US House Passes New Trade Pact To Replace NAFTA

The U.S. House of Representatives overwhelmingly approved a new North American trade deal on Thursday that includes tougher labour and automotive content rules but leaves $1.2 trillion in annual U.S.-Mexico-Canada trade flows largely unchanged.

The House passed legislation to implement the U.S.-Mexico Canada Agreement 385-41, with 38 Democrats, two Republicans and one independent member voting no.

The bipartisan vote contrasted sharply with Wednesday night's Democrat-only vote to impeach U.S. President Donald Trump.

The House vote sends the measure to the Senate, but it is unclear when Senate Republican leader Mitch McConnell will take it up. He has said that a USMCA vote would likely follow an impeachment trial in the Senate that is expected in January.

But the timing of that trial remains up in the air as the two parties clash over how it would be managed.

The USMCA trade pact, first agreed upon in September 2018, will replace the 1994 North American Free Trade Agreement. Trump vowed for years to quit or renegotiate NAFTA, which he blames for the loss of thousands of U.S. factories to low-wage Mexico.

House Speaker Nancy Pelosi gave USMCA a green light last week after striking a deal with the Trump administration, Canada and Mexico to strengthen labour enforcement provisions and eliminate some drug patent protections.

U.S. industry groups breathed a sigh of relief at the vote.

"House passage of the USMCA is a huge step toward finalising this long-awaited 21st century trade agreement," said Matt Blunt, president of the American Automotive Policy Council, which represents Detroit automakers Ford, General Motors and Fiat Chrysler.

"This modernized trade deal between our North American trading partners will strengthen the U.S. auto industry and the auto manufacturing supply chain," Blunt added.

CONCESSIONS FOR DEMOCRATS

The changes negotiated by Democrats, which include modestly tighter environmental rules, will also set up a mechanism to quickly investigate labour rights abuses at Mexican factories.

The endorsement of these provisions by U.S. labour leader Richard Trumka, head of the AFL-CIO, was considered crucial to winning support from Democrats, who control the House.

"This isn't a perfect agreement. It still has room for improvement," Trumka told Reuters in an interview, adding it could take eight to 12 years to begin reversing U.S. job losses.

U.S. Trade Representative Robert Lighthizer made a concession by dropping a requirement for 10 years of data exclusivity for biologic drugs, a provision that Democrats feared would keep drug prices high and that they called a "giveaway" to big drugmakers.

But those changes were not enough for some rust-belt Democrats to overcome the scars from factory closures blamed on NAFTA over the past 26 years.

"USMCA will not bring back the 155,000 jobs in Ohio that were lost to outsourcing after NAFTA," Representative Marcy Kaptur said of her home state in explaining her "no" vote.

"It does nothing for our small farmers suffering under President Trump's trade wars, and it holds no true labour protections that the Mexican government is capable of enforcing," Kaptur said in a statement.

Representative Ron Kind, a pro-trade Democrat from Wisconsin, one of the top dairy-producing states, praised new access to Canada's closed dairy market under USMCA.

"A no vote is a return to the failed policy of the old NAFTA, the status quo, rather than this more modernized version," Kind said in floor debate.

AUTOS, DIGITAL, CURRENCY

The U.S. International Trade Commission estimated in April that USMCA would modestly boost the U.S. economy, adding 176,000 jobs over 15 years but may reduce vehicle assembly in the United States. It would boost economic output by 0.35% a year, or $68.5 billion annually versus a NAFTA baseline.

The agreement modernizes NAFTA, adding language that preserves the U.S. model for internet, digital services and e-commerce development, industries that did not exist when NAFTA was negotiated in the early 1990s. It eliminates some food safety barriers to U.S. farm products and contains language prohibiting currency manipulation for the first time in a trade agreement.

But the biggest changes require increased North American content in cars and trucks built in the region, to 75% from 62.5% in NAFTA, with new mandates to use North American steel and aluminium.

In addition, 40% to 45% of vehicle content must come from high-wage areas paying more than $16 an hour - namely the United States and Canada. Some vehicles assembled in Mexico mainly with components from Mexico and outside the region may not qualify for U.S. tariff-free access.

"We're going forward. Good news," Mexican Foreign Minister Marcelo Ebrard said on Twitter after the House vote, which caused the Mexican peso to strengthen slightly to 18.91 to the dollar. For nearly three years, the peso has risen and fallen on news about NAFTA negotiations.

Canadian Prime Minister Justin Trudeau told CBC television that Canada's Parliament would approve USMCA "as quickly as we can." But Parliament is not scheduled to return to Ottawa before Jan. 27.