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Ways and Means votes on USMCA

December 17, 2019


Mexico's top trade negotiator backed down from a self-created diplomatic crisis after U.S. Trade Representative Robert Lighthizer clarified that certain language in the USMCA bill does not mean the U.S. will send labor inspectors to Mexico.— The Ways and Means Committee will consider the revised USMCA today,keeping the House on track to pass the deal later this week.

Congress is expected to pass a bipartisan spending deal this week that would extend the Export-Import Bank's charter for seven years and require the Trump administration to publish the results of its national security investigation on imported autos.

IT'S TUESDAY, DEC. 17! Welcome to Morning Trade, where your host turns another year older (and hopefully wiser) today. But I'll still be freezing in the name of USMCA news at the Ways and Means markup this morning. Send news and tips: srodriguez@politico.com or @sabrod123.

PROGRAMMING NOTE: POLITICO Pro's Morning Trade will not publish from Monday, Dec. 23, through Friday, Jan. 3. We'll be back on our normal schedule on Monday, Jan. 6.

WAYS AND MEANS VOTES ON USMCA: The House Ways and Means Committee is widely expected to advance the revised USMCA, H.R. 5430, at a markup today, clearing the path for a full vote on the House floor later this week.

Keep an eye out: It's the first time members will have a chance to weigh in on the outcome of months of negotiations between Lighthizer and the nine-member working group appointed by Speaker Nancy Pelosi.

Some committee members, including Reps. Dan Kildee (D-Mich.) and Jimmy Panetta (D-Calif.), previously expressed frustration over how the administration and working group kept talks under wraps — but that was because both sides signed confidentiality agreements pledging not to reveal details.

Tick tock: The markup today starts at 11 a.m. Watch it here.

The House will vote on the 239-page implementing bill to replace NAFTA on Thursday.

CRISIS AVERTED ON MEXICO USMCA DRAMA: Mexican Undersecretary for North America Jesús Seade left Washington on Monday afternoon "very satisfied" with Lighthizer's explanation on language in the USMCA implementing legislation that he objected to over the weekend. He had set off alarms in Mexico over a U.S. plan to send full-time diplomats to Mexico to make sure the country is upholding labor standards.

He originally saw it as a potential violation of Mexico's sovereignty. But less than 48 hours later, Lighthizer calmed him down with an assurance that the up to five "labor attaches" that will be sent to ensure Mexico upholds its labor obligations under USMCA will not be inspectors. Lighthizer, in a letter following a two-hour meeting with Seade, clarified: the attaches "will abide by all relevant Mexican laws."

USMCA IMPLEMENTING BILL REPEALS NAFTA: The USMCA implementing bill officially repeals the North American Free Trade Agreement Implementation Act, which was signed into law by President Bill Clinton on Dec. 8, 1993.

However, it only "suspends" the slightly older U.S.-Canada Free Trade Agreement, which President Ronald Reagan signed in 1988. That keeps the U.S.-Canada FTA in place as a backup to the USMCA, should the new deal be terminated as part of the sunset review that begins in year six.

What's different? The repeal, in one sense, means NAFTA will no longer exist as U.S. law, potentially expunging a word from the trade lexicon that — rightly or wrongly — has become associated with massive manufacturing job losses and shuttered factories. But as the Trump administration admits, much of the USMCA is the same as NAFTA. So in another sense, the agreement negotiated by the administration of President George H.W. Bush lives on in a mutated form.

"Although the USMCA is a comprehensive overhaul of the NAFTA, many provisions of NAFTA are replicated so that the treatment the United States has committed to provide to Canada and Mexico remains the same," USTR said in its Statement of Administration Action outlining its plans for implementing the agreement. "For example, with respect to industrial goods and textiles, the USMCA preserves the duty free treatment that had been achieved under the NAFTA."

However, the USMCA also "contains significant updates to many disciplines and adds disciplines in areas that were not covered by the NAFTA," USTR said. Those include the new labor and environmental chapters, the more stringent automotive rules of origin and rules for digital trade and state-owned enterprises, the agency said.

$800 DE MINIMIS LEVEL SAVED: In good news for FedEx, UPS and other express delivery firms, the USMCA implementing bill does not make good on a Trump administration threat to lower the so-called de minimis provision of the 2016 customs bill that waives import duties and sales taxes on shipments valued at $800 or less.

Background: During negotiations, USTR pressed Mexico and Canada to raise their own de minimis to comparable levels as part of the USMCA but only achieved minimal gains. And to the alarm of many members of Congress, the text of the USMCA contained a footnote suggesting the United States could obtain reciprocity by lowering it levels to match Canada and Mexico's much-lower rates.

The free market Cato Institute blasted the idea "not only [as] an attack on economic liberty for American citizens, but ... an enormous step backward on a policy where the United States has been a leader for liberalization." Many members of Congress also signaled their disapproval, leading USTR to abandon the idea.

PETERSON INSTITUTE: USMCA IS A ‘NET NEGATIVE': The trade experts at the Peterson Institute for International Economics are less than impressed with the USMCA and the recent changes won by House Democrats in a new "protocol."

"Overall, the protocol improves the USMCA but not enough to offset the negative impact on national economies from the restrictive regulations that limit Canadian and Mexican auto plant access to the U.S. market," senior fellows Mary Lovely and Jeffrey Schott said in a new blog post today.

The auto rules make the USMCA a "net negative for all three economies," Lovely and Schott added, referring to the International Trade Commission's estimate that those provisions "will cause U.S. growth to decline by 0.12 percent."

"The only reasonable explanation for acceptance of these terms by Canada and Mexico is that they feared that in the absence of an accord, Trump would carry out his threat to cancel NAFTA," the Peterson experts wrote. "For them, the USMCA is an insurance policy, with an expensive premium, against a catastrophic event."

TRADE GOODIES IN THE SPENDING BILL: The Export-Import Bank will see its charter extended for seven years as part of the spending package released Monday. The appropriations bill, which is expected to be signed into law by week's end, would also place more restrictions on the bank's lending when it comes to China. That includes the goal of reserving 20 percent of the bank's exposure authority to support exports of high-tech products and U.S. exports that compete directly with Chinese exports. The measure would also establish new reporting requirements to assess transactions of $25 million and greater that involves an entity controlled by the Chinese government.

Senate Majority Leader Mitch McConnellrefused to take up House legislation that would have extended Ex-Im's operations for the next decade, instead opting to keep the bank running as part of the government funding bill. The bank's charter expired at the end of September, but was extended twice since then. The Ex-Im charter was most recently set to expire on Dec. 20.

232 auto report: The bill also retains an amendment inserted by Sen. Pat Toomey (R-Pa.) and other lawmakers requiring the administration to publish the results of its national security investigation into imports of automobiles. The president ultimately did not act on that report, which was carried out by the Commerce Department under Section 232 of the Trade Expansion Act of 1962.

Funding bump for Commerce: The Commerce Department's trade agencies will see funding increases in the spending bill. The $521 million for the International Trade Administration will be a $26 million increase from fiscal year 2019. The Bureau of Industry and Security will get $128 million, representing a $10 million increase from fiscal 2019 levels.

The increased funding for ITA will allow the agency to stand up a unit dedicated to investigating evasion and circumvention of U.S. trade remedy duties. The extra money for BIS is supposed to help the bureau carry out implementation of new requirements for export controls on emerging technologies, the Senate Appropriations Committee said in a fact sheet.

USTR gets a cool $1 million boost: The Office of the U.S. Trade Representative will get a $69 million appropriation, representing a $1 million bump from fiscal 2019. The funding includes $15 million to replenish the Trade Enforcement Trust Fund established in the 2015 customs reauthorization bill. Senate Appropriations said the increase in funding will provide the necessary resources to support the exclusion process for imports hit with Section 301 tariffs.

WSJ RESPONDS TO ADMINISTRATION CRITICISM: The Wall Street Journal issued a one-line statement Monday defending two of its reporters whom USTR and the Treasury Department accused of writing a "totally false, untrue and baseless" story that the U.S. had offered to cut the tariff rates on Chinese imports hit by duties by 50 percent.

"We stand by the reporting of Bob Davis and Lingling Wei," Steve Severinghaus, senior director of communications for Dow Jones, which publishes the paper, said in an email.

The absolute best place to work in the U.S. federal government is the U.S. International Trade Commission, a tiny, 420-employee agency with a mission that can sound kind of dull: crunching numbers on the impacts of trade policy, POLITICO Pro reports.

— White House economic adviser Larry Kudlow said Monday that the U.S. wants to start on a trade deal with the United Kingdom "very soon," Bloomberg reports.