House Democrats agree to new NAFTA
Companies, workers and lawmakers in three countries have spent the past year in limbo awaiting final touches on the U.S.-Mexico-Canada free-trade agreement. Now they have a better sense of who won -- and who lost.
The accord awaits a vote next week in the U.S. House of Representatives, where Democrats successfully wrung last-minute revisions to ensure its passage. The U.S. Senate plans to vote in 2020, while legislatures in Mexico and Canada will also have to ratify the updated agreement.
While the so-called USMCA deal marks a political win for President Donald Trump as he seeks re-election, the overall benefit to U.S. GDP is small: a 0.35 per cent increase in the agreement’s sixth year, according to official U.S. estimates. Yet, like all trade deals, this one creates winners and losers in the business community. The countries’ political leaders, steel industries and online shoppers stand to benefit, while U.S. drug companies, Mexican businesses, Canadian dairy farmers come off second-best.
U.S. agricultural exports: U.S. dairy and poultry get new market access to Canada, and there are some gains for wheat and alcoholic beverages. The boost is small, but farmers are hoping that progress on one trade agreement portends an end to the trade war with China.
Internet companies: The USMCA has a new digital trade section that will help data-intensive internet firms avoid onerous data storage and taxation requirements. The industry beat back a last-minute attempt to remove liability protections for companies like Alphabet Inc.’s Google, Facebook, Inc. and Twitter, Inc. for content posted by users.
Online shoppers and Amazon.com, Inc: The deal will raise Canada and Mexico’s de-minimis levels, or the threshold above which consumers pay tax on a cross-border shipment. This means, for instance, that Canadians will now be able to buy more online, tax-free.
U.S. firms: Business groups such as the National Association of Manufacturers and American Petroleum Institute pushed hard for all parties to get on board because they wanted to eliminate the possibility, however remote, that Trump would end free trade in North America. The boost to business confidence could mean the economic benefit from enacting the deal exceeds expectations. The Business Roundtable, which represents U.S. CEOs, endorsed the USMCA on Wednesday, though it raised concerns about weaker intellectual property protections and new labor-enforcement mechanisms.
U.S. President Donald Trump: Less than an hour before House Democrats said they plan to vote on Trump’s trade deal, they presented articles of impeachment against him. Finalizing this deal gives Trump a much needed political win as he fights off impeachment and runs for re-election in 2020.
Canadian Prime Minister Justin Trudeau: The country had a few red-line issues, including maintaining so-called Chapter 19 dispute panels contained in the old NAFTA, which U.S. negotiators wanted to kill but conceded to keep. One of Canada’s big concessions was agreeing to raise patent protections for biologic drugs, but this was removed from the final version. That means Canada got of its core goals and won’t have to follow through on one of its main concessions.
Mexican President Andres Manuel Lopez Obrador: While Mexico’s private sector is worried about some part of the deal -- including the process for labor complaints -- AMLO emerged as mostly a winner. Just finalizing the deal means that AMLO was able to preserve free trade with the U.S., the country’s largest commercial partner. Failure to do so, and having Trump withdraw from NAFTA, could have been catastrophic for the stagnant Mexican economy.
House Speaker Nancy Pelosi: Pelosi told her caucus that in the final talks, Democrats ate the “lunch” of Trump’s trade negotiators. Democrats got most of what they wanted. Pelosi set up a working group to ensure that a range of voices -- from Alabama moderate Terri Sewell to Connecticut liberal Rosa DeLauro -- could be heard. The talks got bogged down at times, but the consensus-building gave her most vulnerable members a way to show voters they’re working on more than impeaching Trump.
Rural Democrats: Democrats who represent districts that Trump won in 2016 -- people like Collin Peterson and Angie Craig of Minnesota, as well as Cindy Axne and Abby Finkenauer of Iowa -- needed the USMCA badly. Farmers are suffering from trade wars and blamed Democrats for not passing the USMCA. This removes a liability for them as they seek re-election next year.
U.S. Trade Representative Robert Lighthizer: Trump’s top trade negotiator is the most popular government official in Washington right now. He set out to build a new U.S. trade consensus and it looks like he largely succeeded in creating a deal that most Republicans and Democrats can get behind, all while coping with Trump’s erratic negotiating style. He’ll need that tailwind as he tries to finalize a trade deal with China that has even higher stakes for the U.S. economy.
Drug manufacturers: The major drug-industry groups, PhRMA and BIO, are against the deal, and the U.S. Chamber said it is “disappointed” in the drug provisions. The USMCA as originally negotiated by Trump would have established 10 years of data protection for biologic drugs. That’s lower than the 12 years in the U.S. but would have required Canada and Mexico to provide more protection, likely raising drug prices. That provision was removed at the last minute at the insistence of Democrats who are working to lower drug prices in the U.S. Tom Donohue, CEO of the U.S. Chamber of Commerce, said that with the changes, “the only beneficiaries will be foreign governments and consumers who will continue to free-ride on the benefits of American research into new cures.”
Cross-border corporations: The new deal mostly eliminates Chapter 11 dispute-settlement panels, which were often an avenue for companies to sue governments over policy decisions. The new deal will give governments more leeway to make changes, even if it pulls the rug out from under a business.
Mexican businesses: The private sector was upset that Mexico gave up a lot in the final negotiation for little in return, beyond the preservation of free trade. Gustavo de Hoyos, head of business chamber Coparmex, said the advice of Mexican businesses wasn’t sufficiently heeded. He compared the deal to the 1848 Mexican-American War, when Mexico lost California and parts of New Mexico and Arizona. Chief negotiator Jesus Seade responded that he was in frequent contact with business representatives. The main concern is that new labor provisions could leave Mexican factories vulnerable to frivolous lawsuits.
Canadian dairy farmers: One of Canada’s big bargaining chips was trading away a slice of its protected dairy market, which is a problem in all the country’s trade talks. The government announced $1.75 billion in compensation to dairy farmers for two other trade deals, and pledged similar support once USMCA takes effect.
U.S. ranchers: Cattle producer group R-CALF USA criticized the deal, saying the failure to restore country of origin labeling, or COOL, on beef allows imported supplies to continue undercutting U.S. ranchers.
Canadian and U.S. aluminum industries: Associations in both countries expressed their disappointment -- the Aluminium Association of Canada said leaving melting and pouring rules out of the deal would make Mexico “more or less China’s North American backyard to dispose of the products of its overcapacity.” The American Primary Aluminum Association said it will allow China and Russia to flood North America with cheap metal. The Mexican Aluminum Association countered that the country doesn’t import raw aluminum from China and won’t need to as long as the region remains a competitive market option.
GOP free traders: Free-market politicians like Senator Pat Toomey, a Republican from Pennsylvania, are unhappy because the deal imposes new rules and wage requirements. Senate Majority Leader Mitch McConnell also said he is disappointed, but he is still expected to usher the pact through the Senate. The fact the deal will pass shows how much Trump has reversed traditional GOP trade policy.
Environmental groups: The Sierra Club and the Natural Resources Defense Council are speaking out against the agreement. Environmentalists wanted climate-change provisions in the USMCA, something Democrats concluded was not going to happen under Trump.
Mixed Bag: U.S. Workers, Auto Industry, Steelmakers
U.S. workers: The AFL-CIO supports the USMCA as an improvement for U.S. workers but the machinists’ union opposes it. The deal aims to enhance unionization of employees in that country, with the goal of ending a “race to the bottom” for manufacturing workers. The U.S. jobs that went to Mexico under the original NAFTA aren’t coming back, however. The United Auto Workers union said “much more work remains to fight against the offshoring of jobs and the economic inequality that has plagued our country for so long.”
U.S. and Canadian auto industry: For cars to be exempt from tariffs, they must have higher content from North America and a percentage of each vehicle must be made by workers making an average of $16 per hour -- a provision that will help higher-wage regions. The U.S. International Trade Commission estimates that the deal will increase production of U.S. auto parts and decrease production of U.S. vehicles. The new auto provisions could raise prices of new cars, which could deter consumers. General Motors Co., however, said it is pleased to see the USMCA moving forward.
Steel industry: Steel companies had been pressing officials to include a “melted, smelted and poured” requirement that 70% of the raw metal used in automotive parts originate in Mexico, Canada or the U.S. The deal’s final language agreed for this to be phased in over seven years for steel parts.
--With assistance from Shawn Donnan, Jenny Leonard, Joe Deaux, Josh Eidelson, Ari Natter and Michael Hirtzer.