Q&A with Professor Álvaro Santos.

Two key conditions for the approval of the United States-Mexico-Canada Agreement (USMCA) were met in April. First, on April 18, the U.S. International Trade Commission (ITC) published its evaluation of the economic impact of the USMCA, a procedural step required for U.S. fast track authority. Second, on April 29, the Mexican Senate approved the labor reform that Mexico committed to pass prior to the entry into force of the USMCA pursuant to Annex 23-A of the agreement. Despite these events, it remains unclear whether President Trump and Congress will be able to solve the outstanding policy and procedural issues for approval and if so whether there is still time for ratification to occur this year. The clock seems to be ticking for those in favor of a trilateral free trade agreement given President Trump’s threat of an early withdrawal from NAFTA if Congress refuses to approve USMCA.

In this context, Georgetown Law’s Center for the Advancement of the Rule of Law in the Americas (CAROLA) recently hosted the conference “USMCA: Innovations and U.S. Ratification” to examine the changes to NAFTA that resulted from the new U.S., Mexico, and Canada trade agreement (USMCA) and discuss potential solutions to the hurdles of its ratification. The conference was organized around two panels (including a variety of trade law practitioners, policy specialists, law professors and research fellows) and included a keynote delivered by Her Excellency Martha Bárcena, Ambassador of Mexico to the United States. We invited Alvaro Santos, Professor of Law and Director of CAROLA at Georgetown University Law Center, to share with us the highlights of this interesting event and his general views regarding USMCA. Professor Santos served as Deputy Chief Negotiator of the USMCA for the new Mexican government.

Q: What were the panelists’ views on the main issues affecting the USMCA congressional approval process?

A: With a Democratic majority in the U.S. House of Representatives, the political landscape in the U.S. has changed. There are both procedural and substantive issues affecting USMCA’s approval process. Stephen Claeys [Partner, Wiley Rein] mentioned some of the legal steps that would have to be followed by the Executive in order to get the USMCA bill passed. He highlighted, however, that the more interesting aspects with respect to USMCA were the policy issues that would need to be worked out with Congress in order to get the votes needed to ratify the agreement, including labor, environmental, and intellectual property provisions (which concern the Democrats) and steel and aluminum tariffs (which concern the Republicans). One of the problems, however, is that these matters require significant policy discussions and as Brian Pomper [Partner, Akin Gump Strauss & Feld] mentioned, the current Administration might be far from the ideal counterpart from whom to extract trade concessions or with whom to have a broader conversation about trade. Stephen Claeys agreed, putting across the notion that President Trump may believe he has already conceded enough by having the negotiations in the first place, and that he might not be very willing to “pay” any further to get the USMCA through Congress. During the discussion, Elizabeth Baltzan [Principal, American Phoenix Trade Advisory Services PLLC] jumped in to mention that the new standard under the Trade Promotion Act for adding to a trade agreement via the implementing legislation was “strictly necessary and appropriate,” and that as a result it would be very hard to include a wish list of policy issues within the implementation bill.

Q: Mexico’s labor reform, which was set as a condition precedent to USMCA entering into force, has been at the center of the approval discussions. Were there any comments in this respect?

A: Celeste Drake, who is AFL-CIO’s Trade and Globalization Policy Specialist, reflected on this issue. She mentioned that trade agreements have never done enough for those at the bottom, including workers, and that the current trade model assumes that winners compensate the losers. In the United States, however, she does not believe that has really happened. Trade deals in her view might “grow the pie” but are also known to have exacerbated inequality. In order to offset those tendencies, domestic legislation that compensates the losers should be introduced in tandem. And, according to Mrs. Drake, the reason this has yet to happen is because the powers behind the current trade model are opposed to such reforms.  She thought the labor reform in Mexico was very positive but also emphasized the importance of compliance and enforcement on labor rights, suggesting that the agreement would need to be reopened to ensure those mechanisms work effectively.

Q: I understand several panelists commented on whether the USMCA typified a model for the future and the extent to which it represented a significant departure from NAFTA. Is USMCA very different from other trade agreements?

A: On this point, Kimberly Ann Elliott [Visiting Fellow, Center for Global Development] opined that seen in isolation, the NAFTA and USMCA were indeed different agreements, but that mindful of the evolution of U.S. trade agreements as a whole over the last 25 years, the change could be characterized as incremental at most, the USMCA building from the same basic model and being –save for certain innovations in auto rules of origin, investment, and labor- very similar to the Trans-Pacific Partnership Agreement (TPP). What was different, according to Mrs. Elliot, was the politics around USMCA i.e., how we got here, inasmuch as the U.S. would not have had a renegotiated NAFTA if Trump had not withdrawn from the TPP.

In terms of the economics, Christine McDaniel [Senior Research Fellow, Mercatus Center, George Mason University] stated that the USMCA was on the whole a positive, adding however that trade agreements are oversold – ITC reports have almost always attributed small but positive effects to them- and they cannot solve all of the domestic problems of the domestic economy. In referring to an aspect of the USMCA that might serve as a model for other agreements moving forward, Mrs. McDaniel singled out digital trade as a discipline in which American “strength shines through.”

With respect to environmental standards, Sierra Club’s Ben Beachy intervened to say that the USMCA did not significantly depart from the status quo in terms of the environment. Gauging the importance of environmental issues in U.S. trade deals from the number of pages dedicated to it in the recent ITC report –1.5 out of over 300 pages- and the fact that there is no reference to climate change in the USMCA and all previous trade agreements, Mr. Beachy posited that these issues did not register as a priority, even though the concern with environmental arbitrage is real. According to him, deals that incentivize the free flow of goods but that do not impose the same standards on all parties in areas such as labor and the environment encourage arbitrage and the shifting of production where the standards (and costs) are the lowest. In short, he indicated they constitute instruments for corporations to undercut labor and environmental regulations and for the outsourcing of pollution and jobs.

Q: Were there any discussions regarding the changes to the investor-state arbitration mechanism in USMCA?

A: Inu Manak [Visiting Fellow, Cato Institute] observed how the scaling-back of ISDS (although timid as the USMCA grandfathers in certain sectors) puts the United States back on par with the rest of the world, and that the decoupling of investment from trade is a trend that will continue in other trade agreements. Removing ISDS puts the onus on countries to develop a sound rule of law and a system of effective courts to improve the investment climate, which should, according to Mrs. Manak, be the way for managing investment rules moving forward. Echoing this argument, Ben Beachy also commented that the current ISDS model provides a ceiling not a floor for government action in the public interest. There are other instruments for providing a floor of certitude for investment, of which, according to the World Bank’s Doing Business Report, ISDS is not a principle one.

Q: Can you please share with us the views of Mexico’s Ambassador to the United States regarding USMCA and the approval process?

A:  Mexico’s Ambassador Bárcena delivered a keynote speech. She began her address with a note of optimism, offering the view that the USMCA would get through this year and putting forward a more nuanced perspective on the importance of the agreement not only for Mexico, but also for the United States. She reflected on the fact that people in the U.S. often ignore the importance of Mexico to the United States. Mexico is the second export market for the U.S. and its third largest trading partner. “In the last two months,” Ambassador Bárcena added, “Mexico has been the number one trading partner of the United States.” To put things into perspective, “all the trade of India and Japan is less than the trade of Texas with Mexico”. Six million American jobs depend on trade with Mexico, Ambassador Bárcena continued. She highlighted that it is easy to get dragged into a narrative of what the problems between the countries in the North American region are, and it is key therefore, not to lose sight of what the challenges for continuing to build prosperity really are.

She also commented on the USMCA’s chapter on labor and the shared interest of the Democratic Party and the Mexican government in implementing the rights therein recognized. In her view “a progressive and effective labor rights agenda is one of the top priorities of President López Obrador” and indicated that Mexican government was going to pass a labor reform with or without the USMCA. According to Ambassador Bárcena, passing the labor reform now and aligning it with Annex 23-A of USMCA not only shows that the Mexican President is convinced of labor reform, but also that the government will honor its commitments.

During Q&A, Ambassador Bárcena articulated a message that resonated with the audience: “The U.S. labor movement will never have a better ally than the one of the Mexican government right now.” Adding the phrase “seize the opportunity,” Ambassador Bárcena expressed support for the cause of improving workers’ rights in both Mexico and the United States, while also noting that labor obligations under the USMCA should be reciprocal.

Q: What are your thoughts after hosting this interesting event?

A: There are certainly many conclusions and takeaways from this conference. As a general matter, I believe trade can be a force for prosperity, but that all hopes for peaceful progress and democratic governance cannot be pinned on trade. The U.S. cannot expect that the rules of trade, such as those contained in the USMCA, provide the main solution to the distributional concerns in its society. Mexico also cannot expect that the USMCA be its solution to growth and development necessary to lift half its population out of poverty. The U.S., Mexico, and Canada need to think beyond the USMCA and cooperate on many other fronts in order to appease the passions of nationalism, xenophobia and resentment that can pit our societies against each other. USMCA could be a renewed opportunity for engagement between the North American partners, to establish a solid economic basis to be sure, but also to think ambitiously and creatively on how to cooperate for a prosperous future.

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