Op-Ed: 'USMCA 2.0' could serve as a guide for future trade negotiations
On Dec. 19, 2019, House Speaker Nancy Pelosi (D-Calif.) performed what was perhaps the most breathtaking political feat of her career when she guided passage of the United States Mexico Canada Agreement (the USMCA) by an overwhelming margin of 385-41. For 30 years, Washington hadn’t seen endorsements for a Free Trade Agreement by Democratic congressional leadership, or from major labor organizations like the AFL-CIO, the United Steelworkers Union, the United Auto Workers, and industrial sector unions that bitterly opposed the original NAFTA and its progeny: CAFTA, Korea, Peru, Panama, the Trans-Pacific Partnership (TPP) – the list goes on, and on. The renegotiation of NAFTA has been a toxic political fault line in Washington – particularly in the Democratic Party – since its passage back in 1993. The recent startling show of bipartisanship led by Speaker Pelosi to pass the USMCA merited a reprise of “The World Turned Upside Down,” which was played by the British Army band during the surrender ceremony after the Battle of Yorktown.
Breaking down the forensics of this astounding outcome, one thing is clear: the vote was not a rubber stamp of the deal that President Trump presented to Congress in 2017. All of the trade unions made it crystal clear from the start that the first iteration of the USMCA was a complete nonstarter. The bill that passed on Dec. 19 drastically modified President Trump’s original 2017 “USMCA 1.0” in several key areas, for example:
- Currency Manipulation – the new USMCA cracks down on currency manipulation, requiring all three countries to adhere to “market determined exchange rates”, with mandatory monthly reviews to ensure there is no government intervention in currency markets.
- Labor Enforcement – the renegotiated USMCA puts teeth into USMCA 1.0 standards for higher wages, meaningful collective bargaining, and Country of Origin manufacturing content by establishing for the first time a “Rapid Response Dispute Resolution” process monitored in-country by the U.S. Department of Labor “labor attaches” from our embassy to investigate labor violations, including violence against workers. Regular reports to Congress are mandated.
- Environmental Enforcement – the new USMCA shifts the burden of proof so that environmental standards violations are on par with other trade issues. It also keeps the door open to the Paris climate accords being inserted into USMCA along with seven other multi-lateral agreements that are in the base text. Keeping Paris as an option in the future was an important concession by the Trump administration given its primordial denial of the existence of climate change. Making Paris an amendable item in the new 16-year agreement defied all expectations.
- Investor Dispute Resolution – the improved USMCA scales back the Chapter 11 special dispute resolution process by multi-national corporations to contest government decisions (e.g. legislation and regulations). Under Speaker Pelosi’s rewrite, the vast majority of corporations will have to follow the same rules of pursuing trade disputes as other non-corporate aggrieved parties. Once again, the Trump administration’s devotion to fossil fuels grandfathered oil company investors in the old system, but future administrations less wedded to the Koch Brothers agenda will still have standing to intervene in opposition to fossil fuel special pleading.
- Pharmaceutical Research – the renegotiated USMCA completely stripped the 10 years of patent protection for biologic drugs, which was part of the old “USMCA 1.0.”
Each of these five revisions of “USMCA 1.0” address decades-long frustrations with the old NAFTA model, which made the subject of trade deals such nasty politics in Washington. The deindustrialization of the U.S. manufacturing sector since the 1990s was undeniably accelerated by NAFTA’S sanctioning of low wage economies, and by blatant manipulation of currency by countries all over the world that rendered U.S. firms helpless in global competition. As someone who led a half-dozen trade missions with Connecticut firms in Europe, the Middle East, and the Pacific, I heard those real-life stories of currency cheating over, and over again.