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April 29, 2019

Growing Belief That Future Of USMCA Depends On U.S. Section 232 Metals Tariffs

Is the fate of the United States, Mexico, Canada Agreement tied to President Donald Trump’s Section 232 metals tariffs? According to Fastmarkets AMM (subscription required) Trade for America Executive Director William Lane thinks it is.

In remarks at Steel-Con, Lane said, “No one is going to pass the USMCA until the tariffs on Canada and Mexico are lifted. It’s just a prerequisite.” Lane also doubted the trade agreement could pass the legislative bodies in the three countries if the Trump administration simply replaced the tariffs with a system of quotas.

Paul Nathanson, a senior partner at law firm Bracewell LLP, agreed. He said, “The Canadians have told us that they are not going to agree to quotas. For the most part, the Mexicans are saying the same thing.”

Democrats in the U.S. House and Senate, meanwhile, also are finding other reasons to oppose the USMCA. Last Thursday, House Ways and Means Committee Chairman Richard E. Neal (D-Mass.), Trade Subcommittee Chairman Earl Blumenauer (D-Ore.), and other committee Democrats sent a letter to U.S. Trade Representative Robert Lighthizer highlighting their concerns with the enforcement provisions in the agreement.

The letter said, “The question of enforceability relates directly to the value of the deal that has been negotiated: will the commitments each of the parties signed onto have meaning? What happens when a party fails to deliver on its commitments, whether because it has overlooked a promise, its system has produced an imperfect result, or because it no longer wishes to be bound by the promise? Our concerns are most pointed with respect to the enforceability of the new Agreement’s labor and environment commitments. But they also apply more broadly to all commitments enshrined in the new agreement.”

The Mexican government, meanwhile, signaled it is not willing to bend to Democrats’ requests on labor enforcement. According to Politico, Martha Bárcena, Mexico’s ambassador to the United States, criticized a measure put forward by U.S. Senate Democrats that would require Mexico to conduct inspections of factories accused of poor working conditions. Bárcena argued, “In a trade agreement, there is reciprocity –  as easy as that. If they want to have a team of labor inspectors going to Mexico, perfect. We will send labor inspectors” to the United States.

While policymakers in the United States, Canada, and Mexico debate the fate of the USMCA and the Section 232 metals tariffs, the Mercatus Center at George Mason University released a study regarding requests for exclusion from the tariffs. Mercatus Senior Research Fellow Christine McDaniel found:

  • The U.S. Department of Commerce has increased the number of decisions it makes per month, but U.S. steel-producing companies also have increased their objections.
  • Objections are consequential. Less than one percent of steel tariff exclusion requests with an objection have been approved, and just 2.7 percent of aluminum tariff exclusion requests with an objection have been approved.
  • The aggregate volume of steel noted in the objections by each steel company far exceed their annual production, “which calls into question their ability to meet domestic demand.”
  • The approval rates of the exclusion requests continue to vary widely by the country of origin. Concerns about China were a driving motivation for imposing Section 232 tariffs, yet for both steel and aluminum the approved quantity from China is greater than the approved quantity from Canada and Mexico combined.

In related news: Forbes reported last week that Mexico has surpassed both Canada and China as the United States’ top trading partner.