People involved in negotiations gave a ringing endorsement of the pact’s labor and environmental provisions, a hot topic as Congress expects to consider the deal soon.
Interlocutors from all three parties of the U.S.-Mexico-Canada Agreement (USMCA) on Friday highlighted the pact’s labor and environmental provisions as groundbreaking, as the Democrat-controlled House is expected to closely scrutinize that language in forthcoming implementing legislation.
“Whether it’s illegal timber or ozone depletion, the substantive standards on environment and labor are nothing like we’ve ever seen before,” Colin Bird, minister-counselor for trade and economic policy at the Embassy of Canada in Washington, said during a trade conference.
USMCA would require each party to treat intentional transnational trafficking of wildlife protected under its laws as a crime constituting an offense punishable by at least four years’ “deprivation of liberty” or a more serious penalty, as defined by the UN Convention on Transnational Organized Crime.
The agreement also would require parties to cooperate in addressing matters of mutual interest related to ozone-depleting substances, including exchanging information and experience in areas such as environmentally friendly alternatives to ozone-depleting substances; refrigerant management practices, policies and programs; and combating illegal trade in ozone-depleting substances.
Also, “in a way that is rarely seen,” USMCA strives to make sure the benefits of the agreement are widely shared, including through automotive rules of origin that incentivize raising of Mexican wages, Bird said during the Georgetown University Law Center 2019 International Trade Update.
Kenneth Smith Ramos, who was Mexico’s chief negotiator for the USMCA and now works in the private sector, said the deal’s labor chapter is the strongest and most advanced labor chapter in any free trade agreement and reflects the types of labor reform being discussed in Mexican Congress, including strengthening collective bargaining rights.
“I believe that it will be part of the discussion, of course, from groups in the United States and probably [lawmakers] who, in all fairness, would not vote for a trade agreement anyway but are using it as leverage for other things that could be even of a domestic nature,” he said. “But we are very satisfied with the result obtained in the labor chapter negotiations.”
Also, making labor and environment provisions subject to the same dispute settlement mechanisms as other chapters adds “teeth” to those provisions, Ramos said.
Noting USMCA’s labor and environment provisions, Assistant U.S. Trade Representative for the Western Hemisphere John Melle said Mexico is in the process of “overhauling” its justice system so workers have the right to secret ballot votes and challenging union leadership and that USMCA environment provisions combat trafficking in wildlife, timber and fish and address ocean litter, among other things.
“And unlike NAFTA, these provisions are fully enforceable in the core of the agreement, and coupled with robust monitoring and enforcement provisions, will create fairer competition among North American workers,” said Melle, who was the United States’ chief USMCA negotiator.
The officials also touched on the issue of de minimis, which they indicated as a challenging area of negotiations.
Canada agreed to raise its de minimis level from $20 CAD to $150 CAD, sparing all shipments up to that amount from duties, but will collect taxes on shipments worth $40 CAD to $150 CAD. Mexico agreed to raise its de minimis ceiling from $50 to $117, but will continue to collect taxes on shipments worth $50 to $117 shipments. The United States’ de minimis level is $800.
Melle said USMCA language on de minimis is improved but not “fully satisfactory” as there remains a difference between the three countries’ levels.
The “root of the issue” is that the U.S. would like to see countries make a rational decision on appropriate de minimis levels based on the cost of collections, consumer benefits and opportunities created for companies in the larger space, Melle said.
“Congress made a determination that that level for us is $800,” he said. “Canada and Mexico are far away from that so … to me, that is the issue, is the disparity in the regimes we see in the three countries.”
Melle said that a USMCA footnote stating a party may institute a de minimis level reciprocal with another party’s lower level has gotten an “incredible amount of attention” and that the Trump administration is “talking very intensely with Congress” about it.
Ramos touted the “compromise solution” on de minimis and said raising the level as high as $800 would create revenue problems for Mexico and that it would spur more lower-value imports to come into the country.
“We know a lot of merchandise was coming in undervalued, and what would end up happening is we would wind up having tons and tons of product coming in from Asia in a very expeditious manner, jumping in a way that avoids all of the specific rules in North America,” he said.
Bird said Canada also had an issue with providing a “loophole” for non-North American imports to share in a benefit provided through USMCA, and noted Canada’s goods and services tax was a central part of the discussion.
“If we had a rule in the NAFTA that you can buy from the United States without paying taxes, but if you go to another website that happens to be Canadian-based and try to buy the same thing, you’re subject to taxes, that means you [would] go to Amazon U.S.,” he said. “You [wouldn’t] go to a Canadian online source, and it’s not because of fair competition. It’s because taxation policies would be different.”