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Analysis

USMCA: New Changes in a Race Toward Ratification

By Andrea Villar | Wed, 12/11/2019 - 14:00

It is done. After months of renegotiation, Mexico, Canada and the US signed a revision of the United States-Mexico-Canada Agreement (USMCA). During an event held at Palacio Nacional, President Andrés Manuel López Obrador received Canadian Deputy Prime Minister Chrystia Freeland, US Trade Representative Robert Lighthizer and US White House Advisor Jared Kushner to formalize the modifications to the agreement.

Although USMCA was signed more than a year ago, Democrats controlling the US House of Representatives insisted on major changes to labor and environmental chapters before bringing it to a vote. The delay threatened to scuttle the deal, creating investment uncertainty in all three countries and worrying US farmers already suffering tariffs stemming from Trump’s trade war with China. Now, we are one step closer from finally bringing negotiations to an end.

Terms and Conditions

Labor issues were transcendent in this renovated version of USMCA. Intense negotiations over the past week among Democrats, the Trump administration and Mexico led to more stringent rules on labor rights aimed at reducing Mexico’s low-wage advantage against Canada and the US. Democrats and the American unions influenced the most recent Labor Reform in Mexico and also participated in the construction of control mechanisms that certify that these reforms are fulfilled.

Both Canada and the US wanted a mechanism to check compliance of union rights at the factory level in Mexico managed by independent labor experts. However, Mexico’s Chief Negotiator and Deputy Foreign Minister Jesús Seade said all disputes would be resolved through panels and denied there would be any foreign labor inspectors in the country. USMCA now contemplates the creation of a Labor Conciliation and Registration Center that must be concluded within a year and a half, which will be in charge of solving disputes directly with workers instead of unions.

"The power that the union representative had before is now in the hands of workers and it is them who have the right of freedom of association to join, remain or abstain from participating in a union," said Partner of De la Vega & Martínez Rojas Abogados Óscar de la Vega in an interview with Mexico Business News. Workers will no longer depend on a union to access a source of employment. “We are levelling the playfield in labor issues together with our business partners. The ultimate goal is to improve wages for Mexican workers,” says de la Vega.

Regarding rules of origin for cars in the region, no many changes took place. As it was already set, a vehicle or truck must have 75 percent of its components manufactured in Canada, Mexico or the US, which was a substantial increase from the current 62.5 percent requirement. The rule also says that a percentage of the car must be manufactured by workers earning at least US$16 an hour. According to the Washington Post, this will raise vehicle prices which could cause some small cars to end up being produced in Asia, as it would be too expensive to manufacture them in North America to comply with USMCA. 

As for steel, USMCA’s new rules require that in a seven-year-period, 70 percent of the steel used in all the vehicles produced in North America must be melted in the region, which industry leaders consider detrimental for the region’s competitiveness. “This protectionist measure driven by the US steel industry will prevent us from taking advantage of better steel prices offered outside North America,” said Guillermo Rosales, Deputy Director General of AMDA to Mexico Business News. Discussions regarding a local content rule for aluminium were postponed for 10 years. “We expect an impact in either profit shares for manufacturers and distributors or in the final price for the end vehicle consumer,” said Rosales.

In environmental protection, Mexico agreed to enhance monitoring to stop illegal fishing, while all the three countries agreed to no longer subsidize fishing of overfished species. Also, the 10-year protection granted to drug patents was reduced to eight years following pressure from Democrats.  

A US Political Game?

Both Donald Trump and the Democratic party emerged victorious from USMCA’s renegotiation, although each waving different flags according to analysts. Almost three years after Trump entered office, the president fulfilled one of his great political promises: to renegotiate what he considers a "disaster for the US that has caused unemployment and company divestment."

“It was very important for Trump to have the deal signed because the election campaigns are already beginning. Part of his sales strategy with his followers and with the people of his party is that he is a tough negotiator and that he knows how to do it. From his point of view, many agreements were very poorly negotiated.” said to Mexico Business News the internationalist and humanistic studies teacher Mauricio Meschoulam. 

In the midst of impeachment and polarization between the White House and the House of Representatives, Democrats also see USMCA as a political victory, says Meschoulam, as they will present it as a conquest over the opposition. "Democrats will say that the modified agreement is much better than what Trump had negotiated and that thanks to them, American workers will enjoy better conditions," said Meschoulam.

According to him, given the internal context in the neighbouring country, USMCA should be seen as something positive, since the Mexican government for a moment considered the possibility of no deal at all. “Given the circumstances and given the political environment in the US, Mexico did not fare so badly. For Trump, Mexico’s commercial and immigration issues are one more flag for his audience in the middle of an election campaign and his impeachment.”

Mexico: Bad Negotiator? 

Some fear that the Mexican government has yielded too much. President of COPARMEX Gustavo de Hoyos and a vocal López Obrador critic called the government “a bad negotiator.” Meanwhile, Seade himself said some of the changes were reasonable but not necessarily “good for Mexico.”

Addressing criticism, López Obrador said this morning at his daily press conference that there is no risk of losing sovereignty with the new treaty. “There is no risk of losing sovereignty. It is a good agreement for Mexico and we will not do the same (as previous administrations); not everything will depend on the treaty,” he said. The president also said that he will send the USMCA protocol agreement to the Senate, so the High Chamber can analyze and approve it before Dec. 15.

However, US Senate Majority Leader Mitch McConnell said he will delay the revised pact, which was inked the same day Trump became the fourth US president in history to face formal impeachment, until after the impeachment trial is resolved by the Senate. The impeachment trial will not even begin until after the holidays, McConnell said.

 

Some data in this article was sourced from Reuters and The Washington Post

Andrea Villar Andrea Villar Journalist and Industry Analyst