Business, Labor Interests Weigh in Ahead of ITC Hearing on USMCA

The AFL-CIO, an important organization for getting strong bipartisan support in the House of Representatives, said that it has not taken a position for or against the new agreement. It said USMCA should not come into force until a law outlawing protection unions in Mexico is not simply passed but is being put into practice. Its submission to the ITC said, "The AFL-CIO has serious doubts that the improved rules will make a meaningful difference to North American working families without additional provisions, assured funding, and implementing language." It called for an independent secretariat to monitor labor chapter compliance, which would require funding, and said that a footnote in the document makes it hard to uphold international labor standards. The AFL-CIO also questioned the utility of the $16-an-hour wage standard in the auto rules of origin, partly because it's not indexed to inflation; partly because it's an average, not a minimum; and because in the unions' reading of the clause, Mexican R&D or IT services could count toward the quota without reaching the $16-an-hour standard.

"We urge the USITC to model a scenario in which automakers avoid the $16/hour [standard] altogether and pay the 2.5% automobile tariff instead," the pre-hearing brief said. "It is important to understand the choices that face producers who are addicted to low wages and exploitive labor practices."

The auto industry diverged in its assessment of USMCA, with the Big Three automakers endorsing it and the Global Automakers reserving judgment. The trade group that represents General Motors, Ford and Fiat-Chrysler said, "While the rules will present some challenges for our industry, we believe the administration struck the right balance and provided sufficient flexibilities" for a transition. The brief explicitly supported USMCA, and asked that all future trade agreements contain similar language around motor vehicle safety standards and currency manipulation. The group seemed to assume that Section 232 tariffs on steel and aluminum will be resolved shortly.

In contrast, the group that represents foreign automakers who do business in the U.S. did not explicitly endorse the agreement, and emphasized how much red tape would be needed to comply with the rules of origin. It asked the ITC to consider those costs, and complained that the deal is not clear on how companies would keep records on wages and on steel and aluminum purchases. It said that any economic assessment of USMCA would have to consider a range of scenarios -- if the Section 232 steel and aluminum tariffs in the region persist, for instance, or if a Section 232 tariff on autos is levied.

Congress will use the ITC economic assessment as it decides whether to approve the trade deal. Public Citizen, a nonprofit group that is skeptical of trade agreements, suggested that the ITC has never accurately scored the effects of a free trade agreement, and complained its models assume full employment and no friction for workers who have to change sectors.

Two trade groups that represent steel producers were silent on how they want Mexican and Canadian steel to be treated, but the Iron and Steel Institute said it got what it wanted in the customs chapter, since it calls for increased information sharing "to address circumvention and evasion of trade remedy orders. This was an important priority of the steel industry in the negotiations."

The U.S. Chamber of Commerce, the most significant business voice historically for the Republican Party, criticized changes to procurement rules and investor-state dispute settlement, and had strong language around the steel and aluminum tariffs on Mexico and Canada, saying those tariffs "must be lifted immediately and must not be replaced by quotas."

On the positive side, the Chamber said, "NAFTA’s positive status quo was maintained in many regards," and it called chapters on digital trade, intellectual property, financial services, sanitary and phytosanitary measures, technical barriers to trade, competition, state-owned enterprises, telecom, good regulatory practices and customs and trade facilitation "exemplary."

"The outcome on de minimis is disappointing and suggests the Administration may seek to lower the U.S. de minimis level, a move the U.S. private sector opposes," the Chamber wrote, adding that it hopes "at least some of our concerns can be addressed before the agreement is signed."

From agriculture, a dairy trade group did not endorse the deal, even after all of Trump's emphasis on Canadian market access for dairy. The International Dairy Foods Association said it is "still analyzing the specifics surrounding the elimination of Class 6 and 7 and the market access outcomes." But it emphasized that until the steel and aluminum tariffs are lifted on Mexico -- and its retaliatory tariffs on cheese fall away -- the Mexican export market "is in grave jeopardy." About 25 percent of all dairy exports are to Mexico.

The trade group that represents the beef industry said it supports USMCA. The National Pork Producers Council also wants USMCA to come into force as soon as possible, but said that dropping metals tariffs on NAFTA partners is also critical. "Together, the two countries account for over 40 percent of our exports to the world and about 15 percent of our production," the council said. "Removing the 20 percent duty that Mexico has imposed, and acquiring duty free access to the Mexican market, would cause a 10 percent increase in the U.S. live hog market ... that’s an aggregate benefit to the U.S. pork industry of nearly $1.5 billion annually."