The International Trade Commission held a hearing Thursday and Friday to inform its report on the likely economic impacts of the U.S.-Mexico-Canada Agreement.
Streamlined customs procedures and untested dairy provisions are among the issues the International Trade Commission (ITC) should consider as it prepares a statutorily required report on the likely economic impacts of the U.S.-Mexico-Canada Agreement (USMCA), said industry representatives on Thursday during a public hearing held by the ITC to inform its report.
Based on timelines set forth in Trade Promotion Authority (TPA) legislation, the ITC could submit its report to Congress this spring, though the actual time frame depends on the date that the three USMCA member governments formally sign the deal, which is expected to occur Nov. 30 during the G20 summit in Buenos Aires.
If the G20 signing takes place as planned, the ITC would have until the end of March 15 to submit its report to Congress.
Express Association of America Executive Director Michael Mullen said USMCA customs provisions provide more details than previous agreements for harmonizing import/export data between parties and for operating a single-window system to allow the trade community to make a single submission of data to satisfy all government data inquiries for a shipment.
“The trade community has long desired to have a system in North America where one country’s export declaration is the other country’s import declaration and the data requirements are truly aligned,” Mullen said.
Mullen said USMCA customs provisions go beyond those included in the Trans-Pacific Partnership, as the new deal proposes to newly require member parties to identify the reason for a border hold and the agency responsible for the hold if not Customs, he said.
USMCA also contains specific language on managing bonds never before included in a free trade agreement, Mullen said.
International Dairy Foods Association CEO Michael Dykes is pleased with USMCA language that enhances geographical indications processes, but questioned whether the results of dairy negotiations between the U.S. and Canada — a big sticking point during talks — will translate to positive benefits for U.S. industry in practice.
Prior to its agreement with the U.S., Canada indexed its nonfat solids price to the lower of three world prices, ensuring Canadian industry’s ability to absorb market share from the U.S., Dykes said.
But USMCA would allow Canadian processors to “use their own internal ‘make allowance’ or processor cost that is nearly double the U.S. version, allowing large processor margins that drive expansion and provide Canadian dairy protein processors a competitive advantage relative to the U.S.,” he said in written testimony.
Further, while USMCA provides for duty-free quotas for most U.S. dairy products, that doesn’t mean that Canada will import enough products to fill the milk quota, for instance, despite the fact that the U.S. milk price is much lower than Canada’s, Dykes said in his testimony.
Canada’s Special Class 5 program allowing Canadian processors to apply for a permit entitling them to buy Canadian dairy ingredients at equal to U.S. prices could be one factor behind unfilled quotas, he said.
There’s also precedent for Canada to avoid filling quotas, as several World Trade Organization quotas for milk protein substances and natural milk constituents are routinely left unfilled, Dykes said in testimony.
“Overall, my members are very pleased that the USMCA negotiations are complete but the concerns I laid out regarding Canada’s make allowance and the quota fill rates may erode what our negotiators were able to achieve,” Dykes said.
The automotive industry was heavily represented during the first day of the hearing, which was scheduled to continue through Friday afternoon.
Alliance of Automotive Manufacturers Vice President for Federal Government Affairs Jennifer Thomas said the Mexican government is estimating that one-third of U.S. vehicle imports from Mexico won’t qualify under USMCA’s new automotive rule of origin and that the Ann Arbor, Mich.-based Center for Automotive Research that 47 of 142 vehicle types imported from Mexico will no longer qualify.
Both American Automotive Policy Council President Matt Blunt and Association of Global Automakers CEO John Bozzella during the hearing noted as significant the USMCA’s proposal to raise the North American value content requirement for automobiles from 62.5 percent to 75 percent.
USMCA’s rule of origin is more complex and specific regarding the types of content, especially the “very core” of car content that can qualify, in addition to the new regional value content requirement, Bozzella said.
Further complicating automotive trade in the USMCA context are ongoing steel and aluminum Section 232 and retaliatory tariffs imposed by NAFTA partners against one another, as well as a threat by the Trump administration to impose new Section 232 tariffs on automobiles and/or auto parts, witnesses said.
Bloomberg reported on Monday that the administration has circulated a draft report on potential Section 232 measures on automobiles, indicating the executive branch might be moving closer to a final decision. The final report is due in February, after the Commerce Department started the Section 232 auto investigation under Section 232 of the Trade Expansion Act of 1962 in May.
“The threat of additional tariffs on autos and auto parts under the 232 investigation that Commerce is conducting hangs like a sword over the industry and complicates any assessment of USMCA,” Bozzella said.
Motor & Equipment Manufacturers Association Senior Vice President for Government Affairs Ann Wilson said her organization is starting to hear from manufacturers like smaller steel stampers that Section 232 tariffs have impeded exports of finished goods, because steel prices in the U.S. haven risen so high that certain firms are no longer cost-competitive in foreign markets.
This could lead to a trend in which it becomes more efficient for U.S. automotive supply chains to absorb more imported goods that can be easily shipped, like wire harnesses, she said.
“There is a balance here,” Wilson said. “You can’t just … say, ‘We’ve raised the regional value content and we’re going to be safe here.’ These other attributes are making it much more difficult for our members and our manufacturers to be competitive globally, and that is not something that the U.S. will benefit from.”
ITC Commissioner Irving Williamson said maybe the commission’s report should forecast impacts of potential auto tariffs and existing steel and aluminum tariffs.
Karl Tsuji, an international trade analyst for the ITC, asked witnesses to provide information post-hearing on the segments of the automotive assembly and supply industries that are least and most burdened by ongoing Section 232 steel and aluminum tariffs.
Seasonal/Perishable Impacts. Four of seven total witnesses from the U.S. agriculture industry testifying on Thursday represented regions in the southeastern U.S. and criticized what they cited as unfair trade by Mexico in products that compete with crops grown in the region like tomatoes and strawberries.
Florida Agriculture Commissioner Adam Putnam testified that his state is the sole U.S. producer of many fruits and vegetables during the winter months before several other states begin their harvests and added that Florida and Mexico produce many of the same agricultural products during the winter months and have overlapping harvests of other commodities during the remaining seasons.
As certain Mexican produce “floods” the U.S. market, many U.S. agriculture producers don’t have a “fair option” to bring antidumping and countervailing duty cases against those imports, because U.S. AD/CVD laws aren’t well-structured to address injury during limited marketing seasons, Florida Fruit and Vegetable Association CEO Michael Stuart said.
USMCA doesn’t include trade mechanisms to help the U.S. produce industry address this unique challenge, despite 2015 TPA legislation’s language calling for trade agreements to include such measures, Putnam said. He asked for the commission’s report to suggest the insertion of such language to the USMCA prior to the pact’s entry into force.
Advocates had suggested throughout the NAFTA renegotiation that language to ease the process for certain producers to bring AD/CVD cases based on seasonal trends be added to the deal.
Labor Perspective. International Brotherhood of Teamsters lobbyist Michael Dolan and AFO-CIO policy specialist for trade and international economics Celeste Drake both indicated their organizations are reserving judgment at this time about whether USMCA will have a positive or negative impact on labor in the U.S.
Drake urged the ITC to use “empirical data, not merely trade theory” in its report to make meaningful projections about inequality and labor share as they relate to USMCA implementation.
She criticized the use of the computable general equilibrium (CGE) model by the ITC in its previous reports of potential economic impacts of free trade agreements.
Generally speaking, CGE models use actual economic data to estimate how an economy might react to policy changes.
Drake said such a model is “ill-suited” to project economic impacts of changes to rules — as opposed to tariffs — in free trade agreements, fails to account for transfers of production and the imbalance of power between workers, capital, and governments that seek to attract that capital, and fails to consider social welfare losses of regulatory restraints and “excessive monopoly rights.”
The CGE model underpredicted the goods and services trade imbalance from China’s WTO accession and overpredicted the benefits of NAFTA and the Korea-U.S. Free Trade Agreement, in particular, by failing to predict “the mass exodus” of auto and auto parts production, Drake said.
Dolan said the ITC should scrap the “less flexible and generally unreliable” CGE model in favor of “the model of economic analysis that will best describe the economic effects of this new NAFTA,” such as the global policy model (GPM) developed by the U.N. and preferred by labor economists.
The U.N.’s website describes the GPM as allowing for the specification of alternative assumptions about the future economic context and policy responses in a group of countries, and as allowing for the tracing of macroeconomic outcomes over short, medium, and long-term timescales.
Dolan said USMCA’s results will likely be mixed for Teamsters-represented employees working in the U.S. short-haul, long-haul, and rail freight sectors, as new USMCA annexes will clearly permit new restrictions on cross-border operating authority for the Mexican trucking fleet.
But Mexico continues to keep in place a measure prohibiting U.S. freight rail crews from operating in Mexico, and the U.S. didn’t secure a reciprocal reservation for U.S. crews on U.S. rail beds, as some unions are reporting that freight rail companies are already bringing Mexican crews into the U.S. in violation of their expectation of crew exclusivity, Dolan said.
USMCA Implementing Legislation. As the ITC prepares its report, a key hurdle the USMCA will face is a House to be under Democrat control starting in January.
Based on statutory timelines, implementing legislation for the pact could foreseeably be submitted to Congress by the end of July, but Democrats will likely demand that Republicans give something in exchange for their support of the deal, said Center for Strategic and International Studies (CSIS) Scholl Chair in International Business Bill Reinsch during a discussion Wednesday at CSIS.
Democrat assertions that the USMCA isn’t good enough to earn their support would be in line with past precedents of trade agreements reaching Congress when at least one chamber was held by the party not in power of the presidency, Reinsch said.
“They will not be able to resist the temptation to exact a ransom,” he said.
The ransom will appear in two ways, Reinsch said.
Democrats will assert that USMCA’s labor provisions don’t go far enough, which would nudge the Office of the U.S. Trade Representative to re-engage Mexico to tweak the labor provisions, “which I think is an obtainable goal,” he said.
“The other part is, [Democrats] will not be able to resist the temptation to do what the party that’s out of the White House always does when a ‘must’ bill comes up to the Congress, which is, hold it hostage for something else, non-trade, and they’ll have a big debate about that,” Reinsch said. “Don’t build the wall. Do something on immigration. Have an infrastructure bill. Do our kind of tax reform. Who knows?”