USMCA Labor Violations to Have Undisclosed Consequences for Imports

It will be easier to bring a labor case under the U.S.-Mexico-Canada Agreement than it was in previous trade deals, but several particulars remain undisclosed. There will be expedited labor enforcement that “provides for facility-based enforcement,” and if independent labor experts find that collective bargaining rights weren't honored at particular factories, it will “lead to penalties,” a summary of the changes to USMCA says. But what those penalties are is not mentioned, and members of the House Ways and Means Committee and Senate Finance Committee said they don't know what they are, as no other details beyond the memo have been shared. A Ways and Means spokeswoman and trade staffer did not answer questions.

In the announcement that House Democrats had reached a deal with U.S. Trade Representative Robert Lighthizer, Ways and Means Committee Chairman Richard Neal, D-Mass., and Speaker Nancy Pelosi, D-Calif., emphasized how different their version is from what was signed last year. Neal said: “These were intense, argumentative, angry negotiations. This got really hot on a number of occasions. I think we set a world record for hanging up on each another, myself and the trade rep.”

Rep. Jan Schakowsky, D-Ill., one of the working group members in those negotiations, described all the ways USTR changed the intellectual property language for pharmaceuticals because of Democrats' demands. She said that although the 10-year data exclusivity period for biologic drugs is lower than U.S. law, she didn't want the trade deal to tie Congress's hands to lower it. Also, she said, many Americans go to Canada and Mexico to buy lower-cost drugs, and forcing those countries to delay generic competition for biologics would have raised prices across North America. The memo notes that biologics are the most expensive drugs.

She said they also got USTR to remove language that required countries to guarantee another patent for a new use for a drug. “This provision would have locked in the practice of 'patent evergreening,' in which pharmaceutical companies obtain hundreds of patents related to a product to block generic competition and price reductions,” the memo says.

Pelosi said that she “had one disappointment which is 230, but I was too late going into it.” She was referring to the requirement that Canada and Mexico give internet companies safe harbor for what happens on their platform, as the U.S. does in Section 230.

A vote on USMCA in the House of Representatives is expected next week. Congress goes home for the year on Dec. 20. Rep. Stephanie Murphy, a pro-trade Democrat from Florida on Ways and Means, said, “There's a lot of momentum, we should just get this done.”

But Senate Majority Leader Mitch McConnell told reporters in the Capitol he will not bring the trade deal to a vote until after the impeachment trial is done. Between Republicans and pro-trade Democrats, the USMCA is expected to have a comfortable margin. But it's possible that a majority of Democrats could support it, given that the AFL-CIO endorsed the rewrite -- and that a key trade opponent was on the working group, and so is not expected to oppose it.

That trade skeptic, Rep. Rosa DeLauro, D-Conn., told International Trade Today Dec. 9, “I'm going to go through the materials and see what we have... . if it's where we think it is ... then I will be satisfied. There have been some real gains in enforcement issues.”

AFL-CIO President Richard Trumka said, “we have secured an agreement that working people can proudly support,” though he acknowledged it's not perfect. “It alone is not a solution for outsourcing, inequality or climate change.”

Some members who are staunch labor union advocates said the AFL-CIO's endorsement isn't enough to get them on board yet. Ways and Means member Rep. Bill Pascrell, D-N.J., said, “I'm a union guy, but the [AFL-CIO] president doesn't speak for me on this issue. Machinists are against it, they came out against it, and I think there will be several other unions” against it.

The Machinists issued a statement that said they're not aware of any provisions in the USMCA that effectively address ongoing outsourcing to Mexico, “especially when it comes to aerospace and other manufacturing sectors. We also remain troubled over other areas of the agreement that fall short of our repeated recommendations, such as those concerning stronger labor standards, enforcement and rules of origin. Our ability to comment in detail on this agreement is impaired because in the rush to consider such a proposal, we have not even been given the opportunity to review the full agreement in writing.”

Rep. Debbie Dingell, D-Mich., said that she's waiting to hear what the United Autoworkers say -- and to see the details -- before she decides. Rep. Angie Craig, D-Minn., was chosen to stand behind leadership at the press conference Dec. 10, even though she's not in the working group or on Ways and Means. The freshman is one of the “majority makers” who defeated a Republican. She has wanted to have a chance to vote yes on USMCA, but could not stomach the biologics provisions. “I have a fairly ag community in the second district of Minnesota, and I didn't want to force family farmers to choose between their markets and the price of their prescription drugs,” she told International Trade Today in a hallway interview. “So I'm thrilled that we've been able to put together what I consider one of the most progressive trade agreements in the history of the country.”

Rep. Lizzie Fletcher, another majority maker, from the Houston suburbs, said she is “very pleased with the deal that got struck, and ... I'm very excited to see it come to the floor.”

House Republicans downplayed what Democrats got in the rewrite, calling it “fine-tuning,” and said “Republican priorities are maintained.” They hailed the fact that it will no longer be possible to block the formation of panels in state-to-state disputes, and that climate change is not part of the environmental chapter. They said it's a “bipartisan agreement, not radical leftist ideas.”

Senate Finance Committee Chairman Chuck Grassley, R-Iowa, said that while he doesn't know all the details, some of what Senate Republicans are hearing has lessened their enthusiasm for it, “but I don’t think it’s going to be big enough to keep it from getting it passed.”

Sen. Ron Wyden, the top Democrat on the Finance Committee, issued a statement that said, “I do not have the details on how closely the agreement adheres to the Brown-Wyden trade enforcement regime, and I will be scrutinizing it closely to determine whether the final proposal contains the trade enforcement tools we have proposed.”

Sen. Pat Toomey, R-Pa., is a declared “no” vote, as much because of the ways the Trump administration changed NAFTA as because of these additional edits, though he said “it's clearly moved way to the left.” He said that according to House Democrats, USMCA will have “facility-based enforcement, of labor obligations in a rapid time frame, we don't know exactly what that means.” He said, “We hear there will be penalties on goods and services that are 'not produced in compliance with collective bargaining agreements,' so what does that mean? It sure sounds like maybe there will be tariffs or quotas or some kind of penalty imposed on Mexican products if somebody alleges that there's a factory not in compliance with collective bargaining -- as if that's an issue for us to litigate.”

He said clearly these provisions are meant to raise wages in Mexico, which he said is that country's “only competitive advantage.” He also said the “complete capitulation” of USTR on intellectual property for biologics is “very, very disturbing.” Toomey, who held a press conference in his office, said USTR briefed the Finance Committee, but he gave no details about what the consequences would be for goods from factories that aren't in compliance. “And that sort of thing is important,” he said.

Toomey is angered by the rules of origin aspects that are designed to move more work to Canada and the U.S., through wage-labor contents, and overall feels the auto rules of origin are managed trade, rather than free trade. He also doesn't like the near-elimination of investor-state dispute settlement, which he said could interfere with foreign investment by American companies.

There are some advances in USMCA, he said, though he dismissed the dairy gains touted by most Republicans as “very, very minor.” He said the modernization that is good was “mostly cut and pasted from the Trans-Pacific Partnership.”