Who benefits from President Donald Trump’s bullying approach to trade negotiations and aggressive rhetoric? With the centerpiece of Trump’s trade agenda, the renegotiated NAFTA (re-branded by Trump as the “USMCA,” the US-Mexico-Canada Agreement), signed by the three countries November 30, Europeans are asking what’s in the agreement and whether it has implications for them. Discussions between U.S. Trade Representative Robert Lighthizer and European Commissioner for Trade Celia Malmstrom are now underway, preliminary to formal trade negotiations. While we don’t know for sure what’s under discussion, the Trump administration will likely look to the new NAFTA as a model for future trade deals, including with the EU. Recently leaked European Commission documents indicate that the talks will be wide-ranging and not limited to tariff levels, with “regulatory engagement” and “cooperation” proposed for pharmaceuticals, medical devices, marine equipment and automobile safety and food standards and other policy areas.
All of these topics and more are included in the new NAFTA, so whether you are a factory worker or farmer, purchase groceries or use the Internet, understanding this new agreement could provide important lessons even if you live or work in Austria or elsewhere in the EU. The new NAFTA is a mixed bag. There are the beginnings of reform in some areas, such as reducing the scope of the investor-to-state dispute settlement mechanism (ISDS); provisions calling for strengthened collective bargaining protections in Mexico; and new rules for automobile manufacturing that could promote higher wages. At the same time, the needs of workers in industries outside of the automobile sector are mostly ignored, while many other provisions undermine the interests of workers, family farmers, and consumers, and fail to protect the environment or address the negative impacts of climate change.
The AFL-CIO, which represents twelve and a half million U.S. workers and their families, has not yet endorsed the new NAFTA, stating that the agreement is “far from finished.” While pointing out the improvements over the original agreement, the AFL-CIO has stated that the labor provisions are unlikely to make a “meaningful difference” for North American workers. In its recent submission to the U.S. International Trade Commission, the AFL-CIO raised doubts about the enforceability of the labor provisions and stated the NAFTA renegotiation “maintains many of the basic flaws of corporate-driven trade agreements, with some rules that are worse than the original NAFTA. For example, it includes excessive monopoly rights for brand-name prescription drugs; creates stricter rules limiting the ways the United States can protect the public interest through food safety, chemical safety, and financial services regulations; restricts our ability to enact provisions protecting the security and privacy of consumer data…” In addition, as IATP has pointed out, the new NAFTA has an onerous regulatory practices chapter that locks in the Trump administration’s unilateral executive orders that make it harder to adopt new public protections, and promotes repealing current protections that regulated industries consider burdensome or unnecessary.
By law, the U.S. International Trade Commission (ITC), must assess the economic impact of a new trade agreement before it can be sent to the U.S. Congress for an up-or-down vote. With Democrats seizing control of the House of Representatives in the midterm elections, and a number of free trade-advocating Republican legislators losing their seats, passage of the new NAFTA is not assured when Congress reconvenes in 2019. It is likely that the position of U.S. labor unions on the agreement will be a major consideration for many members of Congress, and to date, most unions have not taken a clear-cut position on the deal. Meanwhile, environmental groups have come out in opposition, and consumer and patient advocate organizations have raised alarms about provisions that will insure high drug prices and limit access to medicines. With new leadership chairing the key House trade oversight committees, we can expect a thorough review of the details of the new NAFTA. What are some of those details? Here are some highlights:
Limiting ISDS – a model for Europe?
Most progressive commenters agree that the most significant—and positive—aspect of the new NAFTA are reforms to the investor-to-state arbitration provisions. ISDS would be eliminated between Canada and the U.S. three years after the agreement goes into effect. With respect to the U.S. and Mexico, however, ISDS would continue without change for gas and oil, energy, infrastructure, telecommunications and transportation services, where those services have a contract with the Mexican government at the federal level. Since U.S. enterprises in these sectors have been required to enter into such government contracts in order to operate in Mexico, the contract provision would not act to limit the scope of these companies’ access to ISDS. Because ISDS would be unchanged for the oil and gas and energy industries, among other concerns, many environmental groups have announced their opposition to the new NAFTA. As IATP has pointed out, the new agreement still “empowers energy companies to legally challenge environmental protections, creates new venues for governments to weaken or block environmental regulations, and facilitates a North American system of energy, fuel and agriculture that are major sources of GHG [greenhouse gas] emissions.”
Outside of these enumerated industries, U.S. and Mexican firms will have access to a more limited form of ISDS. Of particular importance, corporations will not be able to sue for damages based on “indirect expropriation,” in other words when a permit decision, law or regulation has the effect of making an investment too expensive or legally impossible to pursue. Instead, corporations may seek compensation from governments only for “direct expropriation,” defined as when “an investment is nationalized or otherwise directly expropriated through formal transfer of title or outright seizure.” Other changes would disallow claims based on speculative investment, require legal cases to be pursued for three years in domestic courts or administrative bodies before an ISDS claim could be filed, and make modest changes to reduce arbitrators’ conflicts of interest. While Canadian and Mexican corporations will still be able to invoke old-style ISDS arbitration against the other government under the TPP-11, some progressive commenters are hailing the reforms as a significant step forward nonetheless, and potentially a model for other trade agreements. As Scott Sinclair of the Canadian Centre for Policy Alternatives has written, “The fight against ISDS is far from over. But its phasing out between Canada and the U.S. and its retrenchment between Mexico and the U.S is a remarkable victory for social movements in North America and globally, who have tirelessly campaigned to eliminate this insidious impediment to progressive public policy.”
A question for Europeans may be, given that the U.S. has agreed to significant limitations on ISDS and plans to eliminate it entirely with respect to Canada, why should the EU continue investor arbitration in the trade agreement with Canada (CETA), and further institutionalize these corporate benefits through a proposal to establish a permanent Multilateral Investment Court system? The ISDS system was so broadly opposed in Europe that the European Commission was essentially forced by popular opinion to make changes. Yet the European Commission’s proposed changes are not true reform, especially compared to the willingness of the U.S. to drop ISDS altogether. While U.S. industry groups are adamant that the investment reforms in the new NAFTA should not become a model for future trade agreements, U.S. Trade Representative Robert Lighthizer has consistently articulated his opposition to ISDS, and as long as he continues in that position, it is likely the U.S. will not seek to include ISDS in future agreements.
Changes to automobile rules of origin.
President Trump has touted the new NAFTA as a boon to workers. His claims rest primarily on two provisions that apply to the automobile industry. One requires that 75 percent - up from 62.5 percent - of the parts that go into a vehicle are made in North America in order to qualify for tariff-free treatment. The second requires 40-45 percent of a vehicle to be made by workers earning at least $16 USD an hour. This “Labor Value Content” (LVC) is a first-ever such measure in a U.S. trade agreement. While the AFL-CIO has acknowledged “clear improvements over the auto rule of origin in the original NAFTA,” the labor federation has stated to the U.S. International Trade Commission that it “has serious questions and concerns about the new rule and its potential to meaningfully preserve and create new high-wage auto supply chain jobs in the United States.” One concern is the $16 wage level is an average, not a minimum, and the implementation and enforcement provisions are unclear. Further, the federation is concerned that “without a strong labor chapter, this provision could backfire, actually increasing pressure on Mexican workers to keep wages, benefits, and safety costs down, aggravating current levels of outsourcing.”
As pointed out above, only auto workers will benefit from these provisions; the new NAFTA leaves other workers out in the cold. A cynic might conclude that the primary purpose of including this provision (and announcing a rushed and unfinished deal on NAFTA immediately before the midterm elections) was to ensure future support for President Trump by this large block of voters. That said, the LVC is an innovative concept that could be included in future trade agreements for other industries and products. It is an attempt to incorporate sustainability objectives into a trade agreement in a measurable way, if it is enforced.
Making it more difficult for governments to adopt protections for workers, consumers, and the environment.
Balanced against the innovations described above are expanded corporate regulatory benefits in the new NAFTA. Most provisions in the agreement are not directly about trade. Rather, the agreement consists of a complex, bureaucratic and confusing web of rules directing how domestic regulators must go about researching, drafting and implementing public policies that address everything from meat inspections, to chemical toxicity studies, to water quality, to climate change. These provisions apply broadly across all of government and affects virtually all regulations, even if not trade-related, and for the first time would be subject to dispute settlement among nations, enforceable through trade sanctions. The new NAFTA has many regulatory harmonization and equivalency provisions, additional cost-benefit and regulatory impact statement rules, limits on what information may be used to support new regulations, and opportunities for industry to seek to repeal regulations they dislike. The end result will likely be delay, weakening and even repeal of public protections.
Chemical safety in the workplace.
For example, a new annex on chemical substances says Canada, Mexico and the U.S. “shall endeavor” to use a risk-based approach to regulating chemical substances and mixtures (rather than the precautionary approach used in the EU) and align their methodologies. The annex states the parties “shall strengthen their cooperation” generally on chemicals regulation and specifically, “they shall cooperate with a view to minimizing the differences in the use of safety data and safety data sheets”. This provision could have significant consequences for workers as well as emergency responders unless the harmonization is upwards to the stronger standard; Canadian safety data sheets are substantially more comprehensive and informative than what is required in the U.S. Such federal-level harmonization has the potential to impact hazard communication standards at the sub-federal level, if stronger state-level protections in California and other states were to be challenged as restraints on trade.
Weaker food safety and promotion of genetically modified agriculture.
Another topic garnering special attention in the new NAFTA’s regulatory cooperation and equivalency provisions is agricultural biotechnology. As IATP has outlined, the new NAFTA’s provisions are intended to entrench the non-regulation of food and agricultural products of “modern biotechnology”, legalize the trade of unauthorized and unregulated products, and limit the legal liability of corporations when their exported products are contaminated with low levels of unauthorized genetically modified material. For example, the agreement defines genetically modified organisms to exclude from regulation newer gene editing techniques—a policy that is inconsistent with policy in the EU. The agreement also promotes weaker food safety provisions in general by limiting border inspectors, encouraging paper-based audits, inserting new language on sound science and risk assessment that would make it harder to defend or implement food safety protections, and pushing for equivalency agreements to recognize Canada’s and Mexico’s food as produced under regulatory rules and practices that are as good as the United States—even when they may not be.
Increasing prescription drug prices.
The new NAFTA will exacerbate the problem of high prescription drug prices through several of its provisions. The agreement would establish new monopolies for already costly brand-name medicines in the intellectual property provisions, and new requirements on government health care authorities would make it more difficult to negotiate lower drug prices based on prices in other countries. The agreement would require at least 10 years of marketing exclusivity for cutting-edge biologic medicines, such as many new cancer treatments, delaying the marketing of less expensive biosimilar versions of these medicines. This would prevent the U.S. from fixing its current flawed system that keeps drug prices high, while requiring Mexico and Canada to change their laws to benefit the pharmaceutical industry over patient interests. Mexico currently has no additional exclusivity period for biologic medicines, and Canada has an eight-year period. The pharmaceutical industry has used the NAFTA renegotiation to achieve what it was unable to secure in the TPP – extreme monopoly protections that will lock in high drug prices at the expense of patients’ lives and at great cost to both family and government healthcare budgets.
There are some interesting and useful innovations in the new NAFTA that benefit workers and society, especially the limitations on ISDS. But taken as a whole, most of the agreement is an extreme version of corporate rules that will further restrict the ability of democratic societies to assure that workplaces are safe, food is healthy, life-saving medicine is available to those who need it, and the environment is sustained and not destroyed. As trade negotiations between the U.S. and the EU get going again, understanding the renegotiated NAFTA will be central to insuring that any Trans-Atlantic deal truly benefits us all.