The deal awaits Trump’s signature — and Canada’s approval.
WASHINGTON D.C. (Vice) —A bipartisan majority in the Senate approved the United States-Mexico-Canada Agreement (USMCA) on today, Thursday January 16, 2020, clearing the way for Donald Trump’s signature.
The Senate voted 89 to 10 for USMCA, an updated version of the North American Free Trade Agreement, or NAFTA.
The House of Representatives backed the bill last year, voting 385 to 41, also with overwhelming bipartisan support, after Democratic leaders succeeded in winning changes on labor, environment, enforcement, and pharmaceutical provisions. Those tweaks secured the backing of US labor, offering Democrats a pathway to supporting the agreement.
That also removed the biggest obstacle to getting the USMCA passed, as a Republican majority in the Senate almost guaranteed approval. Still, many Democratic senators backed the bill, notably including progressive legislators Sens. Elizabeth Warren (D-MA) and Sherrod Brown (D-OH), who voted against the original NAFTA when he was a Congress member.
The approval of the USMCA in the Senate comes just as the chamber starts the impeachment trial of Donald Trump. The juxtaposition is wild, as the Senate is handing Trump a major victory on the same day it begins preparations to try him.
The USMCA approval also supplies Trump with a banner week in trade. A day before the Senate vote, the president signed a “phase one” trade deal with China. Trump can now claim credit for fulfilling two of his signature promises, even if what he says he delivered isn’t quite as advertised.
The China deal is a truce in a painful trade war and the USMCA is really an updated version of NAFTA, meaning the president didn’t succeed in making massive reforms on either front. But those nuances are unlikely to come through on the 2020 campaign trail, especially when Trump is doing the campaigning.
NAFTA was unpopular. The USMCA now has strong bipartisan support.
In 2016, Trump vowed to renegotiate NAFTA, which he called “the worst trade deal ever made.” He achieved with the USMCA — in his own words— “the biggest and best trade agreement in the history of the world.”
Trump describes the USMCA this way on the 2020 campaign trail whether Congress approved it or not, however Democrats do have ownership over the strengthening of the agreement.
The USMCA is far from perfect. Environmental groups still say it doesn’t go far enough, and some unions remain opposed. But legislation rarely gets bipartisan support, particularly when it comes to trade.
The divisions that did exist were notable, however. Two of the most progressive senators and 2020 presidential candidates, Warren and Bernie Sanders (I-VT), were at odds about the USMCA in this week’s debate.
Sanders, a longtime opponent of trade deals, said the US could do better for workers and rejected it for its failure to address climate change. Other senators, including Senate Minority Leader Chuck Schumer (D-NY), also voted against the USMA because of its environmental shortcomings.
Warren, meanwhile, said she would back it, citing progress — if not perfection. “This new trade deal is a modest improvement,” the senator said Tuesday. “It will give some relief to our farmers, it will give some relief to our workers. I believe we accept that relief, we try to help the people who need help, and we get up the next day and fight for a better trade deal.”
What’s in the USMCA
In October 2018, the US and Canada struck a last-minute deal for a revised NAFTA. The US and Mexico had come up with their own preliminary NAFTA deal, and the two had threatened to move ahead without Canada.
But Ottawa and Washington hammered out their disagreements on things like dairy and dispute resolutions, and the USMCA was born. (It’s known as CUSMA in the north or T-MEC in the south.)
“NAFTA 2.0” is an updated version of the nearly 25-year-old, trillion-dollar trade agreement, with major changes on cars and new policies on labor and environmental standards, intellectual property protections, and some digital trade provisions.
Here’s a brief overview:
- Country of origin rules: Automobiles must have 75 percent of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (up from 62.5 percent under NAFTA).
- Labor provisions: 40 to 45 percent of automobile parts must be made by workers who earn at least $16 an hour by 2023. Mexico agreed to pass new labor laws to give greater protections to workers, including migrants and women. Most notably, these laws are supposed to make it easier for Mexican workers to unionize.
- US farmers get more access to the Canadian dairy market: The US got Canada to open up its dairy market to US farmers, a big issue for Trump.
- Intellectual property and digital trade: The deal extends the terms of copyright to 70 years beyond the life of the author (up from 50). It also includes new provisions to deal with the digital economy, such as prohibiting duties on things like music and e-books, and protections for internet companies so they’re not liable for content their users produce.
- Sunset clause: The agreement adds a 16-year sunset clause — meaning the terms of the agreement expire, or “sunset,” after 16 years. The deal is also subject to a review every six years, at which point the US, Mexico, and Canada can decide to extend the USMCA.
In November 2018, leaders of all three countries signed the agreement in Argentina during the G20 conference. Then came the hard part: getting the agreement ratified in all three countries.
In the US, Democrats suggested the USMCA didn’t go far enough on labor and environmental provisions and enforcement. The other major snag to ratification was Trump’s trade war, specifically steel and aluminum tariffs imposed on both Mexico and Canada. (Plus, both countries imposed retaliatory tariffs.)
The USMCA didn’t exempt Mexico or Canada from those tariffs, which both countries wanted gone. They did get the US to make a side agreement in USMCA that largely protects them from possible auto tariffs, but those on metals didn’t budge.
Republicans wanted those steel and aluminum tariffs gone. In May, the countries reached a deal to lift tariffs on steel and aluminum coming from those two countries. That eliminated a major hurdle to ratification in all three countries.
Trump almost derailed things once again, threatening Mexico with a ton of tariffs over the unrelated issue of immigration. Republicans objected, as did Mexico — and eventually Trump agreed to suspend those tariffs.
Mexico overwhelmingly ratified the USMCA soon after, in June 2019. The country had also begun the process of changing some of its laws to accommodate those new labor rules, yet the Democrats insisted on stronger enforcement of labor provisions in the USMCA, along with beefing up environmental protections and drug provisions and enforcement.
In June, House Democrats formed a USMCA working group to work with the administration on those demands. House Democrats and the Trump administration largely remained at an impasse, and it soon turned into a talking point from Trump and his GOP allies, who accused the Democrats of holding up the trade deal.
According to Politico, all sides started to make some progress in the fall, though in fits and starts. Behind the scenes, Mexico, House Democrats, and US Trade Representative Robert Lighthizer were furiously trying to come to an agreement on tougher labor standards.
On the US side, Democrats wanted the support of unions — specifically Richard Trumka, president of the AFL-CIO, the largest federation of unions in the country, who initially opposed the deal. All of this was happening as the House pursued impeachment against the president. It was no secret that Democrats in swing districts wanted to pass the USMCA.
In December, barely an hour after House Democrats announced articles of impeachment against Trump, they also said they’d reached a new USMCA deal with the administration.
Trumka endorsed the revised version — the first trade deal the AFL-CIO has backed since a US-Jordan deal in 2001. “There is no question, of course, that this trade agreement is much better than NAFTA,” House Speaker Nancy Pelosi said at the time. “But in terms of our work here, it is infinitely better than what was initially proposed by the administration.”
That same day, Lighthizer flew to Mexico City to meet with his counterparts from Mexico and Canada to sign the modified USMCA.
Mexico gave up the most in this latest iteration of the USMCA, although the trade deal also means the most for the country. Mexico had already agreed to changes in its laws, but Democrats and labor unions wanted better enforcement mechanisms.
The updated USMCA will include this “rapid-response mechanism” that calls for an independent, three-person panel of multinational, independent experts who will make sure Mexico abides by its union rules and other protections.
These panels can request to visit sites, if there’s an allegation that the company is violating labor rules. The US will also dispatch labor attachés from its embassy to work with its Mexican counterparts to help them achieve the labor reform goals.
How will this work out?
Shortly after Democrats announced the deal, Mexico started pushing back on the deal claiming they’d been “blindsided” about the US sending inspectors to its factories.
The issue seemed to be those labor attachés (the US had initially wanted inspectors, but Mexico resisted), though Lighthizer responded to Mexico’s concerns by basically saying these attachés were there just to help Mexico with its labor rules, and wouldn’t be inspectors. That explanation seemed to satisfy Mexico.
Another big win for Democrats included the removal of a certain rule involving pharmaceuticals. The original USMCA extended the period that certain drugs -known as “biologics”- can be protected from generic competition to 10 years. Democrats objected to this provision, saying it could thwart future efforts to lower the cost of some prescription drugs. That provision has now been totally removed from the USMCA.
Democrats also got some other wins, including stricter rules on steel that can be used in car production and the strengthening of state-to-state dispute settlements rules, which didn’t work well under the original NAFTA.
They also beefed up some environmental provisions, including creating an interagency committee that will monitor environmental concerns in the three countries, and recommend enforcement actions — though it’s not clear what.
While there are minor improvements, green groups are claiming they didn´t go far enough to address climate change or to effectively punish polluters. Many environmental organizations are still protesting the bill, even with these updates.
The USMCA covers more than a trillion dollars in trade. According to the US government’s economic assessment (which came out in April, before the new revisions), the benefits from the USMCA are modest: a 0.35 percent increase in GDP and just 176,000 jobs gained.
Some of the consequences of the USMCA are uncertain. Stricter labor standards are designed to disincentivize manufacturers from seeking cheaper labor in Mexico, but it seems unlikely that jobs will be flooding back to the US.
The country of origin rules for automobiles might also make manufacturing cars more expensive, since it’s designed to stop factories from outsourcing for cheaper materials. Some factories may also decline to manufacture more parts in North America, and just pay the tariff, which is only 2.5 percent. Other companies might decide it’s just cheaper to make certain cars elsewhere — which may backfire. Either way, it could make some automobiles more expensive for consumers too.
Votes in Congress proved that Democrats and Republicans are willing to accept this version of the USMCA. Now the USMCA heads to Trump’s desk for signature — and becomes a major achievement for him as the 2020 campaign intensifies.
The USMCA won’t be a done deal until Canada ratifies it and even thou Prime Minister Justin Trudeau lost his parliamentary majority, still has power through a minority government. He might face a little resistance in trying to get the legislation passed, but now that the USMCA has gotten through Congress, Canada is likely to pass it, too.
The Yucatan Times