WASHINGTON—The U.S. Senate overwhelmingly passed a replacement for the North American Free Trade Agreement on Jan. 16, setting up the U.S.-Mexico-Canada Agreement to move to President Trump for his signature.
The 89-10 vote in favor of the pact follows a U.S. House of Representatives approval in December of 385-41.
Manufacturing and plastics groups have praised the agreement, which is seen as addressing shortfalls in the original NAFTA.
"A ratified USMCA will deliver increased certainty for manufacturers—especially for the 2 million manufacturing workers whose jobs depend on North American trade," Jay Timmons, president and CEO of the National Association of Manufacturers, said in December prior to the House vote. "Manufacturers support the USMCA, and we are encouraged that the administration and House Democrats have forged a path forward, with the support of Canada and Mexico as well."
USMCA maintains NAFTA's tariff-free status for their tightly woven supply chains, a top priority for industry groups.
But it also includes significant new provisions to try to incentivize manufacturing in North America, such as requiring 75 percent of auto parts to come from within the three countries, up from 62.5 percent now, and requiring at least 40 percent of auto content to be made by workers earning $16 an hour, to qualify for tariff-free trade.
In addition to manufacturing groups, some chemical industry groups mounted a push for USMCA.
The bottom line for them had been preserving tariff-free trade, and building on that with updated provisions in USMCA, such as new rules of origin around chemicals, digital trade and regulatory cooperation.
American Chemistry Council President and CEO Chris Jahn said he was "strongly encouraged" by the deal and said ACC looks forward to reviewing the detailed legislative language.
"We strongly urge both sides to build on the momentum of this announcement by swiftly finalizing implementing legislation that the House and Senate could vote on before the holiday recess," Jahn said.
He also said a new agreement could make the three North American countries more competitive with other parts of the world, including China.
"U.S. chemical manufacturers can strengthen our competitiveness and win with countries like China when we are free to innovate across borders and take advantage of integrated supply chains with our two largest trading partners in Canada and Mexico," Jahn said.
One trade law expert echoed that, saying that USMCA rules of origin in goods like autos, aluminum and steel are aimed at shifting production to the three countries.
"The rules are designed to incentivize production in North America, particularly in the U.S., and to divert it away from other global supply chains, particularly from Asia," said Alvaro Santos, professor of law at Georgetown University in Washington and in 2018, deputy chief USMCA negotiator of Mexico's new government.
He said USMCA also includes labor reform provisions for Mexico that allows for more independent labor unions than under NAFTA, and it gives companies and investors less ability to sue any of the three governments over regulations.
Some economists who have looked at the deal say it will have only minimal impacts on the overall U.S. economy over NAFTA on its own. Rutgers University economist Thomas Prusa, for example, pointed to U.S. government studies showing only a 0.02 percentage point bump for U.S. GDP, "about as close to 'no effect' as one can get."
Business groups criticized one aspect of the changes announced Dec. 10, saying they would weaken intellectual property protections around drug manufacturing and other IP-dependent sectors.
The U.S. Chamber of Commerce said it was "seriously disappointed" by those provisions, although Democrats portrayed them as helping to lower prescription drug prices.
There were positives in new rules for the chemical industry. ACC's Jahn noted enhanced regulatory cooperation provisions under USMCA that would "reduce unnecessary regulatory barriers to trade while continuing to protect human health and the environment."
In their Dec. 10 news conference, House Democrats said they gained stronger provisions around enforcement, environmental protections and trade in prescription drugs compared with the version of USMCA signed by leaders of the three countries in late 2018. They said it had stronger inspection and workers rights provisions.
"There is no question this trade agreement is better than NAFTA," said House Speaker Nancy Pelosi, D-Calif., noting that her caucus was in close consultation with AFL-CIO President Richard Trumka during the negotiations with the White House.
"Globalization is a reality, it is not going away," Pelosi said, adding that Democrats wanted the deal to become a template for future trade pacts.