March 20, 2019
As discussions on how to resolve a Section 232 tariff dispute with Canada and Mexico continue, sources say a host of factors could keep the restrictions in place for some time, with President Trump insisting that quotas or tariffs be applied despite pushback from both countries and the prospect of further complications for the U.S.-Mexico-Canada Agreement.
Trump “is the one blocking” a resolution, a private-sector source told Inside U.S. Trade, adding that U.S. Trade Representative Robert Lighthizer “doesn’t have anything to maneuver — it’s more of a timing thing because [Trump] doesn’t want to be removing too many tariffs at the same time.”
In addition to the Section 232 steel and aluminum restrictions, Trump has imposed tariffs on $250 billion worth of Chinese imports as the U.S. and China engage in trade talks that Beijing hopes will soon spell and end to the tariffs. But Trump said on Wednesday that the Section 301 tariffs would remain for a “substantial period of time” to ensure China keeps any commitments it makes in a deal he expects the two sides to agree to soon.
Many Republicans have conditioned their support for USMCA on the removal of the steel and aluminum tariffs, with some — including House Ways & Means Committee ranking member Kevin Brady (R-TX) and Rep. Jackie Walorski (R-IN) — also opposing the application of quotas as a replacement.
“On the Republican side, my guess is they are going to want Republicans to do a heavy lift and provide a lot of votes” for USMCA, Walorski said last week. “I am doing my part when it comes to insisting I would not vote for this if those tariffs don’t come off. And it’s not just a vacillating kind of like ‘how I feel that day’ — this is rock-solid.”
The private-sector source pointed to required labor reforms that Mexican lawmakers have yet to approve as another reason the U.S. might not drop the steel and aluminum tariffs on Mexico soon. “If the labor bill isn’t going to be fully considered, there’s no impetus to drop tariffs on Mexican steel and aluminum,” the source said. Mexican officials hope to pass a package of reforms called for in USMCA before Mexico’s Congress adjourns at the end of April.
An annex to USMCA’s labor chapter says Mexico must adopt legislation establishing “an independent entity for conciliation and union collective bargaining agreement registration” and “independent Labor Courts for the adjudication of labor disputes,” among other items. Several Democrats have raised the issue of enforceable labor and environmental standards with Lighthizer, with many pinning their support for the deal on the implementation of meaningful Mexican labor reform.
Last week, the State Department released a report on human rights practices in Mexico. The report says Mexico, in 2018, “did not consistently protect work rights” and frequently failed to “enforce labor and other laws left workers with little recourse for violations of freedom of association, poor working conditions, and other labor problems.”
Additionally, Mexican workers “exercised their rights to freedom of association and collective bargaining with difficulty,” in part because the union registration process was highly politicized, the report adds. “According to union organizers, the government, including the [conciliation and arbitration boards], frequently used the process to reward political allies or punish political opponents. For example, the government rejected registration applications for locals of independent unions, and for unions, based on technicalities.” The report addressed many of the same issues raised by the AFL-CIO and Mexico’s National Labor Union (UNT) last year.
Mexican Economy Minister Graciela Marquez and Labor Minister Luisa María Alcalde Luján met with Office of the U.S. Trade Representative officials last week to discuss Section 232 issues and USMCA.
Another source told Inside U.S. Trade that Mexican officials have been telling USTR they “are only now beginning to fully appreciate the scope of their concessions on labor and the intersection with the domestic labor reform legislation.”
“In short, Mexico may pass labor reform without everything contained in USMCA,” the source said. “The details are sketchy but this has been a source of discussion between USTR and Mexico for a few weeks.”
The AFL-CIO, during its two-day meeting of its executive council in New Orleans last week, and other U.S. labor leaders met with Jesús Seade, Mexico’s under secretary of foreign affairs and a former USMCA negotiator, to discuss the deal’s labor chapter.
Richard Trumka, president of the AFL-CIO, said that he “Appreciated a candid conversation with Jesús Seade to make the new NAFTA work for working people because in its current form, we cannot support it.”
“If it’s rushed forward, we will mobilize to defeat it, just as we did to kill the [Trans-Pacific Partnership],” Trumka tweeted.
The private-sector source said the results of the U.S. International Trade Commission’s report on the likely economic effects of USMCA could impact the deal’s fate in Congress, as the analysis could suggest the agreement might lower U.S. GDP. Such a finding, the source added, could provide another reason for lawmakers not to vote for the implementing bill.
“It could be a negative number. It would be hard to believe that it would be positive,” the source said, citing the ITC’s report on the Trans-Pacific Partnership, which predicted a minor GDP boost of 0.15 percent if the deal were to enter into force.
The USMCA figure could be low or “even negative” for two reasons, the source continued. “This isn’t a new agreement, but refinement of an existing agreement, so many of the benefits would have already been realized,” the source continued. “Second, the [rule-of-origin] changes could negatively impact the economy by, for example, increasing the cost of producing vehicles in North America, making them less competitive.”
The ITC has until April 19 to complete the report.
Today there are “just not a lot of reasons for Democrats to want to vote for [USMCA],” the source said, pointing to uncertainty surrounding the Section 232 tariffs and Mexican labor reform.
“It doesn’t seem like it’s advantageous for [House Speaker Nancy Pelosi (D-CA)] to bring this to the floor right now,” the source said. “And for the president to be rolling back tariffs he needs to be hitting someone.”
The big question on USMCA, the source continued, “is what’s going to be enough on the labor piece, and I think people are going to be getting creative.”
Lighthizer has suggested to lawmakers that the administration can use Section 301 of the Trade Act of 1974 as a potential tool to enforce USMCA’s labor standards, but some on Capitol Hill have been lukewarm to the idea.
The House Ways & Means trade subcommittee will hold a hearing on labor issues in free trade agreements next week. — Isabelle Hoagland (ihoagland@iwpnews.com)
