New
Nafta Leaves Winners and Losers Across North America
By
12 December 2019
USMCA
marks the political win for Trump as he seeks re-election
Economic
impact of USMCA for the U.S. expected to be limited
Companies, workers, and lawmakers in three countries have spent the past
year in limbo awaiting final touches on the U.S.-Mexico-Canada free-trade
agreement. Now they have a better sense of who won -- and who lost.
The accord awaits a vote next week in the U.S. House of Representatives,
where Democrats successfully wrung last-minute revisions to ensure its passage.
The U.S. Senate plans to vote in 2020, while legislatures in Mexico and Canada
will also have to ratify the updated agreement.
While the so-called USMCA deal marks a political win for President
Donald Trump as he seeks re-election, the overall benefit to U.S. GDP is small:
a 0.35 % increase in the agreement’s sixth year, according to the official U.S.
estimates. Yet, like all trade deals, this one creates winners and losers in
the business community. The countries’ political leaders, steel industries and
online shoppers stand to benefit, while U.S. drug companies, Mexican
businesses, Canadian dairy farmers come off second-best.
U.S. agricultural exports: U.S. dairy and poultry
get new market access to Canada, and there are some gains for wheat and
alcoholic beverages. The boost is small, but farmers are hoping that progress one trade agreement portends an end to the trade war with China.
Internet companies: The
USMCA has a new digital trade section that will help data-intensive internet
firms avoid onerous data storage and taxation requirements. The industry beat
back a last-minute attempt to remove liability protections for companies
like Alphabet
Inc.’s Google, Facebook,
Inc. and Twitter,
Inc. for content posted by users.
Online shoppers and Amazon.com, Inc: The deal will raise
Canada and Mexico’s de-minimis levels, or the threshold above which consumers
pay tax on a cross-border shipment. This means, for instance, that Canadians
will now be able to buy more online, tax-free.
The U.S.
firms: Business groups such as the National Association of Manufacturers and
American Petroleum Institute pushed hard for all parties to get on board
because they wanted to eliminate the possibility, however remote, that Trump would
end free trade in North America. The boost to business confidence could mean
the economic benefit from enacting the deal exceeds expectations. The Business
Roundtable, which represents U.S. CEOs, endorsed the USMCA on Wednesday, though
it raised concerns about weaker intellectual property protections and new
labor-enforcement mechanisms.
U.S. President Donald Trump: Less than an hour
before House Democrats said they plan to vote on Trump’s trade deal, they
presented articles of impeachment against him. Finalizing this deal gives Trump
a much needed political win as he fights off impeachment and runs for
re-election in 2020.
Canadian Prime Minister Justin Trudeau: The country had a few red-line
issues, including maintaining so-called Chapter 19 dispute panels contained in
the old Nafta, which U.S. negotiators wanted to kill but conceded to keep. One
of Canada’s big concessions was agreeing to raise patent protections for
biologic drugs, but this was removed from the final version. That means Canada
got one of its core goals and won’t have to follow through on one of its main
concessions.
Mexican President Andres Manuel Lopez Obrador: While Mexico’s private
sector is worried about some part of the deal -- including the process for
labor complaints -- AMLO emerged as mostly a winner. Just finalizing the deal
means that AMLO was able to preserve free trade with the U.S., the country’s
largest commercial partner. Failure to do so, and having Trump withdraw from
Nafta, could have been catastrophic for the stagnant Mexican economy.
House Speaker Nancy Pelosi: Pelosi told her caucus that in the final
talks, Democrats ate the “lunch” of Trump’s trade negotiators. Democrats got
most of what they wanted. Pelosi set up a working group to ensure that a range
of voices -- from Alabama moderate Terri Sewell to Connecticut liberal Rosa
DeLauro -- could be heard. The talks got bogged down at times, but the
consensus-building gave her most vulnerable members a way to show voters
they’re working on more than impeaching Trump.
Rural Democrats: Democrats who represent districts that Trump won in
2016 -- people like Collin Peterson and Angie Craig of Minnesota, as well as
Cindy Axne and Abby Finkenauer of Iowa -- needed the USMCA badly. Farmers are
suffering from trade wars and blamed Democrats for not passing the USMCA. This
removes liability for them as they seek re-election next year.
U.S. Trade Representative Robert Lighthizer: Trump’s top trade
negotiator is the most popular government official in Washington right now. He
set out to build a new U.S. trade consensus and it looks like he largely
succeeded in creating a deal that most Republicans and Democrats can get
behind, all while coping with Trump’s erratic negotiating style. He’ll need
that tailwind as he tries to finalize a trade deal with China that has even
higher stakes for the U.S. economy.
The Losers: Drugmakers, Mexican Businesses,
Canadian Dairy Farmers
Drug manufacturers: The major drug-industry groups,
PhRMA and BIO, are against the deal, and the U.S. Chamber said it is
“disappointed” in the drug provisions. The USMCA as originally negotiated by
Trump would have established 10 years of data protection for biologic drugs.
That’s lower than the 12 years in the U.S. but would have required Canada and
Mexico to provide more protection, likely raising drug prices. That provision
was removed at the last minute at the insistence of Democrats who are working to
lower drug prices in the U.S. Tom Donohue, CEO of the U.S. Chamber of Commerce,
said that with the changes, “the only beneficiaries will be foreign governments
and consumers who will continue to free-ride on the benefits of American
research into new cures.”
Cross-border corporations: The new deal mostly
eliminates Chapter 11 dispute-settlement panels, which were often an avenue for
companies to sue governments over policy decisions. The new deal will give
governments more leeway to make changes, even if it pulls the rug out from
under a business.
Mexican
businesses: The private
sector was upset that Mexico gave up a lot in the final negotiation for little
in return, beyond the preservation of free trade. Gustavo de Hoyos, head of the business chamber Coparmex, said the advice of Mexican businesses wasn’t
sufficiently heeded. He compared the deal to the 1848 Mexican-American War when Mexico lost California and parts of New Mexico and Arizona. Chief
negotiator Jesus Seade responded that he was in frequent contact with business
representatives. The main concern is that new labor provisions could leave
Mexican factories vulnerable to frivolous lawsuits.
Canadian dairy farmers: One of Canada’s big bargaining chips was trading
away a slice of its protected dairy market, which is a problem in all the
country’s trade talks. The government announced C$1.75 billion ($1.3 billion) in compensation to dairy farmers for two other trade
deals and pledged similar support once USMCA takes effect.
U.S. ranchers: Cattle producer group R-CALF USA criticized the
deal, saying the failure to restore country of origin labeling or COOL, on
beef allows imported supplies to continue undercutting U.S. ranchers.
Canadian and U.S. aluminum industries: Associations in both countries expressed their
disappointment -- the Aluminium Association of Canada said leaving melting and
pouring rules out of the deal would make Mexico “more or less China’s North
American backyard to dispose of the products of its overcapacity.” The American
Primary Aluminum Association said it will allow China and Russia to flood North
America with cheap metal. The Mexican Aluminum Association countered that the
country doesn’t import raw aluminum from China and won’t need to as long as the
region remains a competitive market option.
GOP free traders: Free-market politicians like Senator Pat Toomey, a
Republican from Pennsylvania, are unhappy because the deal imposes new rules
and wage requirements. Senate Majority Leader Mitch McConnell also said he is
disappointed, but he is still expected to usher the pact through the Senate.
The fact the deal will pass shows how much Trump has reversed traditional GOP
trade policy.
Environmental groups: The Sierra Club and the Natural Resources Defense
Council is speaking out against the agreement. Environmentalists wanted
climate-change provisions in the USMCA, something Democrats concluded was not
going to happen under Trump.
Mixed Bag: U.S. Workers, Auto Industry, Steelmakers
The U.S.
workers: The AFL-CIO supports the USMCA as an improvement for U.S. workers but
the machinists’ union opposes it. The deal aims to enhance the unionization of
employees in that country, with the goal of ending a “race to the bottom” for
manufacturing workers. The U.S. jobs that went to Mexico under the original
Nafta isn’t coming back, however. The United Auto Workers union said, “much
more work remains to fight against the offshoring of jobs and the economic
inequality that has plagued our country for so long.”
U.S. and Canadian auto
industry: For cars to be exempt from tariffs, they must have higher content
from North America and a percentage of each vehicle must be made by workers
making an average of $16 per hour -- a provision that will help
higher-wage regions. The U.S. International Trade Commission estimates that the
deal will increase the production of U.S. auto parts and decrease the production of
U.S. vehicles. The new auto provisions could raise the prices of new cars, which
could deter consumers. General
Motors Co., however, said it is pleasing to see the USMCA
moving forward.
Steel
industry: Steel companies had been pressing officials to include a “melted, smelted
and poured” requirement that 70% of the raw metal used in automotive parts
originate in Mexico, Canada or the U.S. The deal’s final language agreed for
this to be phased in over seven years for steel parts.
— With assistance by Shawn
Donnan, Jenny Leonard, Joe Deaux, Josh Eidelson, Ari Natter, and Michael
Hirtzer
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