What Business Leaders Want Changed in the New NAFTA

A diverse cross-section of business leaders—ranging from a self-taught jeweler to dairy and automaker industry representatives—urged senators to approve the United States-Mexico-Canada Agreement during a congressional hearing Tuesday.

But as negotiations between Trump administration officials and House Democrats over a deal on the agreement continue, business leaders and a union representative highlighted several concerns they’d like addressed, including the need for enforceable labor protections and certainty over fees paid on small shipments of goods.    

Across the board, all six business representatives who testified before the Senate Finance Committee said they support the USMCA over the North American Free Trade Agreement, the 25-year old trade deal the agreement is meant to replace. Changes included in the agreement would help strengthen the American economy, they said.

The USMCA would benefit American dairy and agriculture industries by maintaining zero tariffs on agriculture exports to Mexico, which is the largest export destination for American dairy products, and by increasing dairy export opportunities to Canada, said Tom Vilsack, president and CEO of the U.S. Dairy Export Council.

A USMCA provision that would require a higher percentage of content for autos, light trucks, engines, and transmissions originate in North America would “strongly incentivize more investment in the United States,” said Matt Blunt, the former governor of Missouri and president of the American Automotive Policy Council.

The hearing comes as a working group of House Democrats continues to meet with Trade Representative Robert Lighthizer to propose changes to the agreement. In a letter to House Speaker Nancy Pelosi, the working group said it has highlighted deficiencies in four areas: labor laws, environmental rules, access to affordable medicine, and enforceability mechanisms. The working group said it intends to submit “the concrete and detailed proposals we have made” next week. 

A labor representative who testified Tuesday also urged lawmakers to make labor and enforceability improvements to the agreement, which requires congressional approval.

The current version of the USMCA lacks “swift and certain enforcement mechanisms” to ensure labor complaints are dealt with in a timely manner rather than languishing for years, Michael Wessel, the staff liaison for the Labor Advisory Committee for Trade Negotiations and Trade Policy, told the Senate Finance Committee on Tuesday.

Under the USMCA, Mexico agreed to strengthen its labor laws to protect collective bargaining. One provision of the agreement also requires that 40 to 45 percent of auto content be made by workers earning at least $16 per hour.

But without funding allocated for enforcement, companies can continue to outsource jobs to Mexico where workers will be paid less than American workers, Wessel said.

“If we cannot be certain that the labor provisions will be effectively and timely enforced, even improved standards are of little use,” Wessel said. “They won’t help discourage outsourcing, raise wages and working conditions in Mexico, and they won’t help restore balance between labor and employers in the U.S.”

Critics of NAFTA said the 25-year-old agreement has been a job killer for Americans because it encouraged companies to move to Mexico where they could take advantage of cheap labor and ship products back into the United States duty-free. At least one estimate puts American job losses attributable to NAFTA at 600,000.

In addition to large auto manufacturers and agriculture-based industries, small business owners also hope the USMCA boosts their bottom line. Under the agreement, Canada and Mexico would increase the value of a merchandise shipment that would qualify to be imported free of any duties or taxes.  

Canada would raise its de minimis tax level from 20 Canadian dollars to 40 Canadian dollars. Shipments valued at up to 150 Canadian dollars would be duty-free. Mexico agreed to keep in place its $50 de minimus limit and to classify shipments as duty free when the value is less than $117.

When small businesses ship to Canada and Mexico, their customers can often be hit with surprisingly high taxes that require payment at customs, said Paula Elaine Barnett, an Oregon jeweler who sells her wares through Etsy. Taxes can sometimes double the amount her customers have to pay for her jewelry, which has led some to return the items, she said.

“It would be valuable to me to have my customers not have to pay mush so much in extra taxes,” Barnett told the committee. 

The United States raised its de minimus threshold to $800 in 2016.

Some Democrats at Tuesday’s hearing expressed concern over a sunset clause contained in the USMCA would require review of the agreement in six years, questioning whether it would create uncertainty in the market. Vilsack said it would give the United States the ability to evaluate whether or not Canada and Mexico are living up to their end of the bargain.