NAFTA successor faces U.S. House skeptics
Washington — President Donald Trump spent more than a year browbeating the leaders of Canada and Mexico into agreeing to a rewrite of North American trade rules. And on Friday, leaders of those two nations are set to sign the pact at the Group of 20 summit in Buenos Aires, Argentina.
Now, Trump faces what could prove a more formidable foe: His own Congress.
Emboldened by their takeover of the House starting next year, many Democrats say they want the new agreement to strengthen its protections for American workers from low-wage Mexican competition. Yet any such changes could raise new objections from Republican free traders who want to limit the ways the pact could restrict corporate practices in North America.
What Trump had hailed as a triumph for his administration — a newly named U.S.-Mexico-Canada Agreement to replace the 24-year-old North American Free Trade Agreement, which he’d long condemned as a job-killer for Americans – now faces a hazier future.
“It’s going to be a very tough sell,” said Democratic Rep. Bill Pascrell of New Jersey, top Democrat on the House subcommittee that oversees trade issues.
Leaders of the three countries agreed to the USMCA just hours before a U.S.-imposed Sept. 30 deadline. Yet the legislatures of the three countries must still ratify it. Many trade analysts say the new NAFTA isn’t very different from the old one despite Trump’s claim that it would “transform North America back into a manufacturing powerhouse.”
“It’s really the original NAFTA,” said Mickey Kantor, a partner at the law firm of Mayer Brown and U.S. trade representative in the Clinton administration.
For years, it was the Democrats who complained about NAFTA, which tore down most trade barriers between the U.S., Canada and Mexico. They argued that it encouraged U.S. companies to close factories, lay off American workers and move to Mexico to capitalize on cheap labor. By contrast, pro-business Republicans defended the deal, which they said encouraged an explosion in trade among the three North American countries that benefited all three.
But Trump campaigned as a different kind of Republican. He called NAFTA a “disaster” and dispatched U.S. Trade Rep. Robert Lighthizer to negotiate a new version, threatening to abandon the regional trade bloc entirely if he couldn’t get what he wanted.
Lighthizer worked to win Democratic support. And the USMCA includes provisions meant to address criticisms of the deal it replaces. For example, it requires Mexico to pursue reforms of labor law to encourage independent unions that will bargain for higher wages and better working conditions for Mexicans.
The agreement calls for increasing from 62.5 percent to 75 percent the percentage of a car’s parts that have to come from one of the three countries to qualify for duty-free treatment.
The Trump administration had initially pushed to boost the so-called domestic content requirement for autos to as high as 85 percent, and add a 50 percent U.S. mandate. But Mexico and Canada balked at those proposals, and automakers vocally argued against them.
Additionally, the USMCA requires that 40-45 percent of an auto’s content be made by workers earning at least $16 per hour.
Vehicles not meeting the requirements would be subject to a 2.5 percent duty.
The USMCA contains provisions to protect up to 2.6 million cars and $32.4 billion worth of parts imported from Canada and Mexico from tariffs on imported vehicles that are being considered separately by the Trump administration.
Another central issue was access to Canada’s dairy market for U.S. farmers. Under the new agreement, Canada will provide new access to U.S. dairy products and poultry products including chicken, eggs and turkey.
When the NAFTA replacement was announced, Senate Democratic leader Chuck Schumer of New York said that Trump “deserves praise for taking large steps to improve” on NAFTA.
John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce, which supports the new trade deal, argued that it includes features that were intended to address Democratic concerns about how American workers would be affected.
“The possibility of building a bipartisan coalition for this agreement is there,” he said.
But with Democrats in charge of the House and exerting more influence in Congress, a coalition might be harder to assemble.
“This deal hasn’t met the mark,” said Celeste Drake, trade policy specialist at the AFL-CIO. “We’re not really done here.”
Drake and other critics say the requirement for labor reforms in Mexico isn’t enforceable and needs to be given more teeth. And they oppose a provision that gives manufacturers of biologics — ultra-expensive drugs produced in living cells — 10 years of protection from generic competition.
“NAFTA 2.0 is also stuffed with handouts that will let big drug companies lock in the high prices they charge for many drugs,” Democratic Sen. Elizabeth Warren of Massachusetts was scheduled to say in a speech later Thursday announcing her opposition to USMCA. “The new rules will make it harder to bring down drug prices for seniors and anyone else who needs access to life-saving medicine.”
U.S. trade rules are supposed to force Congress to give trade agreements an up-or-down vote — no nitpicking allowed. But there are ways to bypass those restrictions. Congress could, for example, pressure the Trump administration into negotiating a so-called side letter with Mexico to toughen protections for union organizers.
Robert Martinez Jr., president of the Machinists Union International, for example, called Thursday for new language to ensure that any Mexican labor reforms “will be effectively enforced.” He also wants provisions in the pact that would discourage the outsourcing of U.S. jobs to Mexico to include not only automakers but also such industries as textiles, electronics and call centers.
President Bill Clinton negotiated such a side letter to win congressional approval for the original NAFTA, which was largely negotiated by his Republican predecessor, President George H.W. Bush.
Republicans are sounding objections, too. Two weeks ago, 46 Republican lawmakers sent a letter to Trump opposing a USMCA provision, included at Canada’s insistence, that requires the three countries to protect LGBT employees from discrimination in the workplace.
The old NAFTA remains in place until USMCA takes effect. But Trump could tighten the pressure on Congress by threatening to withdraw from NAFTA if lawmakers balk at the new version. That “New NAFTA or No NAFTA” approach would disrupt the operations of companies that have built regional supply chains on the assumption that goods can cross borders within the trade bloc duty-free. It could also rattle financial markets.
Philip Levy, senior fellow at the Chicago Council on Global Affairs and a trade official in President George W. Bush’s White House, said it might actually work to Trump’s benefit if Democrats kill the deal or leave it in limbo.
“President Trump has seriously overhyped this agreement,” Levy said. “It won’t deliver” the job gains he’s promised.
“If you kill it, you leave him with the myth: ‘I would have delivered all these wonderful things if only those swampland Democrats hadn’t blocked it,” Levy said.
There is precedent for Democratic obstruction of trade agreements: When Democrats last controlled the House, for instance, Speaker Nancy Pelosi managed to delay for years a U.S. trade agreement with Colombia, a priority of President George W. Bush.
What’s more, Levy said, Democrats may well be reluctant to hand Trump a victory a year before the 2020 presidential election — and lose an issue that “has been a rallying cry for them for more than 20 years.”