USMCA Inches Forward in Congress, but Time May Be Running Short

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White & Case LLPWith just weeks remaining on the 2019 congressional calendar, a potential House vote on legislation to implement the US-Mexico-Canada Agreement (USMCA) remains in doubt. Negotiations between House Democrats and the Office of the US Trade Representative (USTR) on possible changes to the USMCA remain incomplete, despite weeks of additional talks following an initial exchange of written proposals and counter-proposals in September 2019. Moreover, if the two sides are able to reach agreement in the coming weeks, other procedural hurdles likely will need to be overcome before the House would vote on a USMCA bill, raising the potential for further delays. Opposition from key Democratic constituencies, most notably organized labor, and several Democratic presidential candidates may also have reduced the political incentive for House Democratic leadership to come to an agreement with USTR and to support the final deal. Given the limited time remaining on the 2019 congressional calendar, and the possibility that the presidential election will deter consideration of the Agreement in 2020, there is a significant chance that the USMCA will not be implemented in the near-term. This alert summarizes recent developments regarding the USMCA and the potential obstacles that remain.

Status of USTR-Working Group Negotiations

Over the past month, the Working Group of nine Democrats assigned by House Speaker Nancy Pelosi (D-CA) to address USMCA issues has continued to meet with USTR, reportedly accelerating discussions following the initial exchange of USTR proposals and Working Group counter-proposals in September 2019 The two sides have held meetings and exchanged written proposals more frequently in recent weeks in an effort to finalize agreements on the USMCA's treatment of labor, environmental, pharmaceutical and enforcement issues. Congressional sources have indicated that House Democrats will not settle for a "handshake deal" or "agreement in principle" with USTR but instead have demanded agreed-upon written texts in all four issue areas.

The leader of the Working Group, House Ways & Means Committee Chairman Richard Neal (D-MA), has repeatedly expressed optimism that the two sides are close to completing these agreements, and other Members have explained that the parties are now focusing on specific textual issues (e. g. , the use of binding "shall" versus permissive "may") rather than high-level principles. Chairman Neal reiterated this optimism at a meeting with the Canadian government this week. Nevertheless, it does not appear that any of the four issue areas has been fully closed, and the two sides have not yet resolved the most contentious issue – binding enforcement of Mexican labor commitments. Indeed, despite his overall optimism, Chairman Neal suggested last week that USTR Lighthizer and his staff would need to engage directly with organized labor officials in order to reach a final compromise on the USMCA's labor and enforcement terms.

Congressional Consideration of Implementing Legislation

Given the aforementioned issues, it appears unlikely that USTR and the House Working Group will reach final agreements on the four core issue areas before mid-November at the earliest. This step, however, would not result in the immediate submission to Congress of the legislation needed to implement the USMCA under Trade Promotion Authority (TPA). Instead, at least two other, interrelated hurdles remain before House Democrats would agree to consider the implementing legislation:First, the USTR-Working Group agreements would need to be presented to Speaker Pelosi for her final approval. Second, USTR will likely need to conduct further negotiations with Mexico, and perhaps Canada, to obtain commitments consistent with what has been agreed between USTR and the Working Group. According to Mexican Under Secretary for North America Jesús Seade, any USTR-Working Group agreement would need be reviewed and approved by both Mexico and Canada.

Satisfying these pre-conditions may present additional complications: for example, it is unclear whether Mexico or Canada would agree to significant changes to the USMCA without Speaker Pelosi's approval, or whether Speaker Pelosi would sign off on the agreement prior to seeing whether Canada and Mexico have responded favorably. Although neither obstacle is insurmountable, they do complicate and likely delay the implementing legislation's arrival and consideration in Congress. Mexican officials have said that their review of the USMCA changes could take time if they are not viewed as being in Mexico"s interest, and that Mexico will not accept provisions permitting US inspections of specific Mexican factories, which some congressional Democrats have proposed.

Moreover, senior congressional sources have stated that House Democrats will insist on holding "mock markups" of the implementing bill to ensure transparency and to address Members' concerns. These markups could theoretically occur while USTR is negotiating with Mexico in order to expedite the process, but such an approach again raises concerns about whether House Democrats would agree to consider the USMCA implementing bill without first having official Mexican and Canadian sign-off.

Finally, concerns remain about whether there will be sufficient support for the final USMCA implementing legislation – a question complicated by the lack of published implementing legislation. On the Democratic side, lawmakers such as House Ways & Means trade subcommittee member Bill Pascrell (D-NJ) have indicated that they will oppose the USMCA at this time due to continuing concerns about Mexico's labor commitments, instead wishing to see whether the Mexican government will follow through in 2020 with labor reforms enacted this year. Moreover, it appears that most US labor unions could oppose the USMCA, despite the Trump administration's attempts to include in the agreement provisions designed to obtain union support. This week, the leaders of the twelve labor groups that comprise the AFL-CIO's Industrial Union Council (which represents more than 4. 5 million workers and includes the International Association of Machinists & Aerospace Workers, the United Steelworkers, the United Automobile Workers, and United Mine Workers of America) sent a letter to Congress warning that they will oppose the USMCA unless "it is significantly improved and reflects our core recommendations" on labor and enforcement.

Several Democrats also have openly complained about the Trump administration's approach to seeking congressional approval of the USMCA, arguing that recent public criticism of House Democrats by Vice President Pence and other senior administration officials has made many Democrats less likely to support the final bill. For example, Rep. Ron Kind (D-WI) recently criticized Vice President Pence for "politiciz[ing] USMCA when everyone is trying to get this done in an honest, bipartisan fashion. "Still other Democrats remain undecided because there is no implementing bill to consider. Rep. Haley Stevens (D-MI), for example, has expressed support for the USMCA but recently complained that lawmakers "still don't have the materials and it's up to the administration to produce it. "

Congressional Republicans, on the other hand, are expected to support the USMCA, in part to placate the US business community (which is actively engaged on the issue) and to support President Trump. However, given the likely extent of Democratic opposition, the administration can only afford to lose a few Republican votes, and some Republicans have recently expressed opposition, or demanded changes, to the agreement. Sen. Pat Toomey (R-PA) has already stated that he will vote against the USMCA due to its "sunset" clause, scaling-back of investor-state dispute settlement, and automotive rules of origin, and it is likely that a handful of other "free market" Republicans will oppose the agreement on similar grounds (for example, recent reports of alleged administration demands that US automakers further localize production in order to obtain special treatment under the USMCA rules of origin). Other Republicans, moreover, might oppose the USMCA due to digital trade provisions that protect internet companies from third party liability in a manner similar to "Section 230" of the Communications Decency Act – a provision of US law that many Republicans allege allows internet companies to stifle conservative viewpoints. In a November 1, 2019 letter, for example, Sen. Ted Cruz (R-TX) called for the removal of USMCA Article 19. 17, which he claimed would stymie "efforts to hold big tech companies accountable" by putting the United States in breach of the USMCA if Section 230 were ever revised.

Outlook

Even if USTR and the Working Group can reach an agreement prior to the Thanksgiving holiday that greenlights submission of the USMCA implementing legislation, the remaining pre-conditions for congressional consideration of the bill, the bill's actual drafting, and the limited number of legislative days remaining in 2019 could delay a vote into 2020. (According to the latest House of Representatives Schedule, only 17 legislative days remain on the 2019 calendar, though days could be added particularly if they are needed for appropriations or other time-sensitive legislative business. )It remains possible that the parties can complete all of these steps in rapid succession, thus clearing the way for a December vote (despite TPA's much longer timelines), and House Democrats may indeed be motivated to move the bill in part to demonstrate that their agenda is not focused solely on impeachment proceedings. Congressional approval of the USMCA in 2019 therefore cannot be ruled out.

On the other hand, the aforementioned obstacles to a congressional vote on the USMCA this year are significant, and there is little margin for error at this stage. Perhaps for this reason, Speaker Pelosi recently declined to rule out the possibility that a USMCA vote would slip into next year. Should that delay occur, presidential election year politics might prevent the vote from occurring at all. Currently, all four of the top-tier Democratic Party presidential candidates – Joe Biden, Elizabeth Warren, Bernie Sanders and Pete Buttigieg – have expressed opposition to the USMCA as written. If the USTR-Working Group agreements do not soften the leading candidates' views (and those of organized labor), it is likely that each would demand that House Democrats vote "no" on any final USMCA implementing legislation, both on policy grounds and in order to deny President Trump a legislative victory heading into the election. Given this dynamic, and the historical difficulties associated with trade votes during election years (e. g. , the Trans-Pacific Partnership in 2016), Speaker Pelosi may be forced to shelve the USMCA bill in 2020, leaving the prospects for the USMCA's implementation uncertain.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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