Will Washington put the brakes on USMCA?


Hello from Washington, where your author has taken to debating the subtle differences between “outdoor exercise” and “outdoor recreational activity” in a bid to survive DC’s new lockdown conditions without being arrested. In conclusion: anything fun is not allowed. So instead of going outside, I’ve taken calls to support local businesses to heart by ordering cake to be delivered directly to my apartment door. It’s the right thing to do.

Our main piece today looks at the chilling effect coronavirus has had on the enthusiasm for getting the US-Mexico-Canada trade agreement swiftly implemented. Christophe Hansen, of the European People’s party, is our Person in the news, while our Chart of the day shows a shipment boom in South Korea’s “working from home” products

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Trade deal delay urged as business concerns mount

When the US-Mexico-Canada trade agreement passed through Congress at the end of last year, it attracted the kind of bipartisan support that put it at odds with the more fractious big trade votes of the past few decades.

The agreement’s predecessor, Nafta, was divisive in 1993, as was the normalisation of trade relations with China in 2000. Proponents of free trade hoped the passage of USMCA heralded a new consensus over the US having strong trading relationships with its neighbours.

Enter coronavirus. In truth, the implementation of the agreement was already causing anxiety among lawmakers and businesses, but the pandemic has made it worse. It now seems highly unlikely that the pact can come into force for the June 1 deadline set by the US trade representative’s office.

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For that deadline to be met, the US, Canada and Mexico would all have to certify by today (or, some argue, by late last night) that they are doing everything they agreed to do and meeting all of the requirements needed to move ahead and enforce the agreement. This includes offering more detail and clarity to some business sectors on new regulations — automakers have been particularly vocal in demanding more information on new rules stipulating that the bulk of their product is sourced and manufactured in North America, for example.

Coronavirus has made the automakers’ calls for more time and clarity much louder and more urgent. Last week, trade groups representing major automakers and their parts suppliers urged lawmakers to push back implementation of the trade deal. In the same letter, they asked for loans and loan guarantees, highlighting the scale of the liquidity problem they currently face, which poses a far greater existential threat than anything USMCA can throw at them. The letter, signed by lobbyists representing General Motors, Volkswagen and Toyota, among others, referred to industry analysts’ warnings that US auto sales will be almost non-existent in March.

Another sector-specific fight is brewing around pesticides. CropLife America, the trade body representing pesticide manufacturers and distributors, has been complaining that Mexico is tightening its approach to chemical safety and pesticides. While this brings it more in line with EU standards, CropLife argues the approach is “not in the spirit of the USMCA agreement”. These arguments will take time to examine and engage with.

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Meanwhile, demand to push the deal through — at least from US businesses — has dropped off. While most businesses still support the agreement, the immediate benefits are not apparent in the coronavirus world. US businesses also understand that a hastily implemented deal is no good.

Republican senator Chuck Grassley is urging the US government to ensure that the deal delivers ‘genuine benefits’ to Americans © Getty Images

On Monday, the majority of members — both Republican and Democrat — of the influential Senate finance committee added to the calls for delayed implementation. Some privately outlined concerns around adequately enforcing labour standards and wages, making sure automakers understand the rules-of-origin requirements, and making sure all three countries are putting in place the agreed agricultural measures. 

In a letter to US trade representative Robert Lighthizer, senators including Chuck Grassley, Republican chairman of the finance committee, and Ron Wyden, its top Democrat, wrote that “long experience of incomplete and inadequate implementation by trade agreement partners has taught us that the United States must do this work on the front end to ensure that the words on paper deliver genuine benefits to Americans, including our farmers, workers, and businesses”.

So far there has been silence from USTR
 but the cooling and cautioning of businesses and senators are unlikely to fall on deaf ears. 

Charted waters

South Korea’s export data have shown a surge in shipments of work-from-home type products year over year in March. Exports of computers rose 82.3 per cent, mobile phones increased by 20.7 per cent and network equipment was up by 3.7 per cent.

Chart showing an uptick in South Korea's exports of work-from-home products

Person in the news

Who?

Christophe Hansen, a member of the European Parliament, representing the centre-right European People’s party.

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Why is he in the news?

Mr Hansen has spearheaded calls by the European People’s party for Britain to ask for an extension to its post-Brexit transition period. The group is one of the most powerful political groups in the European Parliament, including leaders such as Germany’s Angela Merkel.

“An extension of the transition period is the only responsible thing to do,” said Mr Hansen.

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Tokyo talk

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  • Business for the highly seasonal container shipping industry usually picks up from April onwards after a slow first quarter, but that may change this year as industry insiders have begun talking about a worst-case scenario dubbed “corona Christmas”. 
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