Mexico holds out in USMCA talks

With help from Megan Cassella and Doug Palmer

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— A top House Republican said Democratic efforts to pair USMCA passage with a union pension rescue bill could derail approval of the trade deal.— Mexico isn't making it easy to seal a deal on the USMCA, as officials have privately expressed a willingness to walk away from the table and keep the status quo rather than concede to U.S. demands.

— China's envoy to the U.S. accused "destructive forces" of trying to use trade frictions to push for a "Berlin Wall" between China and the U.S.

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MEXICO HOLDS OUT IN USMCA TALKS: It's down to a standoff with Mexico: USTR and Democrats are pressing Mexico to accept what they see as a good compromise deal, while Mexico is so opposed to some changes that it's willing to walk away from the table and keep operating under the old NAFTA.

"For us, we are down to the bone," Mexican Undersecretary for North America Jesús Seade said Wednesday night as he left his second meeting with U.S. Trade Representative Robert Lighthizer. "We have accepted 1,000 things."

The negotiations between Seade and Lighthizer will continue this morning.

Who's blinking first? Political leaders in Mexico began speaking out clearly on Wednesday that U.S. demands have gone too far. Four people close to the talks told Morning Trade that the Mexican government is willing to, as Rep. Henry Cuellar (D-Texas) put it, "sit down and wait us out."

But so far Democrats aren't flinching. Mexico "should come to the conclusion quickly that what has been discussed between Democrats and USTR is reasonable," said Rep. Jimmy Gomez (D-Calif.), a USMCA working group member who has been closely involved. "If not, I'm not sure where the new USMCA will end up."

"Time does run out," he added. "If they want a deal, it's ripe now."

More enforcement questions: As it has been for weeks, the issue of labor enforcement and whether binational inspectors should be allowed to check for violations at Mexican factories remains one of the thorniest points of talks. Mexico has repeatedly shut down the idea as an infringement of its sovereignty.

Gomez pushed back on the criticisms, accusing Mexico of "mischaracterizing" the proposed process: "There's no rogue inspectors," he said.

Rep. Jimmy Panetta (D-Calif.), a Ways and Means member, suggested there could be a way to work out the differences. "We need to figure out whether or not they're called verifiers, or whether or not we can get their inspectors on our soil and our inspectors on their soil — things of that nature."

BRADY CAUTIONS AGAINST ADDING PENSION BILL TO USMCA: House Ways and Means ranking member Kevin Brady on Wednesday urged Democrats not to attach a union pension rescue bill, known as the Butch Lewis Act, to the USMCA because of the potential to derail approval of the trade deal.

"I believe the Butch Lewis Act needs a tremendous amount of work," Brady told reporters at his regular weekly scrum. "It's not bipartisan. It doesn't solve the issue. And … no bill can be attached to this trade agreement without losing TPA protections."

Brady was referring to Trade Promotion Authority, which allows the White House to submit trade deals to Congress for a quick, straight up-or-down vote without any amendments. It also shields trade deals against a filibuster threat in the Senate.

"My guess is those TPA protections, in [terms of] timing and in the Senate especially, are pretty important," Brady said, when asked about the possibility of Democrats merging the pension bill and trade deal.

The House passed its version of the Butch Lewis Act, H.R. 397 (116), earlier this year on a 264-169 vote, with only 29 Republicans voting yes. The legislation, which has not gone to the floor in the Republican-controlled Senate, extends 30-year loans to shore up insolvent "multiemployer" pensions, or pensions negotiated by labor unions across an entire industry.

Time to put the pens down: Brady urged USTR, Mexico and House Democrats to wrap up negotiations on changes to the USMCA. "At some point you've got to put the pens down," he said. There is still time for Congress to approve the trade deal this year, but that becomes less likely every day the talks stretch on, he said.

The Texas Republican also expressed concern about the possibility of USTR giving into a Democratic demand to drop or weaken the 10 years of intellectual property protection provided for biologic medicines in the USMCA. He said the current provision strikes the right balance in terms of creating incentives to develop new drugs and spreading the high costs of that development to other countries that pay less than the United States.

But he backed efforts by House Democrats and USTR to get Mexico to agree to tougher labor enforcement provisions. "I think USTR is trying to find a balance here where this agreement can create a reassurance for Democrats that Mexico will implement this in a timely manner, in a strong manner, but do it in a way that's acceptable to Mexico," he said.

CHINA ENVOY: STOP POINTING FINGERS: China's envoy to Washington, Cui Tiankai, gave no hints on whether there's any progress in talks for a "phase one" trade deal with the U.S., but he said both sides are "working hard to address our differences." He warned of "destructive forces" that are taking advantage of the trade frictions.

"Some people in this country are pointing fingers at the governing party and national system of China," the ambassador said Wednesday night at the U.S.-China Business Council's annual gala. "They are trying to rebuild the Berlin Wall between China and the United States in the economic, technological and ideological fields."

Cui also said the events in Hong Kong and Xinjiang have been "seriously distorted." President Donald Trump last week signed legislation threatening sanctions on China over the unrest in Hong Kong. The House this week passed a separate bill paving the way for sanctions of Chinese officials over human rights abuses of the Uighur Muslim population of China's Xinjiang province.

"For Hong Kong, it is most urgent to stop violence and restore order. I believe that the business community feels such a need. However, there are people out there who are trying to challenge the bottom line of one country, two systems," he said. "Their real intention is to overthrow the country and ruin the two systems."