NSBA Endorses USMCA

February 13, 2019

The National Small Business Association Board of Trustees recently endorsed the free trade agreement known as the U.S.-Mexico-Canada Agreement (USMCA.) On Nov. 30, the leaders of Mexico, Canada, and the U.S. came together in Buenos Aires, Argentina, to officially sign the updated USMCA. President Donald Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto officially signed the USMCA as part the G20 summit. It capped nearly two years of uncertainty over the update to the North American Free Trade Agreement (NAFTA).

Despite the signing, the agreement still has a long way to go before it takes full effect. The deal still has to be approved by each country’s legislature — and in the U.S., there are still questions about whether the USMCA can pass a split Congress. In the U.S., the USMCA must be reviewed and approved by Congress before taking effect. Since Trump negotiated the deal under Trade Promotion Authority (TPA), the agreement needs only a majority vote in each chamber of Congress and can’t be filibustered in the Senate. However, with a Democratic majority in the House, passage could get complicated. Congress must write legislation to pass any trade deal, and there is wide latitude for the Democrats to try to adjust the USMCA to enforce their goals, such as labor regulations and environmental protections.

The USMCA retains a substantial amount of NAFTA’s framework, with notable tweaks on the treatment of automobiles, agricultural products, and labor protections. The USMCA contains 34 chapters, 12 more than the current NAFTA. Click here to see the text of the agreement. The new chapters include those on labor, the environment, digital trade, and macroeconomic policy. The USMCA also includes annexes covering alcohol and proprietary food formulas as well as bilateral side letters on distinctive products, auto safety standards, biologics, cheese names, wine, water, research and development expenditures, and Section 232.

NSBA is pleased with the inclusion of Chapter 25 relevant to small exporters. This chapter of the USMCA promotes the growth of small and medium-size businesses, and establishes the “Committee on SME issues.” According to the terms, the committee will assemble within one year after the new agreement is ratified and then once a year afterward. The committee is tasked with promoting an annual “SME Dialogue” and inviting the private sector, academic experts, and nongovernment organizations to provide their views on the implementation and further modernization of the USMCA.

The USMCA broadly resembles the preliminary agreement in principle reached by the United States and Mexico in August 2018. Like the preliminary agreement, the USMCA includes more stringent rules of origin for the automotive sector, a scaled-back investor-state dispute settlement mechanism, and a “sunset” review clause with a sixteen-year term. It also includes non-controversial “modernization” changes covering, among other things, digital trade, state-owned enterprises, sanitary and phytosanitary (SPS) measures, transparency, good regulatory practices, technical barriers to trade (TBTs), financial services, and intellectual property. These chapters largely work from those completed by the Obama Administration as part of the Trans-Pacific Partnership (TPP), but do contain some significant differences.

As part of one of the number of required steps to get the agreement passed by Congress, on Jan. 29, USTR sent a six-page document to Congress outlining all the changes required to implement the new USMCA.

The USMCA document describes changes to U.S. law that will be required to implement some of the agreement’s more controversial provisions, including stricter content rules required for automobiles, particularly from Mexico, to get duty-free treatment. Further, the list also includes legislative changes that will be carried over from the 25-year-old NAFTA deal, including maintaining temporary entry rules for Canadians and Mexicans.

The Office of the U.S. Trade Representative was required to detail the changes 60 days after it signed the agreement on Dec. 1 to preserve “fast track” provisions of the 2015 trade promotion authority law. That legislation allows the White House to submit trade deals to Congress for a straight up-or-down vote without any amendments, making them much easier to pass.

Meanwhile, the U.S. International Trade Commission (ITC) is back up and running after the partial government shutdown, but the agency announced that its investigation into the economic impact of the USMCA will be delayed 35 days because of the government shutdown, leading to delay the new trade pact’s consideration by Congress. That pushes the expected release into the second half of April instead of March 15.

Some lawmakers have said they want to see the commission’s study on USMCA before deciding on how to vote on the new deal. A delay would push congressional consideration of the trade deal later into the spring. This could force Canada’s government to decide whether to start votes in its Parliament before the U.S. does.

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