By Jessica Wasserman, Esq.
With trade and tariffs a top political priority for the current US Administration, it is not surprising that there are changes in direction in policy, but even by this standard the ever changing dynamic on final ratification of the United States- Mexico- Canada Agreement (USMCA), the new NAFTA agreement, is a roller coaster ride. At the moment, the future for ratification by the end of this calendar year looks bright.
A few weeks ago, the Administration was threatening tariffs on Mexico if Mexico did not take action on migration issues; and if the tariffs had materialized USMCA would almost certainly have been a casualty. With that risk to USMCA in the rear view mirror, the Administration is as of this week, one hundred percent behind USMCA ratification. The administration “can make some changes” to the USMCA to win Democratic votes, President Trump said on Wednesday. “The deal is done, it’s sitting in Congress,” Trump told Fox Business, “It’s up to Nancy Pelosi to put it there.” In fact, the USMCA agreement has not yet been submitted to Congress by the President and legally he cannot submit until July 9th.
An agreement among the three countries was signed November 30, 2018 and will come into effect only after all three countries have ratified the agreement through their legislatures. Mexico ratified the agreement several weeks ago, but the US and Canada have not yet ratified.
The expectation at present is that the US will ratify some time before the end of the year with Canada to follow. Key to the process in the US is House Speaker, Nancy Pelosi, who is needed to corral the Democrats in the House to vote for ratification. She recently set up a process for addressing the key area of concern among House Democrats: drug pricing, labor provisions, environment provisions and enforcement concerns, by establishing task forces on the four issues with directions that House Ways & Means Committee Chair, Richard Neal, would negotiate directly with USTR Trade Representative Lighthizer.
So, today (no promises about tomorrow), it appears that there may be a vote on the USMCA this year. There is not enough time to assure the votes for passage before the Congressional August recess, and the budget will be the priority for September, but maybe October will be the time frame to expect a vote.
Background
The original NAFTA was ratified over 25 years ago and has been a major success with, for example, US agriculture exports increasing from $9 billion to nearly $40 billion over the 25 year period. The NAFTA eliminated tariffs on all exports to Mexico and on 99% of exports to Canada. With tariffs eliminated, the focus of the USMCA has been on changes to trade rules and regulatory convergence among the countries. These improvements are less dramatic and harder to quantify than the benefits of the original NAFTA. The improvements most noted are the labor chapter, which includes enforceable commitments on internationally-recognized labor rights and a unilateral commitment by Mexico (which has been implemented in Mexico) to eliminate certain labor organizing reforms that are viewed as a watershed in labor rights; and secondly stricter rules of origin for autos, intended to bring more production to the United States. In addition, the USMCA is cited for addressing new technology issues such as data flow protections and intellectual property protection.
The International Trade Commission, an independent government agency, in April issued an economic analysis of the USMCA’s impact on the US economy as just 0.35% in the first years of implementation. Despite the relatively modest economic impact in the short term, the agreement is significant in the long term for its update of a number of complex regulatory and dispute settlement issues. The USMCA will be the template for future trade agreements and will be the starting point for future negotiations. This makes it very important.
For more information contact Jessica Wasserman at jessica.wasserman@gmlaw.com or 202-669-9449.
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