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As New NAFTA Takes Effect, Much Remains Undone
The beginning of a new trade deal does not signal an end to trade disputes between United States, Canada and Mexico.
WASHINGTON — President Trump’s promised rewrite of trade terms between the United States, Canada and Mexico officially goes into effect on Wednesday. But while the president claims victory in reworking the North American Free Trade Agreement, putting its provisions into practice is far from done.
Company executives, government officials and union leaders around the continent have been scrambling to comply with the United States-Mexico-Canada Agreement, which overhauls a trade deal that has governed commerce among the three countries for more than 26 years.
The Trump administration and other supporters have welcomed the revised pact as providing much-needed changes to previous trade rules, including bigger incentives to manufacture products in North America, new guidelines for digital trade and stronger labor protections for Mexican workers. And the official start of the new agreement puts to rest much of the uncertainty Mr. Trump created for businesses by repeatedly threatening to walk away from the deal altogether.
But many of the deal’s requirements, like expanding worker rights or opening up the flow of agriculture, have not been fully met, or still need to be phased in over the coming months and years.
Industries as varied as automobiles and agriculture are still struggling to understand recent guidelines from the U.S. government and certify that their products satisfy the trade deal, which requires some industries to buy more materials and components from North America and provide the government detailed information on their sourcing and wages.
The three-country pact, which was reached after more than two years of negotiations, sought to change Mexico’s labor rules to ensure that workers had the freedom to form unions and bargain for better wages. But those changes are still winding their way through the Mexican legal system, under threat from powerful companies and politicians. American labor leaders warn that the deal’s protections for workers — which made it a model trade agreement in the eyes of Democrats and were largely responsible for winning their support — could still falter.
Michael Wessel, the staff chairman of the Labor Advisory Committee that counsels the administration on trade issues, said that while much public attention had focused on the drama of negotiating the U.S.M.C.A., “the really hard work of making the provisions effective, ensuring that workers’ rights are advanced and that the competitive landscape changes is ahead of us.”
“Making sure we don’t lose sight, and action, on the changes that need to be implemented, monitored and enforced will be a day-by-day fight,” Mr. Wessel added.
“Today as #USMCA enters into force, many improvements must be made to fulfill its promises,” Richard Trumka, the president of the AFL-CIO, wrote on Twitter. “We will fight to ensure that the #USMCA doesn’t become another #NAFTA."
The Trump administration has taken an aggressive approach to rewriting and enforcing trade rules. The U.S.M.C.A., a comprehensive deal that covers the country’s most important trading partners, is the biggest test so far of Mr. Trump’s ability to change global trade terms in America’s favor.
Administration officials say they are gearing up to use the new deal as a way to challenge Canadian and Mexican business practices that harm American interests.
In a congressional hearing on June 17, Robert E. Lighthizer, the United States trade representative, said that he had pushed to have the agreement go into effect on July 1, even during a pandemic, so that the new rules could be enforced. In a sign of how fraught the new trade deal could be, Mr. Lighthizer said the United States was looking at a number of issues “that are quite troubling.”
Like many Democrats, Mr. Lighthizer has criticized America’s past trade agreements for both enabling American factories to move overseas and lacking tools to crack down on those who would violate the rules. Over months of negotiations with Canada, Mexico and congressional Democrats, Mr. Lighthizer forged a coalition and worked out changes to the trade deal that won broad bipartisan support.
That included sweeping changes to Mexico’s labor system, which would try to break the corrupt unions that help many companies control their workers in Mexico, and replace them with freely organized unions that could negotiate better wages and working conditions. That in turn would benefit American workers, by giving them a more level playing field to compete.
Mr. Lighthizer pointed to Mexico’s refusal to accept American biotech products — like genetically modified corn and other crops — as one area where the United States could bring a case under the new trade deal. Mexico’s labor reforms and treatment of American media companies are also garnering U.S. scrutiny. Mr. Lighthizer told lawmakers that his agency would take action “early and often” to combat violations of the agreement’s labor rules, which are meant to improve wages and working conditions, particularly in Mexico.
Mr. Lighthizer also indicated that the United States, which won access to Canada’s dairy market as part of the deal, was monitoring that sector for potential violations of the agreement. And the administration is considering renewing tariffs on Canadian aluminum exports.
Another new part of U.S.M.C.A. that was crucial for winning the support of Democrats and labor leaders was its “enforcement provisions,” which give governments, unions and workers the ability to report violations of the agreement, and to try to seek redress.
One of these systems allows the countries to bring cases against one another about labor rights or a wide variety of other issues. Another fast-acting, labor-specific system allows unions, workers and other parties to report labor violations, which may lead to factory inspections and even products from the offending company being blocked at the U.S. border.
“We’ve always talked about agreements that don’t have teeth, and this one has some teeth,” said Ben Davis, the director of international affairs for the United Steelworkers union. “Maybe not a full mouthful, maybe not as sharp as we need it, but it has some teeth, and we’re all waiting to see how that plays out.”
Mr. Lighthizer has said that these provisions will help to reverse a long-running trend, where manufacturers have moved out of the United States to take advantage of lower wages and laxer working conditions in Mexico.
“It wasn’t economics in my judgment, it was industrial policy down there,” Mr. Lighthizer said in the June 17 hearing, about companies outsourcing to Mexico. “We’ve turned that around.” Congressional Democrats and labor leaders say it’s too early for the Trump administration to declare victory, pointing to Mexico’s half-finished labor reforms.
At that hearing, Richard E. Neal, a Democratic congressman from Massachusetts, said there had been “serious deficiencies” in how Mexico was enacting its labor reforms.
“We’re going to hold people’s feet to the fire,” said Representative Rosa DeLauro, Democrat of Connecticut and one of the Democratic negotiators.
Mexico passed a sweeping labor law in 2019 aimed at meeting the pledges it had made to Canada and the United States in its new trade deal by giving workers more ability to organize and bargain. But since the labor law was passed, violence against Mexican labor activists has continued, and hundreds of lawsuits have been filed challenging the constitutionality of these reforms.
If the Mexican Supreme Court rules that the labor law is unconstitutional, Mexico could be in violation of a major portion of the trade pact, and could face tariffs or other punitive actions from the United States and Canada.
Union leaders are preparing a list of labor cases they could bring under the new agreement’s dispute settlement provisions, including that of a Mexican labor lawyer, Susana Prieto Terrazas, who was arrested while trying to establish an independent union. But it remains to be seen what kind of punishment the independent panels that review these cases could hand down, if any.
“Implementation is only as good as they’re willing to enforce it,” said Representative Jimmy Gomez, Democrat of California. “We’re going to be paying attention, very closely, to how the agreement is implemented.”
“The promise of the U.S.M.C.A. is that it was righting the wrongs of NAFTA,” he added. “But if they’re not willing to use it, or if they’re taking steps to undermine it, then it’s for naught.”
For companies that are scrambling to comply with the trade pact’s voluminous rules for how they source their products and share information with the government, much remains uncertain as well.
Many businesses that were working to enact the changes required by the U.S.M.C.A. had to put everything on hold for the pandemic, said Richard Mojica, a lawyer with Miller & Chevalier’s International practice. Companies have also been trying to digest hundreds of pages of new detailed industry guidance, which the administration only released in June.
“It’s absolutely a scramble,” Mr. Mojica said.
Ann Wilson, the senior vice president for government affairs at the Motor & Equipment Manufacturers Association, which represents auto parts suppliers, said companies were facing significant costs to meet the new rules at a particularly trying time, in the midst of a pandemic and economic recession.
“Many of these companies are still laying off people, furloughing people, and they’re still trying to grapple with these requirements,” Ms. Wilson said.
But companies will have a grace period to adapt to the new regulations.
U.S. Customs and Border Protection, which monitors imports at American ports, has already indicated that, for the next six months, it will focus on helping companies to meet the rules, rather than punishing them if they unwittingly break them.
“I think both parties are going to be learning for a while,” Mr. Mojica said.
Emily Cochrane contributed reporting.
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