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Trump’s NAFTA Deal Now in Doubt After Democrats Take House (2)

Nov. 7, 2018, 1:31 PM; Updated: Nov. 7, 2018, 7:53 PM

The Democratic House takeover is likely to delay ratification of a trade deal with Canada and Mexico and force the Trump administration to make changes.

Democrats could press President Donald Trump to improve the agreement’s labor obligations with a focus on its enforcement mechanisms, medicines provisions, and how it addresses outsourcing.

“I don’t think the Democrats will let it go as is,” William Reinsch, senior adviser at the Center for Strategic and International Studies, told Bloomberg Law.

Trump spent a year arguing with Canada and Mexico, two top U.S. trading partners, over what he complained was NAFTA’s unfairness, then got a deal in the run up to the midterm elections. It was a win for Trump, given the combined $1.6 trillion in trade the U.S. does with the two countries each year.

Getting the deal through Congress got more complicated Nov. 6 after Democrats took control of the House.

A House Democratic majority, however, will have less influence on tariffs and less interest in changing U.S. trade policy toward China given bipartisan complaints about Beijing’s unfair trade practices.

“By and large, the things Trump is doing are things congressional Democrats have been calling for for a long time,” said Edward Alden, Council on Foreign Relations adviser.

Getting to Yes

Getting the agreement through a Democratically controlled House may require the Trump administration to reopen negotiations with Mexico over the deal’s labor provisions.

At the top of organized labor’s wish list is “swift and certain enforcement mechanisms,” pressing Mexico to overhaul its labor law, improved medicines provisions and country of origin labeling laws and “certainty that the new rules will alleviate outsourcing, Celeste Drake, AFL-CIO trade analyst, told Bloomberg Law Nov. 6 as polls closed.

Unions have criticized a provision that requires 40 percent of vehicles made in North America to come from factories with a $16-an-hour average wage or higher. Democrats and labor unions want to make sure that people doing comparable work in the U.S. get the higher wage as well.

AFL-CIO President Richard Trumka told reporters during a post-election conference call that it was now more likely that the deal’s enforcement provisions would be improved. “I think it has made the likelihood of a better NAFTA more likely to happen,” he said.

Trumka said details of legislation to implement the deal were still unknown. “When we find out all the facts and we see the implementing language, then we’ll know whether it’s an agreement that we can and will enforce and support or one that we don’t,” he said.

Unions have criticized a provision that requires 40 percent of vehicles made in North America to come from factories with a $16-an-hour average wage or higher. Democrats and labor unions want to make sure that people doing comparable work in the U.S. get the higher wage as well.

The Trump administration may need to bootstrap the deal with side agreements that Democrats can shape, as was the case with the original NAFTA, which included labor and environment side agreements, said Daniel Ujczo, a Dickinson Wright trade attorney.

Environmental groups will push for stronger enforcement language as well as climate change commitments, Sierra Club Trade Program Director Ben Beachy told Bloomberg Law. Environmental groups also want to eliminate provisions allowing oil and gas companies in Mexico to continue using arbitration panels to settle investment disputes, Beachy said.

Trump touted the success of trade talks at a press conference Nov. 7, saying the deals are “coming along fantastically” and that the new version of NAFTA “has gotten rave reviews.” Technical talks continue on the agreement with hopes it can be signed November 30.

Block the Deal?

Newly elected Democrats may be disinclined to give Trump a victory and prefer to block the pact altogether, Ujczo said.

Such a scenario is unlikely since the proposed agreement largely lines up with Democrats’ policy preferences, said Daniel Ikenson, director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Subsidies.

While organized labor, an important Democratic constituency, is wary about free trade, the bulk of the Democratic base is more pro-trade than Republicans are, he said. "[Democrats] have to keep that in mind,” Reinsch said.

Exit polls suggest Trump’s trade protectionist policies didn’t prove popular among voters. ABC News found 25 percent of those polled said the administration’s trade policies have helped local economies while 31 percent said they have hurt and 36 percent said they did not have any effect.

Trump could gain leverage by threatening to pull out of NAFTA without any replacement. The resulting damage in relations with Canada and Mexico wouldn’t be an outcome Democrats want.

Tariffs

House Democrats will have few options if they want to curb tariffs Trump has imposed on steel and aluminum imports in the name of “national security.”

The Trade Expansion Act of 1962 gives the president vast authority to identify and remedy national security threats, Ikenson said.

The only remedy would be changing the law, which would probably trigger a Trump veto. Not enough lawmakers in the newly enlarged Senate Republican majority would be willing to join an override effort to make it successful, Reinsch said.

China

As for China, Reinsch said there’s more of a consensus in Congress than other trade issues, and some, such as Senate Minority Leader Chuck Schumer (D-N.Y.), believe Trump’s hardline approach is the right one.

“I can see complaints about how the tariffs are administered, how the exclusion process is administered, inadequate consultation and other process fouls, but not disagreement with the fundamental approach.”

The only Democratic resistance to Trump’s approach to China is likely to come from members in districts with businesses that were adversely affected by the China tariffs or by retaliatory tariffs levied by Beijing, Ikenson said.

(Updates with comments from President Trump and Sierra Club Trade Program Director Ben Beachy .)

With assistance from Brian Flood, Susan McInerney, and Andrew Wallender

To contact the reporter on this story: Rossella Brevetti in Washington at rbrevetti@bloomberglaw.com

To contact the editors on this story: Seth Stern at sstern@bloomberglaw.com; Jerome Ashton at jashton@bloomberglaw.com; Susan McInerney at smcinerney@bloomberglaw.com; Madelyn Callahan at macallah@bloomberglaw.com

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