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House Democrats Won’t Accept USMCA In Its Present Form

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House Democrats Won’t Accept USMCA In Its Present Form

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Looks like it’s back to the drawing board for NAFTA aka USMCA.

House Democrats, who will be in charge of the new Congress that convenes in January, have made it clear that they won’t accept the NAFTA revision that President Trump forced on Canada and Mexico in its present form. Among other things, they want stronger, more enforceable labor standards.

NAFTA labor standards are addressed in a side agreement and aren’t fully enforceable. In the revised NAFTA, which Trump renamed the U.S. Mexico Canada Agreement, labor standards, including new ones, are in the body of the agreement and are fully enforceable. But there’s a big difference between “enforceable” and “enforced.”

For example, the new deal requires that 40-45% of a car built in North America be built by workers earning at least $16 per hour. This is aimed at Mexico, because American and Canadian auto workers already earn more than that.

It’s hard to imagine how anyone could enforce a rule like that.

Also, U.S autoworkers earned between $19.31 and $29.73 per hour in September, according to the U.S. in Mexico and paying the 2.5% tariff to import them into the United States.

USMCA’s labor chapter also requires Mexico to enact laws or regulations mandating the “effective recognition of the right to collective bargaining,” and “the elimination of discrimination in respect of employment and occupation.”

However, a June 2018 report on employment discrimination against Mexican women, prepared for the Office of the UN High Commissioner for Human Rights, said, “Although employment discrimination can be legally punished through many different means in Mexico, according to available data, it is rarely actually punished. . . between 2013 and 2017, not one single employer in all the country was fined for employment discrimination or harassment.”

This is one of many problems with employment discrimination against women the report described.

The United States or Canada could file complaints against Mexico for employment discrimination under one of USMCA’s dispute resolution chapters. But the process for doing so would be long and complicated and winning would affect little if any change on the ground in Mexico.

Sex discrimination is rampant there, although it’s not as bad as it used to be. As recently as the mid-1990s, Mexican businesses placed want ads in newspapers specifying that applicants must be young, female and attractive. Women who didn’t fit that description had a hard time finding work. This led many of them to immigrate to the United States.

If the Trump administration put stronger labor standards in USMCA to get Democrats to support it, it didn’t work.

“Right now, it’s a work in progress,” said Rep. Nancy Pelosi, D-Calif., who will probably be the speaker of the House in the next Congress. “Without enforcement you don’t have anything.”

Rep. Richard Neal, D-Mass., who probably will be chairman of the House Ways and Means Committee, said in a statement, “ we will need to assess whether this agreement makes real improvements to the terms of the existing NAFTA . . . especially when it comes to the enforcement and enforceability of the agreement’s provisions, including the provisions that have always been critical to Democratic support – the ones that provide for worker rights and environmental protections.”

Trump has two choices.

If he wants to put USMCA into effect, he’s going to have to do the hard work of making it acceptable to House Democrats. That will mean, among other things, making sure the labor rights provisions aren’t just enforceable, but enforced. That, in turn, will mean more negotiations with Canada and Mexico, neither of which will be keen on going at it again with the Trump administration.

Or, he can walk away from the deal, leaving NAFTA in place. In that event, he might make good on his threats to withdraw from NAFTA, leaving the United States even more isolated than it already is. Commerce Secretary Wilbur Ross suggested that Trump would do that if Congress doesn’t ratify USMCA.

“The president can revoke the old NAFTA deal by simply giving six months’ notice,” he said in an October 1 interview with Fox Business News. “The old NAFTA deal is not going to be a realistic alternative.”

And, of course, Trump views NAFTA as “perhaps the worst trade deal ever made.” So, why wouldn’t he withdraw from it if he doesn’t get USMCA?

Taking the United States back to 1989, when it had no trade agreement with either Canada or Mexico, is not a realistic alternative, either.

I 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.

Archives, Global Trade Daily, Imports/Exports

Budding Signs of Trade Diversification a Welcome Sign for Canada’s Trade

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There’s been much ado in Ottawa as of late regarding the promotion of free-trade ideals and the pursuit of a globalist agenda in economics.

The recent handshake agreement on a rebranded United States-Mexico-Canada Agreement (USMCA) has understandably been the preeminent focus of business and political observers. But setting aside momentarily that historic détente in Can-Am relations, there’s been a great deal of work taking place in Ottawa to establish the conditions that will enable and empower not just globalism but genuine trade diversification.

Most Canadian businesses – particularly those for which trade across the 49th parallel is integral to their livelihood – have been alarmed by how quickly trade relations between Canada and the U.S. have regressed over the past 18 months, and how closely the USMCA negotiations came to leaving Canada without a free trade agreement with the U.S.

And yet, it was with little fanfare that Canada’s Parliament recently gave royal ascent (the last step in the ratification process) to the Comprehensive & Progressive Agreement for Trans-Pacific Partnership or CPTPP. For the uninitiated, the CPTPP is a multilateral free trade agreement involving 11 Pacific Rim countries. Originally, the agreement (then dubbed the Trans-Pacific Partnership) was a 12-nation pact that included the United States. However, U.S. President Donald Trump withdrew from the agreement via executive order on his third day in office.

Fearing the proliferation of protectionism and looking to solidify strength in numbers in Asia against China’s rising hegemony, the remaining members of the TPP relaunched trade talks in a rather expeditious manner in 2017. One year later, not only have those talks concluded, but also the required six signatory countries formally ratified the agreement, allowing entry into force on December 30, 2018.

For Canada, participation in the CPTPP represents a further bet on multilateral trade and the pursuit of a free trade agenda that is meant not only to provide greater import/export options for Canadian businesses, but to reduce Canada’s dependence on trade with the United States. That agenda has reasonably been pursued with increased vigor given Washington’s hyper focus on Buy American trade policies, bi-lateral trade, and the elimination of trade deficits.

To be sure, Canada’s globalist trade agenda predates the era of Donald Trump and the rise of trade protectionism. It is evident in the 2016 signing of the Comprehensive Economic & Trade Agreement (CETA) with the European Union; an agreement that took seven years to negotiate under an air of cynicism and opposition on both sides of the Atlantic.

Some have argued that Canada-EU trade data under CETA is indicative of Canadian businesses’ vulnerability to compete in a multilateral environment. These detractors note that since CETA’s provisional application in September 2017, exports to the EU increased only a modest 3.3 per cent versus a 12.9 per cent increase in imports from the EU.

But a closer look reveals one-fifth of those new imports are made up of machinery, indicating  the buds of economic diversification, rather than a sign of global non-competitiveness. Machinery is most often imported to enhance production efficiency and make businesses more innovative and internationally competitive. The fact that this taking place in a less-than-favorable exchange rate environment for Canadian businesses is all the more encouraging.

Far from driving job loss, the imports are spurring employment growth. In the year following CETA’s implementation, Canada’s unemployment rate fell from 6.2% to 5.9%. Furthermore, employment in some of the sectors most affected by the top imports from the EU, such as, mining and health care has risen 4.13% and 0.75% respectively. Granted, employment in manufacturing did drop 1.37% during that period; however, that figure is likely made up of job losses due to automation as much as job losses due to lost business.

It is also reassuring that trade growth with the EU hasn’t been limited to the UK, traditionally Canada’s largest European trading partner. According to a CBC report in September, exports from Canada to European countries other than the UK, grew 6.9%. This is yet another sign that Canadian businesses are looking outside their traditional comfort zones for both sourcing and selling opportunities.

Precisely how widely used the CPTPP will be amongst Canadian businesses is anyone’s guess at this point. Like the CETA countries, the CPTPP group is made up of diverse economies. And, like the EU, trade with the CPTPP group will require a reliance on ocean freight, multi-lingual communication and packaging, as well as multi-cultural considerations for how products are marketed.

The path of least resistance for Canadian businesses would be to breathe a heavy sigh of relief that the North American bloc has been salvaged by USMCA and revert to tried and true trade relationships with existing supply chain partners. No one would blame them for doing so. And for many businesses – particularly smaller ones – keeping trade within North America might be the only realistic approach.

For many others, the CPTPP and CETA represent a historic opportunity for businesses to diversify their sourcing and selling markets, but also to plant seeds that will grow sales, encourage innovation and productivity, expand product portfolios and serve as insurance against current and future trade disputes. For those reasons alone, businesses should be setting their sights on leveraging Canada’s newly acquired free trade prospects.

Cora Di Pietro is vice president of Global Trade Consulting 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

NAFTA 2.0

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After more than a year of negotiations and minutes before the midnight deadline, the United States, México, and Canada reached a new free trade, tri-national agreement. The US-México-Canada Agreement (USMCA) will ultimately replace the North American Free Trade Agreement (NAFTA). USMCA or NAFTA 2.0, contains 34 Chapters and 12 side letters covering agriculture, dispute resolution, e-commerce, and labor relations.

1. Background on NAFTA 1.0

Before we can understand the USMCA, it is important to understand the history behind NAFTA. NAFTA, or as it is known in Spanish: Tratado de Libre Comercio de América del Norte (TLCAN), was executed by the United States of America, México, and Canada on January 1, 1994.

The goal of NAFTA was to create a free trade zone between the U.S., Canada, and México. In addition to the core agreement, incorporated in NAFTA are the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC). The NAALC and NAAEC were added with the goal of protecting workers and the environment.

The NAALC is typically referred to as the “Labor Side of the Agreement,” and within the agreement each country agreed to enforce its own labor standards and to strive to improve labor standards within its respective countries. The NAAEC is the “Environmental Side of the Agreement,” within which each of the three countries agreed on principles and objectives for the conservation and the protection of the environment.

NAFTA created the largest free trade area in the world, helping drive down consumer good prices, and boosting economic growth, profits and employment in all three countries.

II. The Impact Of NAFTA to Employers in the Region

Many economic experts note that NAFTA was quite beneficial to the United States.  This benefit came in the form of lowered tariffs and import prices, as well as a narrowed risk of inflation.  Some argued that it also had a positive impact on interest rates in the United States.

From 1993 to 2017, the United States increased its exports of goods to México and Canada from $142 billion to $525 billion, which equates to a third of its total exports. It is estimated that NAFTA helped create at least 5 million direct and indirect jobs in the United States associated with the export of goods.

In México, NAFTA facilitated the growth of the maquiladora industry. A maquiladora is essentially a subcontractor manufacturing operation, where factories import material and equipment on a duty-free basis for assembly and manufacturing. The assembled product may then be returned to the raw materials’ country of origin.  NAFTA had a direct result in the growth and expansion of this industry.

The interdependence of the three economies is seen not only through the growth in the maquiladora industry, but also in the automobile manufacturing industry. For example, by 2020, México will manufacture 25% of all North American cars. Additionally, approximately 75% of Mexican exports are sold to United States consumers, a number which in large part is a direct result of NAFTA.

On September 30, 2018, the United States, México, and Canada completed negotiations of an updated trade agreement now known as United States-México-Canada Agreement—“USMCA,” or as we like to refer to it, NAFTA 2.0.  While the deal was agreed upon by the three countries, it must ultimately be ratified by each country’s legislature and, as such, will likely not go into effect before 2019.

III. USMCA-What it means to Employers

Chapter 23 of the NAFTA 2.0 is dedicated to the issue of labor.  This chapter establishes that all the parties should recognize, adopt, and follow the following rights:

-Freedom of association and the effective recognition of the right to collective bargaining;

-The elimination of all forms of forced or compulsory labor;

-The effective abolition of child labor and, for the purposes of this Agreement, a prohibition on the worst forms of child labor; and

-The elimination of discrimination with respect to employment and occupation.

The USMCA contains specific provisions impacting each of the countries that is a party to the agreement. For example, within the USMCA, there is a provision requiring México to create adequate legislation to ensure freedom of association as well as requirements relating to collective bargaining and labor relations. Additionally, the car manufacturing industry will be impacted by the updated agreement as it provides that a significant percentage of work performed on car manufacturing must be completed by workers earning at least $16 an hour, or about three times what the typical Mexican autoworker currently makes.

Canada’s dairy industry will also be impacted by the USMCA. Under NAFTA, United States farmers had limited access to the Canadian market as a result of tariffs and set quotas on dairy products exported to Canada. These restrictions are eased under the new agreement, thus opening up opportunities in the Canadian market for the United States dairy industry.

While the agreement was officially reached on September 30, 2018, the USMCA will not become effective until ratified by the legislatures of the United States, México, and Canada.  The anticipated date for each country’s respective legislature to pass the agreement is sometime in the middle of 2019.  One important difference between NAFTA and the USMCA is that the USMCA expires in 2034; NAFTA was a perpetual agreement.

IV. Forecast and Conclusion

While it is early to make concrete predictions on the true impact of the USMCA, there will no doubt be some impact to employers across the three countries. For example, those in the automotive industry will need to grapple with increased salary requirements for their employees in México, which may ultimately impact consumer cost. Some analysts predict that the automotive industry will shift manufacturing to Asia in order to reduce costs. This, along with other provisions regarding collective bargaining and labor relations, may be a generating force for labor-related issues for employers, particularly in México. Additionally, the United States dairy industry may see an uptick in labor demands as a result of the new market opportunities in Canada. While these changes may be gradual, growth and updated labor dynamics as a result of the USMCA should be addressed with the guidance and counsel of legal professionals.

 

 

About the authors:

Mishell Parreno Taylor is a shareholder in Littler’s San Diego office.

 

David Leal González is an associate in Littler’s Monterrey, Mexico office.

 

 

 

 

 

 

Archives, Global Trade Daily, International Trade

Partisanship Alone Unlikely to Decide the USMCA’s Fate

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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.

 

Archives, Global Trade Daily, Imports/Exports

Whether it’s NAFTA or USMCA, Americans are better off when trade barriers are lifted

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When it took effect in 1994, the North American Free Trade Agreement (NAFTA) created the largest trading market in the world. NAFTA lifted tariffs on the majority of goods produced and traded by the U.S., Canada and Mexico.

At that time, the three signatories had a combined 365 million people and GDP totaling $6 trillion. Today, NAFTA encompasses a market of 500 million people with a combined GDP of $25 trillion.

NAFTA has been a boon for U.S. producers and consumers. Canada and Mexico are our number one and two export markets, respectively, as we exported almost $500 billion worth of goods to them in 2016. And of the 14 million American jobs supported by trade with Mexico and Canada, 5 million are a direct result of NAFTA. It is vital to our prosperity to continue that strong trade relationship.

But while NAFTA has been an overall success, the agreement needs to be modernized for the 21st century to reflect new developments, such as the advent of digital trade, e-commerce and communications. The Trump administration renegotiated NAFTA’s successor, the United States–Mexico–Canada Agreement (USMCA), which was a step in that direction. As trade policy junkies pore over the details to mixed reviews, one thing is certain: the new deal isn’t perfect, but it’s far better than no NAFTA at all.

USMCA includes new, largely positive, chapters on digital trade, e-commerce, and finance. Modernization – check. It also makes very modest improvements on some points of contention by lowering barriers to certain dairy markets in Canada and lowering U.S. barriers to sugar and peanuts. Lowering additional trade barriers – check.

But there are problematic new elements in this deal, including stricter country-of-origin requirements, which increase trade barriers. Not so good. Perhaps more troubling are the new minimum wage standards for Mexican auto workers, which will be massively complicated to comply with.

These kinds of protectionist policies drive up costs for everyone. Including domestic policies in free trade agreements may be a slippery slope for other trading partners to make unacceptable demands on U.S. policy.

But upending today’s strong North American trading relationships and returning to pre-NAFTA days would be a perilous path. Given the central role NAFTA has played in strengthening our economy and improving lives in all three countries, it’s important not to undermine its obvious benefits as the new agreement undergoes approval and implementation. There are two areas that pose specific concerns.

First, the administration must keep the U.S. firmly in NAFTA until the new deal is fully ratified and implemented. Failure to do so could unleash real and unnecessary damage on the American economy.

Terminating NAFTA before a new deal is in place would reduce market access for businesses throughout North America, causing unnecessary pain for thousands of businesses and their workers.

One study for the Business Roundtable estimated that terminating NAFTA would shrink the U.S. economy by up to 1.2 percent annually and reduce net employment by as many as 3.6 million jobs, while imposing higher prices on working families. Threats to pull out of NAFTA are only creating unnecessary uncertainty for businesses whose time would be better spent preparing for changes under USMCA.

Second, U.S. tariffs on Canadian and Mexican steel and aluminum should be eliminated immediately, irrespective of any update to NAFTA, as should U.S. tariffs on Canadian soft wood lumber. Moreover, the administration should drop its 232 investigation for new tariffs – autos and auto parts hardly constitute a national security threat.

Every day, newspapers are filled with stories of how American workers, businesses, farmers and consumers are bearing the costs of these tariffs.

There is little evidence to show that the tariffs enhanced the United States’ bargaining position during the USMCA talks, despite claims to the contrary. If anything, the new agreement occurred in spite of the tariffs. And without the tariffs, American workers and companies would have been spared unnecessary harm.

The administration is now planning to negotiate respective trade agreements with Japan, the European Union and the United Kingdom. This is a welcome step. But leaving metal, lumber, and auto tariffs in place or in play may give negotiators understandable pause and make them less willing to lower barriers and open markets.

It is time to chart a new course, one based on cooperation, not confrontation.

The administration deserves credit for cutting taxes and removing regulatory barriers, which has resulted in a strong economy and the lowest unemployment rate in nearly 50 years.

Dropping tariffs and keeping NAFTA firmly in place while USMCA goes through the congressional approval process are key to ensuring this economic revitalization continues.

Alison Acosta Winters is a senior policy fellow for Americans For Prosperity.

Source: https://thehill.com/blogs/congress-blog/politics/412804-whether-its-nafta-or-usmca-americans-are-better-off-when-trade