Senators Disagree on Whether USMCA Should Be Model for Future FTAs

The top Republican on the committee, Sen. Mike Crapo of Idaho, in his opening statement, said he doesn't agree the NAFTA rewrite should be a model for all future trade deals. He complained that the changes negotiated with the administration by the House Working Group were rammed through the Senate without the Senate Finance Committee having proper consultation. "I am concerned that some of our Democrat House colleagues now want to push their changes -- that allegedly strengthen labor and environment standards, but most certainly weaken our intellectual property rights -- into new agreements before we even have a complete understanding of their full implications. I will not accept that," he said.

Sen. John Cornyn, R-Texas, tried to get a sense of what would need to change in the Trans-Pacific Partnership to get labor unions to accept it, and Benjamin Davis, director of international affairs for the United Steelworkers, said: "We're a long way from there." Cornyn asked him for something specific, and Davis said one of the TPP member countries is a non-market economy that is hurting American workers, dumping steel and aluminum here. "We’re going to have to have a lot more enforcement, and we’re going to have to have a much more critical approach on who defines themselves as our friends, and then want to take money out of our bank account," he said.

Sen. Bob Casey, D-Pa., said that he will soon introduce "The Market Economy Sourcing Act," which would say that the non-originating content under a free trade agreement cannot come from non-market economies. He said if it became law, it would "ensure that countries like China cannot free ride on free trade agreements. As you know, half of all content under existing rules of origin can come from countries outside the agreement."

Davis said the USW endorses the legislation, and said the TPP would have allowed a car with just 40% of its value coming from TPP member companies to receive tariff benefits. He said that the 60% share included China. Davis said that Casey's bill is "really fundamental to reinvesting in the American workforce … and our supply chains."

Sen. Bob Menendez, D-N.J., asked the witnesses what lessons USMCA can provide if Congress wants to rewrite CAFTA-DR, the free trade agreement that covers Central America and the Dominican Republic. Menendez argues that changing CAFTA-DR can help companies diversify away from China and can help stem migration from Northern Triangle countries.

Davis said a CAFTA-DR rewrite should support Democratic priorities more than USMCA does. He said a CAFTA-DR rewrite would need to address "the serious violations of worker rights throughout that region." He questioned the proposal that opening more factories in Guatemala or Honduras would help slow illegal immigration from those countries. Central America has little capacity for protecting its workers from exploitation, he said, which makes him ask "whether this is going to be effective in improving living standards or deterring migration."

Menendez then asked whether the U.S. should remove some of the CAFTA-DR benefits to Nicaragua, given the government's action to jail candidates running against the incumbent. "I don’t think anyone expected CAFTA to extend trade benefits to an authoritarian regime," he said. Davis said all the countries in the agreement violate their citizens' labor rights or human rights, so he said "we have to look at all the mechanisms" in the trade deal to disapprove of those actions.

Sen. Elizabeth Warren, D-Mass., referred to the Guatemala labor case brought under CAFTA-DR, which she said found that Guatemala "had violated its labor law but it could get away with it on a technicality." She asked Davis if it would help if the U.S. government would commit to acting within months on any labor complaint under any trade agreement.

Davis replied that the withhold release orders for forced labor should be seen as a tool that should be expanded for other violations, such as gender discrimination or freedom of association. He said that while forced labor is worse than preventing a union or discriminating against women in the workplace, that "doesn't mean that those others don’t deserve a similarly rapid and efficient response."

But Sen. Pat Toomey, R-Pa., said the rapid response mechanism in USMCA, which does not go straight to an import ban, already violates due process. He complained that Tridonex has been given no details about the investigation of its Mexican subsidiary, "and no recourse to defend themselves." Toomey also complained that the NAFTA rewrite made the trade deal worse, as it is restricting free trade in autos, in what he called a misguided attempt to mitigate Mexico's competitive advantage in wages. He said that even with the "extremely strict interpretation of regional value content" that the administration is pushing, there has been no shift of production to the U.S. so far. He noted that the International Trade Commission predicted that because the labor value content rules would increase the cost of production in the industry, cars would become more expensive, and as a result, sales would fall, and ultimately, jobs in auto manufacturing would decline by 54,000.