U.S. House set to approve North American trade deal replacing NAFTA

The U.S. House of Representatives is set to approve a rewritten North American trade deal on Thursday that includes tougher labor and automotive content rules than its predecessor, but leaves $1.2 trillion in U.S.-Mexico-Canada trade flows largely unchanged.

The vote, which comes a day after House Democrats voted to impeach President Donald Trump, is expected on Thursday afternoon.

The House Ways and Means Committee advanced the U.S.-Mexico-Canada Agreement on a voice vote on Tuesday, indicating broad support.

The trade pact, first agreed upon in September 2018, will replace the 1994 North American Free Trade Agreement. Trump vowed for years to quit or renegotiate NAFTA, which he blames for the loss of millions of U.S. factory jobs to low-wage Mexico.

House Speaker Nancy Pelosi gave USMCA a green light last week after striking a deal with the Trump administration, Canada and Mexico to strengthen labor enforcement provisions and eliminate some drug patent protections.

Pelosi said she was not concerned about Democrats handing Trump a political victory on USMCA as they are trying to remove him from office.

“It would be a collateral benefit if we can come together to support America’s working families, and if the president wants to take credit, so be it,” Pelosi said during House floor debate. “That would not stand in the way of our passing this.”

CONCESSIONS FOR DEMOCRATS
The changes negotiated by Democrats, which include tighter environmental rules, will also set up a mechanism to quickly investigate labor rights abuses at Mexican factories. They have earned the support of several U.S. labor unions that have opposed NAFTA for decades.

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U.S. Trade Representative Robert Lighthizer made a concession by dropping a requirement for 10 years of data exclusivity for biologic drugs, a provision that Democrats feared would keep drug prices high and that they called a “giveaway” to big drugmakers.

Some of the most ardent trade skeptics in Congress have voiced support of the deal, including Representative Debbie Dingell, who represents an autoworker-heavy district in southeastern Michigan. Dingell said in television interviews that she would back the bill, even though she was skeptical it would bring auto jobs back to Michigan.

Representative Ron Kind, a pro-trade Democrat from Wisconsin, one of the top dairy-producing states, praised new access to Canada’s closed dairy market under USMCA.

“A no vote is a return to the failed policy of the old NAFTA, the status quo, rather than this more modernized version,” Kind said in floor debate.

AUTOS, DIGITAL, CURRENCY
The new agreement modernizes NAFTA, adding language that preserves the U.S. model for internet, digital services and e-commerce development, industries that did not exist when NAFTA was being negotiated in the early 1990s. It eliminates some food safety barriers to U.S. farm products and contains language prohibiting currency manipulation for the first time in a trade agreement.

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But the biggest changes require increased North American content in cars and trucks built in the region, to 75% from 62.5% in NAFTA, with new mandates to use North American steel and aluminum.

In addition, 40% to 45% of vehicle content must come from high-wage areas paying more than $16 an hour – namely the United States and Canada. Some vehicles assembled in Mexico mainly with components from Mexico and outside the region may not qualify for U.S. tariff-free access.

The U.S. Congressional Budget Office estimated earlier this week that automakers will pay nearly $3 billion more in tariffs over the next decade for cars and parts that will not meet the higher regional content rules.

SENATE CONCERNS
The Republican-controlled U.S. Senate is not expected to take up USMCA until January. Senate majority leader Mitch McConnell has said that consideration of the measure would likely follow an impeachment trial in the Senate.

Some of the provisions that attracted Democratic support in the House have alienated at least one Senate Republican free trader. Republican Senator Pat Toomey said he could not support USMCA because of the automotive high-wage content rule, which he called a “complicated, onerous minimum wage requirement” that he said would make the U.S. auto industry less competitive.

“That means, I think, fewer American jobs in this sector,” Toomey said in a speech at the American Enterprise Institute.