Chickens Coming Home to Roost on USMCA
March 25, 2019
In my continuing effort to avoid talking about China for at least one more week, today’s topic is the United States-Mexico-Canada Trade Agreement (USMCA). Past columns have discussed the substance of the negotiations and the issues that emerged as points of controversy, so this one will touch briefly on that but will focus primarily on the challenge of moving the agreement through Congress.
The agreement itself is evidence of the president’s tendency to talk tough, push the other parties to the edge of a cliff, and then back off. Given all the far-reaching demands that were made in the beginning, the final product is actually fairly modest, with much of the language being “upgrade” provisions borrowed from the Transpacific Partnership (TPP) text that have wide support. Many of the administration’s process demands—the business community's “poison pills"—have disappeared or been compromised, although the substantial truncating of the investor-state dispute settlement process remains a major sore point.
The auto rules of origin took up most of the negotiating air space, and the outcome has produced some controversy and a good bit of head-scratching. The Scholl Chair has done an analysis of how rules of origin affect supply chains using the USMCA auto rules as a case study, which we will be making public on April 4, so I won’t ruin the suspense by saying anything about it now. Just stay tuned for that event.
With the International Trade Commission’s analysis of the agreement's economic impact due by April 19, attention is now turning to the process of congressional consideration. I am marginally optimistic about its chances, though there are plenty of land mines that could blow it up. The main reason for my optimism has been the relatively positive tone both parties have taken towards it. At this same point in the process on TPP in 2016, substantial numbers of Democrats, along with organized labor and a number of citizens groups had already come out in adamant opposition and were busy organizing their forces. This time there has been very little of that so far. Democrats, predictably, have said it is inadequate and needs to be improved, but very few have written it off as unsalvageable, and the Speaker has clearly left the impression she is open to finding a way to get to “yes” on the agreement.
This may be because it is simply a less controversial agreement than the TPP, but I also think it is because it amends and upgrades an existing agreement that we have been living with for 25 years. Business models and supply chains have been developed around it and getting rid of it would be enormously disruptive. As a result, both parties believe the worst outcome would be nothing—no old North American Free Trade Agreement (NAFTA) because the president might withdraw from it and no new one because Congress fails to approve it. Neither party wants to be blamed for that outcome; hence the mutual interest in trying to prevent it.
The path to success, however, is a narrow one. The Democrats have said the text is inadequate and needs improvement and are telling Ambassador Lighthizer to go back and fix it. He says he won’t, but he will—virtually every trade agreement has gone back for repairs before final congressional action. The challenge for the Democrats will be to keep their demands at an attainable level. It is axiomatic in this situation that when members of Congress see a train leaving the station, they want to throw their baggage on board, so you should expect many “problems” to surface. It will be the task of the House leadership and the chairman of the Ways and Means Committee to manage that process. You should also expect some Democratic demands for non-trade related measures—the party out of the White House always holds presidential priorities for ransom if it has the power to do so.
If Ambassador Lighthizer brings back an “improved” bill, the Democrats can then take credit for having fixed it, which will permit some of them to vote for it, which, when combined with Republican support, should be sufficient for passage. That is the happy ending scenario, but I see five land mines.
First, the Democrats could overreach and demand too much, allowing the president to reject their requests and blame the resulting failure on them. Second, Ambassador Lighthizer could fail to bring back a bill that is sufficiently changed to persuade Democrats to vote for it. This is the least of my worries. Lighthizer is a professional who has spent a great deal of time talking to congressional members about what they need. If anybody knows how to move this through, he does. Related to that, however, and outside of U.S. control, is action on labor legislation in the Mexican Congress. Mexico committed in the USMCA agreement to enact such legislation by last January 1. It has not done that but may take it up next month. Improved provisions on labor and enforcement are critical issues for the Democrats, and Mexico’s failure to act would make it effectively impossible for the Democrats to move forward. Conversely, if Mexico does act, it would give the agreement momentum here.
The last two land mines are controlled by the president. If he makes the debate about him rather than about the USMCA, he will force Democrats to oppose it. Likewise, if he either prematurely submits the bill before the various issues are worked out—the bill cannot be changed once it is formally submitted—or preemptively announces withdrawal from NAFTA he will probably force the Speaker to pull the plug on the process as she did with the Colombian agreement in 2008.
Thus, the president has a choice—he can, through his own actions, torpedo the bill, blame the Democrats and have a campaign issue, or he can keep his mouth shut, let Ambassador Lighthizer manage the process and have a victory he can brag about on the campaign trail. Want to bet which choice he’ll make?
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2019 by the Center for Strategic and International Studies. All rights reserved.