The year 2019 will be a determining year for trade relations between the United States, Mexico, and Canada. Currently, the fate of the US-Mexico-Canada Agreement (USMCA), which is designed to modernize the 1994 North American Free Trade Agreement (NAFTA), rests in the hands of the U.S. Congress (click here for details on how USMCA advances NAFTA). This post explains the process for approving trade deals in the United States and U.S. Congress’ position on the USMCA.
Fast Track to Possible Approval
The USMCA was signed on Nov. 30, 2018 in Buenos Aires, Argentina between the three North American countries. However, the trade deal has not taken effect yet. The legislative branches in each country must vote to approve the USMCA before it can be implemented. In the United States, the deal must be approved by both the House and the Senate via a process known as fast track authority.
Fast track authority was granted under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (S. 995), which was signed into law by President Barack Obama on June 29, 2015. The act gives the executive branch the authority to negotiate new trade deals, after which the U.S. Congress can only vote up or down on a bill to implement these deals without making any amendments to the bill.
The three countries concluded the USMCA talks on September 30, 2018 and signed the agreement two months later. Now, it is up to the U.S. Congress to vote on whether or not to implement the USMCA.
US Congress’ Position on the USMCA
Before congressional approval, there are several key issues that have come up such as the pharmaceuticals provision and, similar to the sticking points prior to the approval of NAFTA, labor and environmental standards.
Pharmaceuticals and Intellectual Property. The Democratic majority in the House (235 Democrats to 197 Republicans) has already drafted a letter earlier this year that requests that the pharmaceutical provision be amended in an effort to lower drug prices.
Chapter 20 of the USCMA increases the time of protection for biologic medication from 8 years in Canada and 5 years in Mexico to 10 years for both countries. The United States already allows for a 12 year data exclusivity for biologics. Biologics are products that consist of natural sources that have been altered through the use of technology and are used to treat serious illnesses and ailments such as rheumatoid arthritis and different types of cancer.
The increase in the amount of time for data exclusivity, beginning with the time of first marketing approval, means that biologic medication is protected from competition from lower cost generic drugs for a longer period of time. As a result, the price of drugs for serious conditions will be higher for those individuals who need them the most in all three countries during the period of protection.
Labor. According to the Office of U.S. Trade Representatives, the labor chapter in the USMCA “brings labor obligations into the core of the agreement, makes them fully enforceable, and represents the strongest provisions of any trade agreement.”
The USMCA includes an annex on the right of workers to bargain collectively. The USMCA also includes a commitment on the part of Mexico to create legislation that protects workers’ rights to collective bargaining. Additionally, the USMCA rules of origin requires that 40-45 percent of automobile content must be produced by workers who earn no less than US$16 per hour. This is a step forward, since NAFTA only has a side agreement on labor that has been criticized as being ineffective.
Nevertheless, many labor unions have expressed concern about the enforcement of labor standards in the USMCA. Celeste Drake from the American Federation of Labor and Congress of Industrial Organizations has been reported as saying, “All the NAFTA renegotiation efforts in the world will not create U.S. jobs, raise U.S. wages or reduce the U.S. trade deficit if the new rules do not include clear, strong and effective labor rules that require Mexico to abandon its low wage policy.”
Many Democrats have expressed their support for the labor unions’ concerns. “As I’ve said for months, the administration shouldn’t squander the opportunity to lock in real, enforceable labor standards in Mexico and fix the enforcement problems that have plagued NAFTA,” according to U.S. Sen. Ron Wyden (D-Ore.), a member of the Senate Finance Committee.
Last week, a labor proposal, which was put forward by Sen. Wyden and Sen. Sherrod Brown (D-Ohio), was criticized by the Mexican Ambassador to the United States Martha Bárcena. The proposal calls for Mexico to inspect those factories that have been cited for labor violations in an effort to strengthen the enforcement mechanism of the USMCA labor provisions. However, Ambassador Bárcena indicated that Mexico would only agree to do so should these same inspections also apply to the United States, to which Sen. Brown’s spokesperson reportedly agreed.
Environmental Standards. According to the USTR fact sheet, Chapter 24 of the USMCA “includes the most comprehensive set of enforceable environmental obligations of any previous United States agreement, including obligations to combat trafficking in wildlife, timber, and fish; to strengthen law enforcement networks to stem such trafficking; and to address pressing environmental issues such as air quality and marine litter.”
As with labor, environmental standards were included as a separate side agreement to NAFTA. However, this side agreement has been criticized for being weak and ineffective.
The U.S. House Ways and Means Committee has also expressed concern about weak environmental protections in the USMCA. In a letter sent to U.S. Trade Representative Robert Lighthizer, House Ways and Means Committee Chairman Richard E. Neal wrote, “We have serious concerns about ensuring effective implementation and enforceability of the environmental provisions.” Twenty-four House Democrats signed the letter.
The uncertainty surrounding the USMCA in the face of opposition makes it difficult to definitively say that the deal could be ratified before year’s end. Other issues still loom such as the removal of the steel and aluminum tariffs before the USMCA is ratified by Mexico and Canada. Coming back to the United States, there are some analyses raising the possibility that the ratification process could extend well into 2020, which is also a presidential election year.
November 16, 2017 – trade negotiations between the United States, Mexico, and Canada begin
August 31, 2018 – United States and Mexico announce a preliminary US-Mexico agreement
September 30, 2018 – trade negotiations conclude between the United States, Mexico, and Canada
November 30, 2018 – trade agreement signed between the United States, Mexico, and Canada