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November 13, 2019

US, Canada Work Toward USMCA Ratification

With the federal election cycle in the United States heating up, it’s unlikely the deal will be ratified by year’s end.

By  Sara Lavenduski

Trade negotiators and legislators in the U.S. and Canada continue to discuss the future approval of the United States-Mexico-Canada Agreement (USMCA), the replacement to the North American Free Trade Agreement (NAFTA), as 2020 comes to a close and the federal election cycle in the U.S. gains momentum.

The new version of NAFTA, the USMCA, still needs to be agreed on and ratified by the U.S. and Canada. It was ratified in June by Mexico’s Senate.

In October 2018, the leaders of the U.S., Canada and Mexico reached agreement on the USMCA, but the path to official ratification by all three countries’ legislative bodies remains uncertain. Mexico’s Senate ratified the agreement in June, while the U.S. and Canada continue to negotiate a settlement that would result in approval of “NAFTA 2.0.” President Donald Trump has pushed for a revamped NAFTA since the early days of his campaign, pointing out that the agreement, which first came into force in 1994, has put the American worker at a disadvantage in its trade relations with Canada and Mexico. Economists estimate the U.S. auto manufacturing sector alone lost 350,000 jobs in the almost 26 years since.

On Tuesday, President Trump addressed the Economic Club of New York on the current state of U.S. trade. “The USMCA will add 1.5 million U.S. jobs and add 1.2% to American GDP,” he said. He also expressed frustration that Democrats are delaying the process of closing the deal.

House Ways and Means Committee Chairman Richard Neal (D-MA) met last week with Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland in Ottawa to discuss next steps to ratification. The most significant areas of the agreement that still need to be hashed out, say House Democrats, are the pharma protections, environmental obligations and labor provisions that would apply to all three countries.

As it stands, the USMCA includes a 10-year data exclusivity period for new biologic drugs, which means they’ll be sheltered from generics for that decade, and also expands the definition of “biologic.” But biologics, sourced from living cells and tissues, are costly, and the exclusivity period also precludes generic manufacturers from testing their products in that timeframe.

While the 10-year period is shorter than the 12 years currently on the books in the U.S., Canada’s is eight and Mexico’s five. Opponents are concerned that a forced increase in exclusivity periods for those countries would increase both patent monopoly timeframes and drug prices in all three countries.

The enforceable environmental obligations in the USMCA include compulsory opposition to the trafficking of flora and fauna and measures to address air quality and marine pollution. But critics are concerned with the enforcement mechanisms of these obligations. In short, the three countries must determine how to make sure each is in compliance with the new agreement while respecting the others’ sovereignty.

Democrats have also emphasized the importance of making sure the labor obligations that apply to each country — including allowing workers to collectively bargain, addressing violence against workers exercising those rights and ensuring migrant workers are protected, among others — will come with enforcement mechanisms.

Late last month, Richard Trumka, president of the AFL-CIO, the largest federation of unions in the U.S., met with Speaker Pelosi and Chairman Neal to express his concerns about the enforceability of labor laws. Trumka has said that he and his organization will not support the ratification of an agreement without a viable enforcement mechanism.

Mexican President Andres Manuel Lopez Obrador, who took office in December 2018, ran on a populist and pro-worker platform. But he’s already facing big opposition from businesses in Mexico that have long operated on worker exploitation, as well as from company unions, which Obrador wants to dissolve in favor of independent unions, says Trumka. This could make new labor protections under the USMCA difficult to implement and enforce in that country.

“He’s well-intentioned and sincere, but he underestimates the forces aligned against him,” Trumka told an audience at the Law School of the University of the District of Columbia last month. “He’s got the bosses against him, and he’s got the old protectionist unions against him, too.”

In Canada, the bill that would implement USMCA progressed through a second reading in the House of Commons in June, but stalled in September upon the dissolving of the 42nd Canadian Parliament ahead of the federal elections in October. It will now need to be reintroduced to the 43rd Parliament next month.

Meanwhile, in the U.S. as impeachment proceedings and the 2020 election cycle heat up, it’s unlikely that the USMCA will be ratified by the end of the year.

“The key will be to show that these changes [in pharma, environment and labor] turn the USMCA from ‘Trump’s trade deal’ to a deal where Democrats fought hard and got wins,” says Dan Ujczo, international trade and customs lawyer with cross-border firm Dickinson Wright. “Speaker Pelosi will have USMCA ready to go and ask the president, ‘What are you going to give me for USMCA?’ This may be pension reform, prescription drug and gun law reform or a new Trade Adjustment Assistance package for workers displaced by trade. That’s a great deal to get done, and we anticipate that these talks may extend into 2020.” In the promo industry, those who do cross-border business and are monitoring the situation have adopted a wait-and-see stance as the discussions continue.

“My understanding is that nothing will really change with the USMCA,” says Kippie Helzel, senior vice president of sales at Custom Plastic Specialties (asi/43051) in Erie, PA. “It’s not radically different from the old NAFTA. I believe this has all been more for political showmanship. I’m not aware that the new agreement would have any impact on our current tariff-free trading relationship, so I believe that, as far as this industry is concerned, NAFTA will continue, just under a different name.”

However, the long negotiation process has caused much apprehension in member countries. “In Canada, there are also concerns over the Canadian dollar and tariff rate fluctuations,” says Neil Piitz, president of Toronto-based Differenciate Consulting, a business consultancy for promotional products firms. “It’s all had a dramatic impact on how Canadian distributors are being forced to quote. I think the USMCA will be implemented as a necessary stabilizer for the trade process between the countries. But, with the exception of a few variants, it will look and feel like NAFTA.”