USMCA: So Near, or Just Too Far?

A big push is under way to achieve U.S. approval for the U.S.-Mexico-Canada Agreement (USMCA), the new NAFTA, but important gaps remain between the parties. The most recent deadline goal appears to be congressional action by Dec. 20, at the latest. 

Missing that deadline could delay approval until 2021 and leave the continent’s economies under a cloud of uncertainty. Approving the USMCA could bring a needed economic boost to the millions of jobs supported by commerce with America’s two largest trade partners.

Negotiations between Democrats in the House of Representatives and the United States Trade Representative (USTR) appear to have made substantial progress on key issues where the Democrats seek changes — labor rights, environmental protections, shorter intellectual property protections for biologic drugs, and stronger enforcement mechanisms, especially on labor issues where Democrats worry about Mexico’s performance.

Final agreement, however, needs Mexico and Canada on board as well as both houses of the U.S. Congress. Mexico’s president and major business groups, both of whom want the agreement approved soonest, are sounding alarms that the latest proposals on labor enforcement to emerge from negotiations between USTR and House Democrats are not acceptable and could subject Mexico to unfair unilateral U.S. sanctions. The Mexicans are asking for a strengthened dispute settlement mechanism that uses panels of experts as a means of dealing with alleged violations of labor commitments. Mexico's top trade negotiator is in Washington searching for solutions.

Other last-minute objections and efforts to influence specific USMCA provisions are likely as the negotiating process approaches conclusion. Generally, businesses and farmers in the U.S. and across North America are pushing hard to finalize the trade agreement now. U.S. unions are demanding tougher, actionable provisions to sanction any Mexican violations of the labor rights commitments in the USMCA.

The major advantage of approving the USMCA now is that a trade agreement supported by the Trump administration could bring welcome certainty to the vital North American marketplace that repeatedly has been rocked by U.S. tariffs and trade threats over the past two years. The resulting uncertainty has impeded planning and investment by farmers and businesses, and imposed heavy costs to ongoing trade that supports an estimated 12 million U.S. jobs and millions more in Mexico and Canada.

Reaching final agreement faces a series of hurdles. The short timetable before the U.S. presidential campaign goes into full swing means a lot must be sorted out and actions taken quickly. There are other major items on Congress’s agenda, including the impeachment process and government spending bills, that can distract.

The key actors need to sort through the pros and cons of acting now. House Speaker Nancy Pelosi (D-Calif.), in particular, will have the last word on whether the USMCA will go to the House floor for a vote. She needs to balance the benefits of approving an agreement now that President Trump will claim as a major accomplishment versus holding off until after the 2020 elections and allowing uncertainty to remain a powerful drag on the North American economy.

In the latter case, Trump and Republicans would blast Democrats for harming the U.S. economy during the campaign, which could well harm Democratic candidates in swing districts. Pelosi, who has said she hopes to get to “yes” on the USMCA, needs to conclude that she is gaining enough from moving forward to sustain goodwill with key Democratic constituents, including unions.

This set of U.S. domestic political calculations is what worries the other two parties in the agreement, Mexico and Canada. Both have the U.S. as their major commercial partner, and both want a good trade agreement. Both want a buffer against unpredictable U.S. actions going forward. Both recall President Trump’s earlier threats to pull out of NAFTA. 

Mexico, in particular, has passed major labor reforms to protect workers’ rights, which will meet USMCA commitments, and just recently approved significant funding to implement the reforms.  Mexico’s president, Andres Manual Lopez Obrador, several times has assured Democrats that he is serious about implementing the labor reforms. The Mexicans, however, are worried that the latest U.S. proposals could be used to unfairly target Mexican businesses without allowing for a fair dispute process to resolve any accusations of violations.

Such last-minute renegotiation is to be expected, but care must be taken to keep the discussions focused and productive. It is essential now that the players work expeditiously to find a path forward this month, so that the three governments and their key internal constituencies can all emerge as winners.  

The best outcome would be one that does not condemn the United States, Mexico and Canada to another 18 months of uncertainty and unpredictability on trade and investment. Passage of the agreement could provide a needed boost to the economies of the United States and its neighbors.  The days ahead will reveal whether the key players can achieve that goal this year.

This article was originally published in The Hill...