Doing the USMCA
October 4, 2018
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SCOTT MILLER: I’m Scott.
WILLIAM ALAN REINSCH: I’m Bill.
MR. MILLER and MR. REINSCH: (Together.) And we’re The Trade Guys.
H. ANDREW SCHWARTZ: You’re listening to The Trade Guys, a podcast produced by CSIS, where we talk about trade in terms that everyone can understand. I’m H. Andrew Schwartz. And I’m here with Scott Miller and Bill Reinsch, the CSIS Trade Guys.
So it looks like trade peace could be coming to North America. The leaders of Canada, Mexico, and the United States have agreed to leave NAFTA behind for a new U.S.-Mexico-Canada agreement, or USMCA, but is it really all that different from the deal it will replace? We’ll discuss all of this and more on this episode of The Trade Guys.
All right, The Trade Guys are off. We have to talk NAFTA, the new NAFTA. It’s called what, Scott?
MR. MILLER: The USMCA.
MR. SCHWARTZ: It’s like – it’s like you could do semaphores to that, the USMCA?
MR. MILLER: You could bring together the Village People and re-record “YMCA.”
MR. SCHWARTZ: I’m sure President Trump would love the Village People to do that. That would be a big thing. It would be – it would be tremendous. It would be very big. It would be beautiful.
MR. REINSCH: It would be huge.
MR. SCHWARTZ: It would be huge and it would be beautiful.
MR. REINSCH: I think he’d be very uncomfortable with the Village People. Just guessing.
MR. SCHWARTZ: Oh my! (Laughs.)
MR. MILLER: But after all, this is the greatest trade agreement in the history of trade agreements.
MR. SCHWARTZ: So he told Congress this morning.
MR. MILLER: Yes.
MR. REINSCH: According to, what, The New York Post, bigger than the Ten Commandments. (Laughter.)
MR. SCHWARTZ: It’s bigger than –
MR. REINSCH: Bigger than the end of World War II.
MR. SCHWARTZ: So is this s big deal or not?
MR. REINSCH: Well, I mean –
MR. MILLER: It’s a very, very big deal.
MR. REINSCH: – the Post – the New York Post said so, so it must be.
MR. SCHWARTZ: It must be true. If The New York Post said it, it must be true.
MR. MILLER: Well, there are a couple things that are a big deal about this. North America has functioned very efficiently as a – as a place to make things for 25 years or so with a NAFTA, and traders can now breathe a sigh of relief because NAFTA is no longer a zombie. There is – there is a clear – there is at least a path to a new agreement and we’ve stopped saying we’re going to tear it up. So having a deal is actually of substantial value in the real world.
MR. SCHWARTZ: It’s a lot better than a zombie NAFTA, as you said.
MR. REINSCH: It, net, I think is positive. But I have to say it also shows you how low the bar has gotten. You know, when we used to evaluate trade agreements, it was, are they trade-creating? Are they trade-promoting? For the business community on this one, it’s, you know, did they make anything worse? You know, do no harm is the new standard of success. This one doesn’t do a lot of harm, so I think it’s good.
MR. MILLER: It actually does a few good things. I –
MR. REINSCH: It does, no question.
MR. MILLER: It does modernize what was the NAFTA. It has a chapter on digital trade. It has a chapter on state-owned enterprises. It has real chapters on labor and the environment, which NAFTA never did.
MR. REINSCH: Financial services is strong, strengthened.
MR. MILLER: Financial services, currency, intellectual property. They’ve fleshed out the agreement, which sort of modernized it.
And there is new market access, to Bill’s point. Canadian financial services are now open to Americans, so that’s positive. Mexican energy services are open to Americans, which is positive.
MR. REINSCH: I think that was there before, wasn’t it?
MR. MILLER: It was in the U.S.-Mexico, but there was never a services – specific services commitment –
MR. REINSCH: Oh, OK.
MR. MILLER: – on Mexican energy because, at the time of the original NAFTA, there was a constitutional ban on foreign investment in the energy sector in Mexico. That constitutional ban has been lifted. There’s still a national holiday for the day they expropriated the oil industry in Mexico, but it’s at least now open to investment.
MR. SCHWARTZ: So is this a huge renovation of NAFTA, or did they just tweak the edges? I know it’s 1,100 pages.
MR. REINSCH: Well, it’s – I think it’s a significant upgrade, and “upgrade” is the word I’ve been using, for the reasons – the sections Scott cited. A lot of these things weren’t issues in 1994. We didn’t have a lot of digital trade. And so it’s an improvement. It’s an upgrade. And I think that’s all good. The market access gains are also good.
The other thing that’s good – this gets back to my do no harm low bar – you know, when we talked about this initially, we talked about the upgrade parts and the poison-pill parts, the things the U.S. wanted to do that made no sense at all. And the upgrades all, for the most part, went through, and that’s all good. And a lot of the poison pills didn’t, which is also good.
MR. MILLER: Yes.
MR. REINSCH: You know, the state-to-state dispute settlement is still there. The –
MR. MILLER: Well, government procurement, which – the U.S. initial demands on government procurement were really onerous and basically bad for Canada and Mexico. Wound up somehow vanishing. It’s now pretty much –
MR. REINSCH: Well, it vanished for Canada.
MR. MILLER: Vanished for Canada.
MR. REINSCH: It didn’t actually vanish for Mexico.
MR. MILLER: Not for Mexico. But pretty much the same government procurement relations.
The movement of persons is still there. The sunset clause was modified to the point that it’s sort of harmless. So there’s – some of the –
MR. SCHWARTZ: Well, tell me about the sunset clause. Doesn’t this need to be renewed every six years now?
MR. MILLER: Every 16.
MR. SCHWARTZ: Sixteen.
MR. MILLER: And they start talking about it at five or six. So –
MR. SCHWARTZ: Six.
MR. MILLER: Six. At six.
MR. REINSCH: Yeah. Deliberately and conveniently, and I think brilliantly for the Mexicans, the first review is not till three months after Trump leaves office even if he’s reelected.
MR. SCHWARTZ: OK.
MR. REINSCH: You know, the first six years is going to be, in all likelihood, March 2025.
MR. MILLER: Right.
MR. REINSCH: So it’s going to be – it’s going to be dealt with in the next administration, whatever that is.
MR. SCHWARTZ: Well, President Trump, as he told Congress in his note on official White House letterhead, he said, quote, “The trade deal” – he wrote to them, quote, “The trade deal, USMCA, has received fantastic reviews. It will go down as one of the best ever made. It will also benefit Canada and Mexico.” Will it?
MR. REINSCH: (Laughs.) Makes it sound like an afterthought.
MR. SCHWARTZ: It sounds like a movie trailer. You know, by the way, I’m not sold on the USMCA thing. It kind of like conjures mucus to me, M-C – you know, I don’t get it. I like NAFTA.
MR. MILLER: The president will never say NAFTA again.
MR. SCHWARTZ: He won’t. That’s right.
MR. MILLER: NAFTA is bad and it’s been rejected.
MR. SCHWARTZ: Well, will we be calling it the new NAFTA, the zombie NAFTA, the – we’re going to be calling it the USMCA?
MR. REINSCH: No, apparently – The Washington Post actually did an article on that exact – on that issue, and they had a little chart of all the trade agreements and how many syllables they had. And most of them have two, and this one is near the top. There are two that have six – (laughter) – the Pacific Alliance and another one. This is a five-syllable agreement.
And then they took it step farther and they talked to associations that have the same letters, the – you know, United Mining Construction Association or something.
MR. MILLER: Oh, interesting.
MR. REINSCH: And they said, well, what – how do you say it? (Laughs.) And they all say the letters. It’s U-S-M-C-A is what the – nobody – there’s no pronunciation of it.
MR. SCHWARTZ: I think, Scott, we need to hire the Village People for the jingle.
MR. MILLER: I see no other way.
MR. SCHWARTZ: Meanwhile, the Canadians were saying up until last week – and, in fact, Bill, you sent me a great article where one Canadian was saying they should, quote, “take the money and run” – Steve Miller – and they were also wondering, should they stay or should they go, from The Clash. I mean –
MR. REINSCH: I knew you were going to work those in. That’s why I sent them to you.
MR. SCHWARTZ: I love that.
MR. MILLER: That’s awesome.
MR. SCHWARTZ: It was brilliant. I thank you for that. Your country thanks you for that. Music fans everywhere thank you for that. What about it? I mean, Canada was pretty much ready to bolt.
MR. REINSCH: Well, I was going to – if we had done this a week ago, before this happened, I was going to sit here and grovel to Scott and say that he was right in his criticism of the Canadian handling of this. But now it’s this week and I’m expecting Scott to grovel to me –
MR. MILLER: And the roles are reversed, and I –
MR. REINSCH: – and say that I was right all along.
MR. MILLER: I bow to Bill’s superior judgment, who said the agreement will be finished on the 29th or the 30th, and it was. They may have gone into extra hours, into sort of the 33rd hour of September 30th, but Canada waited to close till the very last minute, but they closed, which was – which was different than my expectation. I actually, honestly, up until the very end, thought that they were going to play for the spring 2019, presuming a failure with Congress on a U.S.-Mexico bilateral. But they decided to sign the deal.
MR. SCHWARTZ: So are there winners and losers in this? I mean, President Trump said – he actually, in his communication to Congress this morning, he quoted an article that said Prime Minister Trudeau, his political rivals say he capitulated to the United States.
MR. REINSCH: Well, of course they do. That’s what they do in Canada, you know, and that’s what we do here. I mean, you’re not going to find a lot of Democrats that say, you know, this is the greatest thing to happen since the Ten Commandments, and of course the other parties in Canada said he capitulated.
If you look at what their priorities were, I would say they did pretty well. They wanted to –
MR. SCHWARTZ: “They,” Canada.
MR. REINSCH: “They,” Canada.
MR. MILLER: “They,” Canada, yes.
MR. REINSCH: They wanted to save what’s called Chapter 19, the tribunal to review our trade law decisions. That was one of their top objectives. Now, Scott made the point the last time we talked that that is not a particularly good objective, but that’s what they wanted.
MR. MILLER: That’s their objective, yeah.
MR. REINSCH: And within the terms of their priorities, they got number one.
MR. MILLER: Yes.
MR. REINSCH: And they got a number of other things that were important to them.
MR. MILLER: They kept –
MR. SCHWARTZ: So that’s a win for them.
MR. REINSCH: That’s a win for them.
MR. MILLER: They got a – they gave us a little bit of dairy, like a half of one percent.
MR. SCHWARTZ: Half a gallon.
MR. REINSCH: Much less than Trudeau’s opponent were saying.
MR. MILLER: Much less than Trudeau’s opponents were saying. So they protected dairy to the extent politically they needed to. And overall, it looks like they came away without the car industry being savaged because they weren’t part of the agreement.
MR. REINSCH: There was one analyst today that said essentially what has ended up on dairy is the Canadians are going to give 18 percent of their dairy market to the foreigners – not just us, but to all foreigners. So that means, what, 82 percent is domestic. I don’t think that’s a terrible deal for Canadians, you know?
MR. MILLER: Yeah, there will probably be some complaining, but it seemed like – it seemed like a decent outcome given the demands of the president and U.S. negotiators.
Now, there are some things here that are – that are, like the Mexico-U.S. agreement, quite Trumpian. The automotive rules of origin –
MR. SCHWARTZ: I was going to ask you about the auto rules of origin.
MR. MILLER: We are – we are fully into managed trade in automobiles. The agreement now creates very strong preferences for U.S. production –
MR. SCHWARTZ: U.S. content.
MR. MILLER: – U.S. content and high-wage content, OK? The wage provisions were in the U.S.-Mexico agreement, so we know about them. But the 75 percent content rule to get qualified for the preference, plus there are specific content rules on American steel. And so the auto industry now –
MR. REINSCH: And aluminum. Don’t forget aluminum.
MR. MILLER: Aluminum. And aluminum.
So they’re very detailed rules. They’re going to be difficult to both calculate and manage to be able to qualify for the preference. But my guess is, look, the automobile industry has been very heavily regulated for many, many years, at least since the energy crisis of 1973. They’ve dealt with fuel efficiency and safety regulations that are quite onerous and they’ve managed to survive. I think the industry is accustomed to it. This is one more set of regulations that they’ll evaluate. They’ll probably negotiate the rulemaking and they’ll comply where they can, or they will basically import on MFN where they can’t.
MR. SCHWARTZ: And President Trump loves this because this is a win for him. He can say he’s keeping jobs in America. The question I have is, is this going to drive some producers out of America?
MR. MILLER: Well, that’s what the car industry’s – the automotive industry’s think tank said it would. Now, we haven’t seen a report. Their report goes back to last April, but they said based on what you’re demanding this is going to – this is going to make U.S. cars more expensive for Americans, it is going to make U.S. autos less competitive on an export basis, and it’s going to have – some producers who now make in North America are going to make wherever it’s best and just import the cars and not bother with the NAFTA preference. So that was the conclusion the Center for Automotive Research published last April and informed the government. It appears that’s going to be the case. We’ll see how it plays out.
Look, I think the Detroit Three are probably better able to comply than companies who make autos who are headquartered elsewhere, only because of the R&D contribution that can go into the content rule, which they do their R&D here; Japanese and German companies do their – do their R&D at headquarters.
MR. REINSCH: Yeah, the American companies have made positive – cautiously positive statements about it. They called it workable, which I guess is positive. The foreign companies individually have not yet said anything, and their association representative has said basically what – the danger is what Scott said. It’s going to take a while for us to figure this out.
One of the things I learned when I was looking at this in the spring was that everybody’s supply chain is different and they’re constructed differently, and it’s going to take them a while for them to work their way through the supply chain and figure out –
MR. MILLER: And that’s company by company, not just industry to industry.
MR. REINSCH: Yeah. Everybody’s different, even – amongst the Japanese companies they have different amounts of content. I mean, some of them have very high – already have very high percentages of American content. Some of them are minimal. They’re all going to be affected by this. Everybody’s going to have to look at it and see if some adjustments are made or need to be made. I think it’ll be, you know, probably more than a year before the situation clarifies.
I think some will do what they’ve predicted they will do, which is decide to forget all this and simply treat their car as a non-NAFTA car, a non-USMCA car, and pay –
MR. MILLER: Yeah, that does not qualify for the preference. Right.
MR. REINSCH: And does not qualify, and then pay the 2 ½ percent tariff, because it will be cheaper than the compliance costs of what they’re going to be put through.
Now, when you – when we talked about going back to – going to managed trade, which is what you described, a good example of that is in these side letters in this agreement, because what the – what the Trump administration anticipated was some companies might do that. You know, they could just go ahead and make unqualified cars, pay the tariff. So we have side letters that says if that happens we can impose tariffs and quotas beyond a certain level.
Now, what the Canadians and the Mexicans negotiated was a level that is much higher than current production, so nothing is going to happen in the short run. Ten years from now, depending on how things play out, this might be a significant constraint on trade.
MR. MILLER: And it’s something that’s consistent with what the administration did with the renegotiation of the Korea agreement. There are – there are also quantitative restrictions in the Korea agreement. In this case they lifted the number of U.S. autos which can be imported to Korea without meeting specific Korean safety standards. No one was actually bumping up against that import target anyway, but they raised it. But another – it’s a quantitative measure. So it looks to me like that’s one of their preferences. One of the things the administration really likes are the quotas, the quantitative measures.
MR. SCHWARTZ: OK. So how is this agreement – the USMCA – going to affect us, the unwashed masses who love Steve Miller Band? How is it going to affect everyday Americans?
MR. REINSCH: I’m tempted to say it’s going to make – for the unwashed, it’s going to make soap more expensive. (Laughter.) But I’m inclined to think maybe not.
To the extent that we engage in managed trade, I mean, when we did a live podcast, the last question was sort of on this kind of thing. And, you know, in theory what happens now is companies construct supply chains to get the best quality at the lowest price with the most reliable delivery. What an agreement like this does in selected sectors, with autos being the most obvious, is inject essentially political criteria into that equation. They inject tariffs or rules that say you don’t – you can’t look for the best quality, lowest price; you have to look for the best quality, lowest price within these new constraints, which is a tariff or a content rule. That means, inevitably, you’re going to be doing something that is less efficient than what you’ve got now, and in the end the consumer pays.
Now, for T-shirts, the consumer probably won’t notice. For a car, the one estimate that came out is it’s going to – what these rules will do, it’ll increase the price of a car somewhere between $300 and $2,000. Now, that probably varies by whether it’s a Cadillac or, you know, something small and cheap, but –
MR. MILLER: Chevy Cruze, whatever. Yeah, small car.
MR. REINSCH: But consumers might notice that.
MR. MILLER: Yeah. And so –
MR. SCHWARTZ: What else will they notice?
MR. MILLER: Well, you got to think about this in the broad scope of the U.S. economy and the North American economy. What the old NAFTA was and what the new agreement is is a set of production rules, OK? So what you do with these agreements, what we all do, is we make things together, and we sell them to each other and the rest of the world, OK?
Where the rules are little changed, nothing is really going to change. Very few changes, for instance, in the chemical sector. Trading chemicals was already free. The chemical sector had organized itself in customers and suppliers across North America, and that commerce will go on. They’re making things efficiently. We’re selling them to each other. We’re exporting.
MR. REINSCH: There’s some paperwork simplification there, actually.
MR. MILLER: Yeah, so it does get a little better in terms of paperwork, so that’s good.
In things like textiles and apparel and autos, there are new rules, and the industries that are affected will have to cope with those rules in some way. Overall, probably products get a little more expensive. It’ll be disrupted for a while.
But by and large, look, this is a big economy with a lot of – with a lot of relationships with both Canada and Mexico. Keep in mind Canada has long been our number-one trading partner; Mexico is our number-three trading partner. We do stuff together. We’ll continue to do that.
MR. SCHWARTZ: President Trump has said that this proves his theory that tariffs work, that tariffs are a good idea. What do you guys think about that?
MR. REINSCH: Yeah, I’ve been wrestling with that. I think it may have helped get them to the table, although we started the NAFTA negotiation well before he started threatening auto tariffs in any case. It may have helped get them to the table. I think in the end it didn’t – it didn’t materially affect the outcome. I think the parties got together and they – actually, it’s a fairly – I mean, it’s a managed-trade product, which is new, but in negotiating terms it’s a fairly conventional outcome. They produced a win-win outcome. All three of them got something, and they gave something up.
MR. MILLER: And I would note that the Section 232 tariffs on aluminum and steel placed on Mexico and Canada are still in place.
MR. SCHWARTZ: They’re still in place?
MR. MILLER: They were not removed. So if tariffs were so important in getting people to the table, why not lift them when you have an agreement? Well, they haven’t done that. So I think there’s probably other things going on.
For me, what was different about this negotiation versus previous ones is the personal interest and the attention that the president paid to it. He was essentially the chief negotiator for the United States.
MR. SCHWARTZ: Yeah, it laid a focus on it.
MR. MILLER: Which is – which is quite unusual. And I can’t recall a time when a president of the United States did not delegate this to some professional in USTR or before that the State Department.
MR. SCHWARTZ: Well, something tells me we’re going to be hearing from the negotiator in chief about what a great deal this is for many years to come.
MR. MILLER: It wouldn’t surprise me.
MR. REINSCH: When I talked to Ambassador Schwab about her experience in negotiating the Doha Round, she said – and I think she said this publicly, so I’ll go ahead and say it – is that when she first met with President Bush his instructions to her were: Get the best deal you can. And that was is.
MR. MILLER: Yeah. That was all.
MR. REINSCH: And he left it to the professionals to do that. And President Trump doesn’t do it that way.
MR. SCHWARTZ: Not at all.
MR. MILLER: And so I think what happened – what happened – we talked about the sequencing of Canada versus Mexico. I think Mexico actually figured that out quickly. They were under more political pressure to seal the deal.
MR. SCHWARTZ: They jumped in quick.
MR. MILLER: But they also personalized it. They went to a very high level. They developed a very high-context negotiating strategy. But 45 meetings between the Mexican commerce secretary and Bob Lighthizer, 10 meetings with Jared Kushner and the Mexican commerce minister. They did not allow the worker bees to spend too much time in their usual manner. They escalated it and they personalized it. I think that’s why they got there faster. And Canada, for whatever reasons, used their – what appeared to be their conventional negotiating approach. At the end, they escalated when they needed to. They got the deal. So it all worked.
MR. SCHWARTZ: OK. So what happens next? What has to happen for the USMCA to be enacted, to be implemented?
MR. REINSCH: Well, this week’s debate is whether the Republicans are going to try to jam it through before the end of the year, or whether they’re going to play according to the rules. You know, what Congress did when it basically gave tariff negotiating authority, among other things, to the president in 1934 was to create a process in which Congress maintained control of both ends and the executive branch got the middle. Congress said: You can negotiate pursuant to authority we give you and pursuant to guidance that we give you. Then you go off and do it, and then we get to approve the result. So Congress controls both ends, the administration controls the middle.
The middle is now coming to an end. The agreement will be signed. The trade promotion authority bill of 2015 sets up – and it’s really a repeat of old rules – very specific rules about what has to happen. That’s why this weekend had a deadline. You know, they had to deliver a text 30 days after they announced the conclusion of the negotiations. That was Sunday. So now they’ve got 60 more days before they can sign. Then under the way –
MR. MILLER: That would be December 1st – or, November 30th.
MR. REINSCH: November 30th, I would think.
MR. MILLER: November 30th, yeah.
MR. REINSCH: And then what’s supposed to happen is – among other things – is that the International Trade Commission is supposed to have 105 days to analyze the economic impact of what was negotiated. The administration also has to develop what’s called a statement of administration – administrative action, which is a list of all the things – the regulatory things the administration is going to do that don’t require legislation. They also had to produce a document that talks about all the changes in law that will be required – in U.S. law – that will be required as a result of this agreement. They have to submit all this stuff to the Congress at various points along the way.
If the follow the rules, if they take the maximum amount of time, the earliest the Congress could get this would be, ironically, the Ides of March, because that – March 15th – or 14th I think is the 105th day.
MR. SCHWARTZ: And it could be a very different Congress during the Ides of March.
MR. REINSCH: Yes.
MR. MILLER: Yes.
MR. REINSCH: The rumor this week is – there are some Republicans suggesting, if we lose the election – so if control is going to change, which would be January 3rd – we need to rush to pass this before that. That would mean, basically, we ignore the ITC study. We don’t wait for it to be finished. It’s hard for me to imagine they’re going to finish it early. And we truncate all the other processes that are going on. The congressional process is framed with sort of outer limits, not inner limits. You can’t take more than – Ways and Means can’t take more than 45 days. The floor can’t take more than 15. They can take less. So the issue is, can you do that?
If you ride roughshod over all this process, a lot of members of Congress – I think in both parties – will say: This is a process foul. You know, you’re stepping on our prerogatives. Article 1 Section 8 of the Constitution says we get to do this stuff. And you’re trying to jam us. And –
MR. SCHWARTZ: Yeah, and there’s even some Republicans who are going to take issue with that.
MR. REINSCH: Those that are, I think, sensitive to the prerogatives of the institution will do that. They may try to jam it anyway. And then you get into a – really a – I’ve spent some time trying to figure this out. It’s very hard for me to see how they – even if they do that, they can get it done. You can’t submit it before it’s signed, I mean, logically.
MR. MILLER: Right. So that takes all the time between the election and November 30th.
MR. REINSCH: So – right. So they send it up. Let’s say they decide to ignore all the rules. They send it up December 1st or 2nd. Normally what would happen, Ways and Means probably would want to have a hearing to make it at least look like they’re thinking about it. There can be no amendments. I mean, that’s one of the rules. So it doesn’t take very long to actually vote on it. Say they pass it – they vote on it the first week. Normal House rules, it lays over three days before it goes to the full House. That is a rule that could be waived by the Rules Committee in a vote of the House if they want to do that. I mean, you know, if they want to exercise their majority, they can really ride roughshod over all of this. But, you know, normal scenario, the House could get it the week of December 10th. So the House has a day or so debate. They pass it. The Senate Finance Committee, where it goes next, they could have been doing their work while the House was doing its world.
MR. MILLER: In parallel.
MR. REINSCH: In parallel. So you’ve got a question for the Senate – the full Senate. When do they get it? Maybe they get it the week of the 17th. Remember, the rules – the Senate has 15 days – those are days of congressional session. Those are not days of calendar. So when they’re out of session – like Christmas Day, New Year’s Day, Sunday – doesn’t count. I think if you have a determined minority that’s against it, they could time it out, basically, and could talk through – the 15 days would take them past January 3rd – if they were really determined to do that. Now, they may just decide to pass it, you know?
MR. MILLER: Could be. Who knows? A lot of bizarre things happen. But lame duck sessions – which is what the session between the election and the seating of a new congress is called – it has a funny name for a reason. And that is, lame ducks are notoriously difficult to manage and unpredictable, because you have so many members who have no accountability to the voters.
MR. REINSCH: Because they’ll be retiring or defeated.
MR. MILLER: The retiring ones don’t care, and the ones who were defeated have anger issues. (Laughter.)
MR. SCHWARTZ: (Laughs.) Yeah, the definitely do. To put it mildly.
MR. MILLER: OK? (Laughs.) And so it’s extraordinarily difficult to manage almost any legislation. It’s happened before. The bills passed after Pearl Harbor went through a lame duck session. So it does happen. But unless – outside of national emergencies, it’s hard for me to see this having any realistic chance.
MR. REINSCH: If – historically if control changes, the party that is coming in –
MR. MILLER: Wants to stop everything.
MR. REINSCH: They almost always say: Don’t do anything.
MR. MILLER: We’ll take care of it.
MR. REINSCH: We’ll take care of it when we take over. Now, in the House, which is a situation where the majority really does rule, they can trump all that – no pun intended.
MR. SCHWARTZ: So to speak.
MR. REINSCH: Yes. In the Senate it’s harder.
MR. MILLER: Yeah.
MR. REINSCH: You know, the ability of an individual senator, even under these procedures, to gum up the works and slow things down is significant.
MR. SCHWARTZ: Well, and you have – you do have members of the Senate, like Pat Toomey, a Republican from Pennsylvania, who are not convinced that this deal is exactly where he wants it to be.
MR. REINSCH: Right.
MR. MILLER: Sure. So this is all presuming there are 218 Republican House members who want to take action. I doubt that premise entirely.
MR. REINSCH: I can guarantee you, if they try to jam it through, there will not be a single Democrat voting for it.
MR. MILLER: Correct.
MR. REINSCH: Right.
MR. SCHWARTZ: Although – and if they don’t try to jam it through, I think they’ve got a shot at a decent number of Democratic votes. But not if they make it – if they turn it into a process fight, it’ll be partisan. And then they’re going to have – Scott said – is right. They’ll have to come up with 218 Republicans.
MR. SCHWARTZ: OK, so this administration’s not exactly known for its light touch. It’s not exactly – (laughter) – so what do they do next?
MR. REINSCH: The understatement of the program.
MR. SCHWARTZ: Yeah. What do they do next? Do they try to finesse this and try to work this in Congress as past administrations have done? Or are they just going to turn their attention to China now and say: This is a done deal. You guys get this done or else. And –
MR. MILLER: No, I think there’s a third alternative.
MR. SCHWARTZ: OK.
MR. MILLER: Which is, their theory – I think the administration’s operating theory is we can push this through. We can make this happen. This is the president’s priority. He can do it. Doesn’t really matter who’s in Congress. And so I think they fully intend to jam the Congress. Now, nobody’s ever done it this way before – for good reason. But I think that’s a viable alternative versus – you know, I mean, the – in some ways, the previous administration signed TPP and then kind of got focused on other things, OK? Most administrations work carefully with the Congress. There is that third alterative of we’ll just jam it.
MR. REINSCH: If the Republicans maintain control, then it sort of doesn’t matter. You know, you don’t have to jam it because the same people will be in charge next year and you can follow the rules and save yourself a nasty argument. It’s only if the Republicans lose control that this becomes an issue. So I think between now and November 6th, what you’re going to have is a lot of salesmanship. The president will continue to talk about how wonderful this is. I think Lighthizer will be up there briefing the committees, and not just Ways and Means and Finance. You have to brief the Agriculture Committee, you know, the committees that care about IP –
MR. MILLER: Financial services.
MR. REINSCH: The Financial Services Committee.
MR. MILLER: Judiciary, yeah.
MR. REINSCH: All these – there’s going to be a sales job.
MR. MILLER: Yeah.
MR. REINSCH: Which is part of the process. I mean, it’s called consultation, but it’s salesmanship. That’s going to go on anyway through the election, and no one has to firmly decide – plus, the House is out. So they don’t really have to decide what they’re going to do until they see the election results, because it’s still not going to be signed for three weeks after the election.
MR. MILLER: Correct.
MR. REINSCH: Now, if the election goes in favor of the Democrat, then they have a decision to make. And if they make a decision to jam everybody, then there’s an awful lot of preparatory work that has to be done to do that.
MR. SCHWARTZ: Well, and if they make a decision to jam this up, are there consequences for the Democrats?
MR. REINSCH: Well, I – first thing I was going to say is I think there’s consequences down the line for Trump. He may get this one through, but he’ll probably never get another one through.
MR. SCHWARTZ: Why is that?
MR. REINSCH: Because the Democrats will be – if they control – continue to control the body, they’ll be so bitter about the way this one was handled they’ll say: We’re never going to do another one of those. This has happened before. You know, this would have happened – I mean, they’re still bitter about Merrick Garland and the Supreme Court and the way that was handled.
MR. MILLER: Well, and specific to trade, there was a great distaste for the U.S.-Colombia Free Trade Agreement when George W. Bush was president and Mrs. Pelosi was speaker of the House. And in that case, the consultation when on and the Bush administration decided to send the implementing bill to the Congress to start the TPA clock. And Mrs. Pelosi went to the Rules Committee, as speakers do, and stops the clock. Probably her most popular day as speaker in some ways. But basically it dispensed – it basically – it exposed the fact that trade promotion authority is simply a set a House and Senate rules that are subject to change by the House and Senate.
MR. REINSCH: By each body individually.
MR. MILLER: Yes.
MR. REINSCH: I mean, one of the intriguing anomalies to me is if there were going to be an issue about has the president followed the proper procedure, and should this agreement be given the fast-track process that TPA provides, it’s entirely possible that the House could say yes and the Senate could say no, or vice versa.
MR. SCHWARTZ: Then what happens? What happens –
MR. MILLER: What if the answer is no?
MR. REINSCH: No? It depends.
MR. MILLER: It depends. You’re right.
MR. REINSCH: If the Senate says yes and the House says no, it won’t make any difference because the House Rules Committee will prevent any amendments anyway. But in each case, it’s an exercise in their own rulemaking. Nobody makes Senate rules except the Senate. Nobody makes House rules except the House. So if the House decides, in its wisdom – and it will probably require a vote – this doesn’t qualify for the special procedures, that’s the end of that. You know, you don’t go to court. The Senate doesn’t have anything to say about it.
MR. MILLER: And, you know, one example from 2008, the stopped clock on the bill in the House had no effect, ultimately, in the Senate when the legislation was sent again in the next Congress, or two Congresses on in this case.
MR. SCHWARTZ: So what’s likely to happen next? Are they going to just – they’re going to go out to the Hill, they’re going to try to massage this –
MR. MILLER: Well, we got five weeks for a victory lap here. They’re going to be allowed to talk about how great this is between now and the election.
MR. SCHWARTZ: What about China now? Are they going to turn their attention directly to China? Are they going to start beating up China over this? Or, what’s going to happen there with them?
MR. REINSCH: That’s the expectation. I don’t think it’s that simple, I mean, just in terms of – I mean, these guys can walk and chew gum at the same time. But look at the task they’ve set up. They’ve got the salesmanship job that we just described. They’ve initiated discussions with Japan. They’ve initiated discussions with Europe. In both of those two cases they’re talking about an early harvest. We’re not sure what that means, but what it does mean in terms of timing is producing something in November. I don’t know that they’ll succeed. But they’ve got a big plate of other stuff. Now, a lot of people say, oh, now they can concentrate on China fulltime. I don’t think they can concentrate on China fulltime.
MR. SCHWARTZ: Well, there’s also – there’s also – within this agreement, there’s something called the loyalty oath that’s nestled in there.
MR. REINSCH: Ah, yes.
MR. SCHWARTZ: Explain how that affects China.
MR. REINSCH: Do you want to do that?
MR. MILLER: Well, there’s a provision which basically practically prevents any of the three parties to the USMCA from making a preferential agreement with a non-market economy. And it’s – the way that language is written, it’s basically – it’s an anti-China clause, basically. If Canada or – in this case, Canada or Mexico were to make a preferential agreement with China, they would basically be kicked out of USMCA.
MR. SCHWARTZ: So it definitely makes it more difficult for others to sign a free trade agreement with China.
MR. MILLER: Well, it makes it – Canada and Mexico. Now, keep in mind, this was not included in the rewrite of the KORUS agreement – this is the U.S.-South Korea agreement. And who knows what happens with the next agreement, whether it’s with the Philippines –
MR. REINSCH: There’s expectation that they’ll try to put this in subsequent agreements, which would be a bigger deal than just Canada and Mexico.
MR. MILLER: Right. And maybe Canada and Mexico didn’t really care about it. I think Canada might.
MR. REINSCH: Canada cared.
MR. SCHWARTZ: Yeah, I was going to say, how could they not care about it?
MR. MILLER: Well, post-Brexit, think about a U.K.-U.S. agreement, and the U.K. would probably have sovereignty issues with this.
MR. REINSCH: Mexico didn’t care because they have a big deficit with China too and they don’t have any intention of having a free trade agreement. It’s more complicated for Canada because the Chinese have approached them about having free trade negotiations and they’ve had some preliminary discussions. That’s not particularly popular in Canada. And my personal view is that this particular clause probably saved them from themselves and got the Trudeau government off the hook. Now they can tell the Chinese, well, we can’t do that.
MR. SCHWARTZ: Ah.
MR. REINSCH: But it was I think – they did not want to agree to it. And one of the things that we were talking about –
MR. SCHWARTZ: This gives us control.
MR. REINSCH: Well, I can’t – yeah, I don’t believe that, because, you know, you can always withdraw from an agreement – this agreement for any reason. It does answer a mystery that we were talking about a couple weeks ago. Some Canadians said, you know, back when things – it looked like things were falling apart, said: You know, if you think diary’s the problem, you’re wrong. The real big problems are these other four. And he mentioned the Chapter 19 issue that we’ve discussed. And then he mentioned non-market economies. And nobody knew what that mean.
MR. MILLER: We couldn’t figure out what he was talking about.
MR. SCHWARTZ: This is what he was talking about.
MR. REINSCH: This is what it was. This is what it was. And nobody – I guess none of the advisory groups knew about this.
MR. MILLER: As I said, to my knowledge, the advisory committees, the proposal was discussed but text was never shared. So this was kind of new to everybody.
I think Bill’s point is the right one. This is – this is in some ways kind of superfluous because a party can always withdraw from a trade agreement. That was true in the NAFTA. It’s true in the USMCA.
MR. SCHWARTZ: Yeah, but like Bill’s always – often pointed out, it’s not so easy to turn the switch on and off either.
MR. MILLER: Oh, no.
MR. REINSCH: Well, that’s what we’re going to see. I mean, that’s a supply chain issue. But I also like your comment about – you should have gone on and said Bill is always right and left it at that.
MR. SCHWARTZ: Well, yeah. And I also – I thought of another musical thing here. (Laughter.) So, you know, Lynyrd – (laughter) –
MR. REINSCH: Lynyrd Skynyrd?
MR. SCHWARTZ: Lynyrd Skynyrd had a song called “Working For the MCA.” Maybe they can, you know, work this into working for the USMCA? I don’t know. It’s a stretch.
MR. MILLER: Well, there’s a great Canadian artist who did a lot of recording in the U.S., probably sold a few records in Mexico: Leonard Cohen.
MR. SCHWARTZ: Neil Young.
MR. MILLER: Leonard Cohen might be the guy.
MR. SCHWARTZ: Oh, Leonard Cohen.
MR. MILLER: Leonard Cohen was Canadian, right?
MR. SCHWARTZ: Yeah. Leonard Cohen’s not with us anymore.
MR. MILLER: I know he’s not with us. But in his memory.
MR. SCHWARTZ: In his memory.
MR. REINSCH: So we should be singing “Hallelujah.” Is that what you’re saying?
MR. SCHWARTZ: It’s a beautiful rendition, isn’t it?
MR. REINSCH: It is.
MR. SCHWARTZ: It’s a great –
MR. REINSCH: I’m not sure it’s the song I would use to celebrate this agreement, but maybe just the fact that it’s over is – we can say hallelujah.
MR. MILLER: That’s what traders are saying.
MR. SCHWARTZ: President Trump seems pretty happy today.
MR. REINSCH: Well, yes. Actually, the business community –
MR. SCHWARTZ: He’s saying hallelujah.
MR. MILLER: The business community is happy.
MR. REINSCH: They’re happy. They’re happy –
MR. SCHWARTZ: The stock market’s happy.
MR. REINSCH: They’re happy to get it over with.
MR. MILLER: Right.
MR. REINSCH: And they’re happy that nothing really, really, really terrible happened.
MR. SCHWARTZ: Yeah.
MR. MILLER: That’s a good-news story.
MR. REINSCH: So, you know, but it also shows you how low the bar has gotten.
MR. SCHWARTZ: You know what? I’m happy nothing really terrible happened too.
MR. REINSCH: There’s still time on other agreements, you know. (Laughter.)
MR. MILLER: Be patient. We have future episodes for that.
MR. SCHWARTZ: Yes.
MR. SCHWARTZ: To our listeners, if you have a question for The Trade Guys, write us at TradeGuys@CSIS.org. That’s TradeGuys@CSIS.org. We’ll read some of your emails and have The Trade Guys react to it. Thank you, Trade Guys.
MR. MILLER: Thanks, Andrew.
MR. REINSCH: Thank you.
MR. SCHWARTZ: You’ve been listening to The Trade Guys, a CSIS podcast.