Republicans worried about time limit of proposed U.S.-Mexico-Canada trade agreement

October 2, 2018

Skepticism over the new U.S.-Mexico-Canada trade deal is coming not from Democrats but from Republicans on Capitol Hill, who while cheering the concessions the president won from neighboring countries, worry about the new agreement’s time limit.

The proposed trade pact, whose unwieldy acronym is USMCA, is slated to expire after 16 years, giving all sides a chance to revisit the deal and tweak it, rewrite it or scrap it.

Administration officials dubbed it a “review and termination” clause, and said it was the first of its kind in a U.S. trade agreement. Indeed, experts struggled to come up with a parallel in any other major world trade deal.

And there’s a built in review after six years, giving all sides a chance to see who’s living up to their obligations and whether any country is disproportionately benefitting. If the review is followed, it can buy another 16 years’ life for the deal, the White House said.

For the administration, the review and sunset were key features of the deal, with the White House determined to ensure that future administrations would not be locked into a bad deal the way President Trump he says he was.

But for Republicans, having a firm end written into the agreement was a source of concern for businesses that need to make long-term decisions on where to build plants or make investments.

Rep. Kevin Brady, chairman of the House Ways and Means Committee, which oversees trade agreements, said lawmakers will have to “look closely at the sunset.”

Likewise Sen. Pat Toomey, Pennsylvania Republican, who said the expiration date, wage mandates and quotas for automobile imports and ongoing steel and aluminum tariffs were concerning.

He said those “create needless uncertainty.”

Mr. Trump had originally sought a five-year sunset, but settled for 16 years instead after Canada and Mexico both balked.

Derek Scissors, a resident scholar at the American Enterprise Institute, said a five-year period would have constrained investors’ decisions, denting the benefits of a free trade agreement. A 16-year timeline, though, isn’t “particularly harmful,” as long as there’s a clear procedure like the review clause to help avoid last-minute brinkmanship.

“I really don’t see this as a major problem,” he said.

Robert Kroll, an economics professor at California State University Northridge, said countries have always had the right to pull out of trade agreements as Mr. Trump threatened with NAFTA and did with a Pacific trade deal negotiated by President Obama.

But he said including a sunset is a step beyond.

He said that while 16 years is better than five, any deadline can lower the value of a trade deal.

“One reason we want these types of agreements is so we can establish the rules of the game,” said Mr. Kroll, who is also an affiliated scholar at the Mercatus Center at George Mason University. “As the uncertainty over trade policy increases, it tends to depress trade and, even more so, international investment.”

Though the text of the deal is now available, it won’t be signed until late in November, and won’t be officially debated on Capitol Hill until next year, after the elections have seated a new Congress.

Mr. Trump predicted rough sailing.

“In theory there should be no trouble, but anything you submit to Congress is trouble no matter what,” Mr. Trump said, complaining of Democrats’ penchant to “delay, obstruct, resist.”

Early signs from key Democrats have been moderately positive.

Senate Minority Leader Charles E. Schumer, who voted against the original North American Free Trade Agreement in 1993, said Mr. Trump “deserves praise” for scrapping it. Mr. Schumer said his final evaluation of the deal will depend on how strong the labor protections are, and whether the U.S. got a better deal on dairy from the Canadians.

The House has always been a tougher sell on trade deals than the Senate, and Mr. Scissors said if Democrats win control in this year’s election, it likely dooms chances for the trade deal’s approval until 2021 at the earliest.

“If Nancy Pelosi is speaker of the House I don’t see them approving a Trump trade agreement,” he said.

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