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Labor provisions, 232 metals tariffs keys for USMCA fortunes

Canada, Mexico push US to lift metals duties

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Enforcement of labor rules and lifting of US Section 232 tariffs on steel and aluminum have emerged as key issues for ratification of the US-Mexico-Canada Agreement (USMCA), an update to the 1994 North American Free Trade Agreement (NAFTA).

US metals duties remain a major concern for Canada and Mexico, which continue to say their ratification of the accord could hinge on whether the US exempts them from the 232 tariffs.

"The existence of these tariffs for many Canadians raises some serious questions about NAFTA ratification," Canadian Foreign Affairs Minister Chrystia Freeland told reporters Monday (March 25) after meeting with US Trade Representative (USTR) Robert Lighthizer. To move forward with ratification of USMCA, Freeland said the Canadians feel "there should be no 232 tariffs or retaliatory tariffs between our two countries," a view she "expressed clearly" to Lighthizer.

Canada is gearing up for a general election this October, and Freeland signaled that ratifying USMCA while the US duties remain could prove a tough sell to the Canadian people. "I have heard from a lot of Canadians that they would be really troubled by Canada moving forward while these tariffs are still in place," she observed. "It just doesn't make sense," she added. If implementing legislation is not cleared before Canada's House of Commons adjourns this summer, any vote would have to wait until after the election.

Opposition to US quota proposal

Implementing steel and aluminum quotas for Canada and Mexico is one option the US is considering, Lighthizer told members of the Senate Finance Committee earlier this month. Quotas would allow for duty-free imports of metals up to a set quantity. The quotas would be set according to historical import volumes, which would not allow either country to "take advantage" of the exemption, he argued.

Quotas are opposed by Canada, and Mexico echoed that view Monday. "Quotas make no sense, they’re a way of managing trade," Mexican Deputy Economy Minister Luz Maria de la Mora told reporters. "The Mexican government’s position is that the application of the 232 on steel and aluminum is not justified," she said, and called for complete "elimination" of the 232 tariffs on Canada and Mexico.

USMCA labor enforcement a concern for Democrats

Enforcement of USMCA labor and environmental provisions remains a concern for many Democratic lawmakers and US labor unions. The House Ways and Means Subcommittee on Trade held a hearing to examine the issue today (March 26), with representatives from US labor and trade groups on hand to testify.

"Our serial failure to adequately enforce trade agreements in the past has weakened confidence in the promises made in our agreements," subcommittee Chairman Earl Blumenauer (D-Ore.) said in opening remarks.

Inadequate enforcement of NAFTA labor provisions calls into question whether new rules in USMCA will see the same fate, Blumenauer argued. "Since 1998, there were 39 submissions alleging non-compliance with NAFTA labor obligations, not a single case led to a formal arbitration or any penalty," he said. "How will the New NAFTA agreement be different?" he asked.

Unions press for 'mandatory' enforcement

The new labor provisions in USMCA – including requiring more high-wage labor to be used in Mexican auto manufacturing – are not enough, AFL-CIO Trade and Globalization Policy Specialist Celeste Drake told lawmakers. "Building trade for inclusive growth must start with high labor standards, they must be clear and easy to enforce," she observed. But she said there is a "deficit of political will" for enforcing those standards, noting the US "has never self-imitated a labor case with a trade partner."

Overall, USMCA includes too little in the way of mandatory, politically independent enforcement mechanisms, Drake observed. Despite "modest improvements," without additional changes to bolster both labor-protections and enforcement, the accord is inadequate in its current form, she argued.

The Trump administration's commitment to enforcement was also questioned. Citing proposed funding cuts for certain USTR trade enforcement activities included in President Donald Trump's Fiscal Year (FY) 2020 budget, the United Steelworkers of America (USW) warned that the administration is only paying the issue "lip service." In its written testimony, the group echoed Drake and the other labor leaders, calling for mandatory – not "discretionary" – enforcement of labor protections.

Concerns over the administration's commitment to enforcing USMCA labor provisions were shared by several committee Democrats. "I never hear the president talk about labor standards," remarked Rep. Bill Pascrell (D-N.J.).

Overall, "USMCA takes some positive steps," towards leveling the playing field for US workers, United Auto Workers (UAW) Legislative Director John Nassar told the committee. However, the new deal still "doesn't measure up for being able to create more, good paying jobs now and going forward," he observed. "We think it is not there yet," he concluded.

Port association voices support for USMCA

Not all witnesses at the hearing opposed USMCA ratification in its current form. "Potential trade sanctions imposed on Canada, Mexico or other trading partners like China could result in significant losses of good-paying US trade-related jobs, including those in the seaport industry," noted American Association of Seaport Authorities Vice President of Government Relations, Susan Monteverde. Congress can help provide certainty to businesses and workers "by approving the USMCA and encouraging the President to speed up negotiations with China," she said.

Committee Republicans were also less critical of USMCA. "These future agreements, including [USMCA] is much better for labor than previous agreements," argued Rep. Devin Nunes (R-Calif.), noting record-low US unemployment. "The economy is booming," he remarked. Meanwhile, Ranking Member Vern Buchanan (R-Fla.) cited Monteverde's testimony to make the case USMCA is a plus for US workers, and noted many of the seaports her group represents employ unionized workers.

Ratification faces many challenges

Ratification of USMCA clearly faces hurdles on multiple fronts. Canada and Mexico appear to be slow-walking implementation and have increasingly cited the US 232 metals tariffs a sticking point. In the US, lawmakers – especially Democrats and labor allies – are skeptical that the administration will follow through on enforcing new labor rules. Lighthizer has sought to allay those concerns in testimony and private meetings, but today's hearing suggests he may have more work to do before many congressional Democrats are willing to support USMCA.

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