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U.S. House passes trade deal replacing NAFTA, but concerns remain in Canada

David Lawder, Reuters
December 19, 2019

WASHINGTON — The U.S. House of Representatives on Thursday overwhelmingly approved a new North American trade deal that includes tougher labour and automotive content rules but leaves $1.2 trillion (all figures USD) in annual U.S.-Mexico-Canada trade flows largely unchanged.

The House passed legislation to implement the U.S.-Mexico Canada Agreement by a vote of 385-41, with 38 Democrats, two Republicans and one independent member voting no.

The bipartisan vote contrasted sharply with Wednesday night’s Democrat-only vote to impeach U.S. President Donald Trump.

The House vote sends the measure to the Senate, but it is unclear when the Republican-controlled chamber will take it up. Senate Republican leader Mitch McConnell has said that consideration of the measure would likely follow an impeachment trial in the Senate, expected in January.

The USMCA trade pact, first agreed upon in September 2018, will replace the 1994 North American Free Trade Agreement. Trump vowed for years to quit or renegotiate NAFTA, which he blames for the loss of millions of U.S. factory jobs to low-wage Mexico.

House Speaker Nancy Pelosi gave USMCA a green light last week after striking a deal with the Trump administration, Canada and Mexico to strengthen labour enforcement provisions and eliminate some drug patent protections.

U.S. industry groups breathed a sigh of relief at the vote.

“House passage of the USMCA is a huge step toward finalizing this long-awaited 21st century trade agreement,” said Matt Blunt, president of the American Automotive Policy Council, which represents Detroit automakers Ford Motor Co., General Motors and Fiat Chrysler Automobiles.

“This modernized trade deal between our North American trading partners will strengthen the U.S. auto industry and the auto manufacturing supply chain,” Blunt added.

AUTOS, DIGITAL, CURRENCY

The new agreement modernizes NAFTA, adding language that preserves the U.S. model for internet, digital services and e-commerce development, industries that did not exist when NAFTA was being negotiated in the early 1990s. It eliminates some food safety barriers to U.S. farm products and contains language prohibiting currency manipulation for the first time in a trade agreement.

But the biggest changes require increased North American content in cars and trucks built in the region, to 75 per cent from 62.5 per cent in NAFTA, with new mandates to use North American steel and aluminum.

In addition, 40 per cent to 45 per cent of vehicle content must come from high-wage areas paying more than $16 an hour – namely the United States and Canada. Some vehicles assembled in Mexico mainly with components from Mexico and outside the region may not qualify for U.S. tariff-free access.

The U.S. Congressional Budget Office estimated earlier this week that automakers will pay nearly $3 billion more in tariffs over the next decade for cars and parts that will not meet the higher regional content rules.

In a statement, General Motors encouraged swift passage of the deal in the Senate.

“We view the agreement as vital to the success of the North American auto industry and have long supported efforts to modernize it in a way that strengthens the industry and positions it to be a global leader,” the automaker said in the statement.

CONCERNS IN CANADA

Canada’s aluminum sector is upset with the revisions, which saw Mexico agree to a tighter definition on what constitutes North American steel but not aluminum. Bloc Quebecois Leader Yves-Francois Blanchet warned that his party will not support the deal if Canada’s aluminum industry is not protected, describing the industry in French as “not only important in Quebec, it is emblematic of Quebec.”

NDP trade critic Daniel Blaikie said his party was eager to see more details on the amendments before making any firm decisions on whether to support the deal, including the provisions on aluminum and intellectual-property rules for pharmaceuticals.

The NDP is also asking the Liberal government to commit to regular reviews of the new North American free-trade deal’s impact on Canada after it comes into force and to overhaul the way future trade pacts are negotiated.

NDP Leader Jagmeet Singh has remained tightlipped on whether New Democrats will vote for the agreement.

Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said earlier in December that he thinks the parties are “flexing their muscles” in the new minority government, though he cautioned that significantly delaying ratification would make Canada “look foolish.”

It is not clear when the House of Commons would vote on the trade pact. The House of Commons is not expected to return until the end of January.

CONCESSIONS TO DEMOCRATS

The changes negotiated by Democrats, which include tighter environmental rules, will also set up a mechanism to quickly investigate labour rights abuses at Mexican factories. They have earned the support of several U.S. labour unions that have opposed NAFTA for decades.

U.S. Trade Representative Robert Lighthizer made a concession by dropping a requirement for 10 years of data exclusivity for biologic drugs, a provision that Democrats feared would keep drug prices high and that they called a “giveaway” to big drugmakers.

Some of the most ardent trade skeptics in Congress have voiced support of the deal, including Rep. Debbie Dingell, who represents an autoworker-heavy district in southeastern Michigan. Dingell, a Democrat, said in television interviews that she would back the bill, even though she was skeptical it would bring auto jobs back to Michigan. Representative Ron Kind, a pro-trade Democrat from Wisconsin, one of the top dairy-producing states, praised new access to Canada’s closed dairy market under USMCA.

“A no vote is a return to the failed policy of the old NAFTA, the status quo, rather than this more modernized version,” Kind said in floor debate.

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