neighbor. Today, the sound you hear in Mexico is a giant exhale.

That’s the sigh of relief after the United States, Canada and Mexico reached a new North American Free Trade Agreement. Mexico heavily relies on NAFTA, which has been in place since 1994, and was vulnerable after President Trump criticized the trade pact and threatened withdraw.

The uncertainty over NAFTA was cloud hanging over Mexico’s new president, Andres Manuel Lopez Obrador, who took office on Dec. 1 after his landslide victory a few months earlier. There is still some anxiety over the proposed agreement because it needs congressional approval. Congressional Democrats, who will lead the House next year, say the deal doesn’t go far enough to protect workers and the environment. Still, no one wants to see NAFTA scrapped because it would harm the economies of all three countries.

Mexico is the poster child for the benefits of free trade. NAFTA was an unusual deal in that it involved two highly developed economies and a developing one in Mexico. Since 1994, Mexico’s gross domestic product, a measure of output in goods and services, has more than doubled to $1.15 trillion. The economy has been driven by exports, as foreign investors built factories across northern and central Mexico to supply the North American market.

Last year, Mexico exported nearly $410 billion worth of goods, about 80 percent to the U.S. and Canada. The largest export is vehicles, followed by electric equipment and machinery, including computers. The auto industry is a big winner in the revamped trade deal, which is being called the U.S.-Mexico-Canada Agreement, or USMCA, simply by averting a major disruption to it supply chain.

NAFTA’s impact on Mexico has gone well beyond economics. The deal signaled a new era of openness for Mexicans, increasing their willingness to venture out into the world to forge new ties. Mexico has embraced free trade, striking deals with Europe, South America and parts of Asia.

The nation has also liberalized foreign investment in some national sectors previously forbidden or heavily capped to foreign ownership. Under Lopez Obrador’s predecessor, Enrique Pena Nieto, the Mexican government reformed the energy sector four years ago to allow private operators into its territorial waters for the first time. Until then, state-owned Pemex had sole exploration and production rights.

But a drastic decline in oil production in the last 15 years led the government to invite foreign investment to boost production. Oil is a significant source of revenue for the government.

The international industry has moved into the country and achieved quick results. In July 2017, the first offshore exploration well drilled by the private sector in Mexico’s history discovered oil. Energy reform is expected to continue to attract new capital and provide local jobs and government revenues.

As foreign oil firms develop the areas they have won at government auctions, they could bring in more than $100 billion in investment to the country. Much of the foreign investment after NAFTA was to take advantage of Mexico’s lower wages to manufacture goods for export. But financials flows into the country are shifting from labor arbitrage to infrastructure and consumer-driven investments. Despite all the political rhetoric about building walls, U.S. investors remain big fans of Mexico, accounting for nearly half of the foreign direct investment last year.

To attract investment to economically underdeveloped areas in the southern states, Mexico created Special Economic Zones in 2016. Companies setting up in these areas receive various incentives, trade facilities, duty-free customs benefits, infrastructure development prerogatives and regulatory and administrative benefits.

Investors are making big bets on Mexico despite concerns about Lopez Obrador, a leftist who once criticized free-market policies. He has come around on USMCA because It provides stability and certainty as he tries to stimulate the economy.

While Mexico has successfully integrated into the world economy with NAFTA and other trade agreements, it still struggles with slow economic growth.

GDP has increased about 2 percent annually in recent years in Latin America’s second largest economy. Structural reforms are needed to address tax, labor and social insurance rules that stifle productivity and undermine economic progress.

The lack of growth has generated poverty, crime, violence and migration. How Lopez Obrador tackles these stubborn issues will be closely watched by foreign investors. But now that the dust has settled on NAFTA, there is increased optimism about Mexico’s future.

Raimundo Diaz is head of Americas at TMF Group, a professional services firm based in the Netherlands. TMF Group provides accounting, payroll, HR and other corporate services, with a focus on companies expanding internationally.