Clock ticks down for passage of USMCA

WASHINGTON — President Donald Trump, who has struggled to strong-arm a newly divided Congress into funding his proposed border wall, could be in for a similar fight over his new North American trade agreement.

That's because the December-January partial government shutdown — caused by the impasse over wall funding — compressed the timeline for Congress to consider the proposed rewrite to NAFTA, complicating difficult odds for approval and weakening Trump's negotiating hand, according to trade experts.

With the 2020 presidential campaign poised to heat up in the fall, time is limited for the White House to win support of lawmakers, many of whom wonder whether the United States- Mexico-Canada Agreement sufficiently levels the rules and generates the manufacturing jobs Trump claims.

Businesses are displeased about increased costs from USMCA changes, but prefer them to restrictions in a non-NAFTA world.

"The core of the problem is [White House officials] did not build broad-based support in Congress or among traders before launching negotiations and did not sustain support during negotiations," said Scott Miller, a senior trade adviser at the Center for Strategic and International Studies. "They got an agreement that nobody is in love with, except the president," and lining up votes at this late stage will be difficult.

The administration has tried to get back on schedule. It submitted to Congress the list of changes to U.S. law needed for USMCA to take effect, but with many procedural hurdles remaining, the window to pass an implementing bill is narrowing. U.S. Trade Representative Robert Lighthizer must still draft the bill's text and a statement of administrative action so Congress can make informal suggestions before a final copy can be submitted and then formally filed in each chamber.

Meanwhile, Senate Finance Committee Chairman Charles Grassley, R-Iowa, said Congress can't consider the free-trade agreement until the International Trade Commission finishes its economic impact report, now pushed to mid-April because of the 35-day partial government shutdown.

Assessing how lower tariffs benefit the economy is relatively straightforward for the agency, but analysts there are finding it difficult to quantify the reduction in nontariff barriers, such as regulatory cooperation or commitments to modernize customs processes.

There are also problems measuring the impact of new rules of origin for automobiles and components, including a minimum-wage provision, that companies must meet to qualify for zero tariffs on imports, said Vanessa Sciarra, vice president for trade and investment policy at the National Foreign Trade Council.

One former trade practitioner at a large multinational firm predicted the ITC report would show little improvement over NAFTA, especially after factoring in higher expenses and lower productivity for the auto sector. The findings could color how some lawmakers perceive the deal, he said.

"I don't think the report necessarily is going to change hearts and minds on the Hill," Sciarra said.

Democrats question whether USMCA includes enforceable provisions for Mexico to introduce more protections for workers and the environment, but they haven't staked out a formal position yet as deliberations within their caucus continue.

The higher standards are intended to raise the cost of doing business in Mexico and make U.S. companies think twice about moving production there.

Political analysts expect that Democrats, who took control of the House in January, will demand that Lighthizer negotiate changes to the agreement with Mexico and Canada, possibly in the form of side letters.

Another option, Sciarra said, is for Congress to include a unilateral provision in the implementing bill that essentially threatens consequences if Mexico doesn't abide by certain expectations, such as passing labor laws by a certain date.

"The shift in the House is pretty seismic, so they have to organize themselves. Plus, there are a lot of new members who don't know much about trade," Sciarra said. "So, there's a lot of educating and discussing going on."

Many business groups are also withholding support for USMCA until the White House removes the steel and aluminum tariffs on Mexico and Canada that were supposed to be lifted once they signed the trade deal, Welles Orr, senior international trade adviser at Miller & Chevalier, said.

Senate aides and others say the window of opportunity to pass the implementing bill and approve USMCA will be gone by late August because lawmakers running for president in 2020 won't want to deal with the volatile trade issue.

Trump still has leverage. Political observers note that he can pressure Democrats into voting for USMCA by giving notice to withdraw from NAFTA after six months, as is allowed under the agreement.

But such a gambit could backfire, they say.

Trump's authority to withdraw would be challenged in court, while Congress would insist on overseeing the process. NAFTA allows any party to withdraw, but some legal experts argue that since Congress granted the authority 25 years ago to enter the agreement, the president doesn't have unilateral power to act.

"The Constitution is silent. There is clear language about how to make a treaty, but it says nothing about how to withdraw," Miller said. "This is a huge political fight that nobody knows how it gets resolved."

A withdrawal would only embolden House Democrats, veteran Hill observers say.

House Speaker Nancy Pelosi, D-Calif., would likely change the rules for fast-track consideration of trade bills and slow-walk the debate, as she did with the Colombia free trade agreement in 2008, if she thinks Trump is trying to pressure her, said William Reinsch, former president of the National Foreign Trade Council and now a trade analyst at the Center for Strategic and International Studies.

"I don't think that is making the Democrats nervous at all," Sciarra added. "Their feeling is, if he wants this agreement he's going to have to deal with them, and if he doesn't want it, we just live with NAFTA, which is perfectly fine. It's an aging agreement, but it is not a broken agreement."

Most White House officials understand that a NAFTA withdrawal would be a political loser, especially after the blowback from the partial government shutdown over Trump's border wall, she said.

"What Pelosi would say to them is, 'Fine, you want to own withdrawal, then own withdrawal,' " she said. " 'Let's go there. Why don't you guys withdraw and then we'll start talking to the farmers about what the tariffs are going to look like when they try to sell stuff to Mexico' " at the double-digit international duty rates.

The political reaction may prompt him to back down.

Sciarra said, "I could see him a couple days later just saying, 'Oh, just kidding. Withdraw the withdrawal.' "