Trade Compliance

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House Approves USMCA Trade Deal in Bipartisan Vote

Posted December 19, 2019

The U.S. House of Representatives overwhelmingly approved a revised North American trade pact by a bipartisan vote of 385 to 41 today, clearing the way for the Senate to ratify the deal early next year once it wraps up President Trump’s impeachment trial.

The vote comes a week after senior U.S., Canadian and Mexican officials signed off on a number of key revisions to the deal in Mexico City aiming at winning support from unions and progressive lawmakers, such as reducing patent protections for pharmaceuticals and improving the enforcement of labour standards.

In 1993, NAFTA narrowly passed the House on a vote of 234 to 200 and has since been vigorously denounced by both Democrats and Republicans as contributing to a steady outflow of jobs from the United States to Mexico. President Trump relentlessly disparaged NAFTA as the “worst trade deal ever made” when he was running for election three years ago, lambasting it as terrible for American workers; a view shared by organized labour. 

While much of the more than 2,000-page document simply updates existing provisions, adding guidelines for food safety, e-commerce and online data flows, the revised pact also contains a number of changes to try to discourage the kind of outsourcing for which critics blame the original NAFTA. In this sense, the USMCA offers “a new construct for trade” that will serve as “a template for the future,” according to House Ways and Means Chairman Richard Neal (D-MA).

Scoring the Implementation Bill

The USMCA is expected to bring in about $3 billion in additional tariff revenue over the next decade as automakers opt to simply pay more import duties rather than comply with the more stringent auto rules of origin, the Congressional Budget Office said in its score of the implementing bill.

CBO estimated that auto companies and other importers would pay an estimated $10 million of additional tariffs in 2020 if the deal is approved. That would rise to around $460 million annually in 2026, before plateauing at $450 million annually through the end of the decade. The figures also reflect a small drop in agricultural tariff revenues.

Earlier in the year, a mandated review by the U.S. International Trade Commission found that USMCA would modestly boost the U.S. economy, especially auto parts production over current conditions, but warned it could also curb vehicle assembly.

The ITC report estimates that annual U.S. real gross domestic product would increase by 0.35%, or $68.5 billion, on an annual basis compared to a NAFTA baseline, and would add 176,000 U.S. jobs while raising U.S. exports.

Despite its relatively limited impact on the economy, finalizing the agreement is a welcome development for farmers, ranchers and business owners anxious to move past nearly two years of trade tensions that have complicated investment and hiring decisions.

Replacing NAFTA

The USMCA implementing bill officially repeals the North American Free Trade Agreement Implementation Act, which was signed into law by President Bill Clinton on Dec. 8, 1993.

It should be noted, however, that it only “suspends” the prior Canada-United States Free Trade Agreement, which President Ronald Reagan signed in 1988. That keeps the CUSFTA in place as a backup to the USMCA, should the new deal be terminated as part of the sunset review called for in six years.

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