US needs USMCA if it’s serious about competing with China

The United States-Mexico-Canada Agreement (USMCA) negotiated by the Trump administration to replace the North American Free Trade Agreement (NAFTA) is to be signed by the three countries’ presidents Nov. 29.

This complex agreement, which makes major changes in rules governing automotive trade, dispute settlements and agriculture, while adding or expanding coverage of such areas as labor rights, environmental protection, small and medium-sized enterprises, state-owned enterprises, corruption and e-commerce, cannot go into force until it is approved through the applicable constitutional procedures in each member state.

Approval by the Canadian Parliament and Mexican Congress seems assured. Yet, questions arise as to when and if the U.S. Congress will approve.

{mosads}For many reasons, including the preservation of North America as a world leader in manufacturing efficiency, job growth and innovation as well as maintaining strong economic and political relations with Canada and Mexico, it is imperative for Congress to approve USMCA as soon as possible.

However, because a Democratic majority will control the House of Representatives as of January, enactment of USMCA-approval legislation is less assured there than in the Senate, where Republicans will maintain their majority.

Under Trade Promotion Authority legislation, the administration must submit a list of required changes to U.S. law, a Statement of Administrative Action setting out the nature of the legislative changes required and a U.S. International Trade Commission study of the economic effects, all before the agreement can be formally submitted to Congress, hopefully by mid-March 2019.

TPA mandates action by Congress within 90 legislative days after submission. Congress can vote only for or against the agreement; no amendment is possible.

The prospects for eventual congressional approval of TPA may not be dimmed by Democrats’ control of the House, but House consideration of USMCA could be delayed because of more pressing items on the Democratic agenda: Robert Mueller’s Russia investigation, immigration and health care, for example.

Also, Democrats in the House may demand changes in the text, most likely to strengthen the labor and environmental provisions (which are already considerably more robust than those in the NAFTA “side” agreements), as a condition of supporting the agreement.

Major support for USMCA in the House can be expected from the 200 Republican members, but even if most of them support the agreement, the administration will need 25 to 30 Democrat votes to reach the 218-vote majority required for passage.

USMCA may attract more votes from Democrats than has historically been the case for trade agreements. New automotive rules are expected to create jobs in the U.S., while stronger labor provisions protecting independent unions in Mexico will likely be supported by some Democrats because they should result in wage increases in Mexico and reduce the wage disparity with the U.S.

Also, Democrats who have opposed the inclusion of investor-state dispute settlement in past trade agreements may welcome its elimination entirely with Canada and significant narrowing with Mexico. 

It is possible that Democrats will take a totally obstructionist position on all Trump administration initiatives.

However, prior to November, current House Minority Leader Nancy Pelosi (D-Calif.), the likely Speaker of the House come January, indicated that Democrats would be looking for areas where they could cooperate with the Republicans.

USMCA approval could well be one of those areas, even if most Democratic House members decide to oppose it. 

{mossecondads}While some Republicans might have opposed the president’s will if Canada had been excluded, given extensive U.S. bilateral trade with Canada and the critical importance of Canadian manufacturers in supply chains for U.S. manufactured goods, that problem has disappeared.

Also, while business groups have expressed dissatisfaction with USMCA’s investment and government procurement provisions, it can be expected that the U.S. Chamber of Commerce and many other organizations will pressure both Republicans and Democrats in Congress to support USMCA.

Thus, there is still a reasonable possibility that the USMCA could take effect as soon as Jan. 1, 2020. If the United States is seriously interested in competing with China for world leadership in innovation, and in maintaining a robust North American manufacturing and export base, the administration and Congress must work together to enact USMCA as promptly as possible. 

David A. Gantz is the Will Clayton fellow in international economics at Rice University’s Baker Institute for Public Policy and the Samuel M. Fegtly professor of law at the University of Arizona’s James E. Rogers College of Law. He works closely with the Baker Institute’s Mexico Center on issues of international trade and economics between the U.S. and Mexico.