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Trump, House Democrats Strike Deal on Updated NAFTA, Clearing Way for Speedy Ratification

Posted December 11, 2019

After more than a year of political wrangling and on-again, off-again talks, House Democrats yesterday announced that following weeks of “intense, argumentative, angry negotiations,” they have finally reached a deal with the White House over several policy changes in the Trump administration’s revamped version of the 25-year-old North American Free Trade Agreement, setting the contentious pact on course for likely ratification by Congress in 2020, if not sooner.

Pointing to various concessions on labour, environmental, pharmaceutical and enforcement provisions in the newly-styled United States-Mexico-Canada Agreement, Speaker Nancy Pelosi declared the revised deal a “victory for the American worker” and “infinitely better than what was initially proposed by the administration.” Later, she joked that the president “won’t even recognize it” because Democrats succeeded in making so many substantive changes.

White House press secretary Stephanie Grisham also declared victory, issuing a statement praising what she called “the biggest and best trade agreement in the history of the world” and crediting President Trump’s leadership for getting it done. The White House claimed the revised agreement “rebalances trade in North America and is historically strong on manufacturing, agriculture, labour, services, digital trade, IP, environment, and much more.”

According to a release from Richard Neal, Democratic congressman and chair of the House Ways and Means committee, the final tweaks to the deal closed a number of significant enforcement loopholes and introduce “new mechanisms and resources to ensure that the U.S. Government effectively monitors compliance.”

Key Amendments

Labour Rules: Critics of NAFTA and organized labour unions have long complained that Mexican workers can’t always form unions freely and demand fair pay, creating a situation that puts U.S. and Canadian manufacturers at an unfair disadvantage.

To address these disparities, Mexico has passed new legislation to overhaul its own labour system, eliminating the traditional control of unions by business and the government, and has agreed to implement a “rapid-response” process that will make it easier to enforce provisions protecting workers from intimidation and violence.

The revised deal outlines benchmarks that Mexico will have to meet as it reforms its labour laws. If it fails to meet those obligatory commitments, the U.S. or Canada could argue Mexico is violating the agreement and take a series of enforcement measures.

Under the revised deal’s new bilateral mechanisms, the U.S. and Canada can create panels of labour experts to investigate union unresolved complaints at Mexican factories and penalize goods and services exported from that plant if violations of the freedom to organize or collectively bargain are detected.

Such changes were critical to winning the support of labour unions, which also endorsed the revised pact on Tuesday. “We have secured an agreement that working people can proudly support,” AFL-CIO President Rich Trumka said on Twitter. “Working people are responsible for a deal that is a vast improvement over both the original NAFTA and the flawed proposal brought forward in 2017.”

Biologics: In a major departure from past trade agreements, which sought to lock in stronger protections for intellectual property, special patent protection for new-age biological medicines were stripped out of the USMCA.

As a result, the U.S. pharmaceutical industry said it could not support the revised agreement because it drops the 10-year exclusivity provision, which Democrats argued would undermine efforts to pass legislation aimed at lowering drug prices. Instead, the new agreement now leaves it up to each country to establish the length of patent protection afforded to pharmaceuticals from cheaper alternatives.

The new deal also removed language that would ensure patent protections when drug companies find new uses for their existing products, a process known as “evergreening.”

Environment: A previous version of the deal, released in May, already called for protections for the ozone layer, marine environments, and air quality, as well as the establishment of a fisheries management system to prevent overfishing. These measures, however, were deemed insufficient by many environmental groups.

The revised deal now includes a number of new provisions, including a clause that presumes “an environmental violation affects trade and investment.” If a government challenges this presumption, they are required to provide proof that this is not the case.

Another new addition is the creation of an inter-agency committee to monitor countries’ commitments to environmental standards.

Revised Agreement Signed

At a signing ceremony in Mexico City on Tuesday attended by top officials from the three countries, U.S. Trade Representative Robert Lighthizer said it was “nothing short of a miracle that we have all come together,” adding that it was “a testament to how good the agreement is.”

Deputy Prime Minister Chrystia Freeland celebrated the new deal as a win for multilateralism, noting it had been accomplished “together at a moment when, around the world, it is increasingly difficult to get trade deals done.”

“Today Canada, the United States and Mexico have agreed to improvements of the new NAFTA that strengthen state-to-state dispute settlement, labour protection, environmental protection, intellectual property, the automotive rules of origin, and will help to keep the most advanced medicines affordable for Canadians,” said Freeland during her remarks.

Timeline Ahead:

U.S. lawmakers in the House could vote as soon as December 19 to ratify the deal — the White House signalled that it intended “to push hard on passing the implementing bill before the end of the year.” However, Senate Majority Leader Mitch McConnell said his chamber won’t take up the deal until early next year, likely after the impeachment trial.

Mexico’s legislature is expected to sign off on the revised pact in the coming days, but the Canadian parliament won’t likely introduce legislation to ratify the agreement until after it reconvenes on January 27, 2020.

Need More Information?

Should you have any questions about the latest changes to the revised North American Free Trade Agreement and the new rules governing USMCA compliance and preferential tariff treatment that should be coming into effect sometime next year., don’t hesitate to contact us – our trade experts are here to help.


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