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REPORTER MEMO: Administration’s Only Path for NAFTA 2.0 Is to Remove Pharma Giveaways and Strengthen Labor and Environmental Terms

 President Bush Trying to Rush a House Vote on the Colombia Trade Deal in 2008 Prompted Then-Speaker Pelosi to Remove It From Fast Track, Derailing Passage for Years

July 1, 2019

Developments over the past several weeks make clear that the only way the revised North American Free Trade Agreement (NAFTA) can get through Congress is if the administration modifies it to address concerns that Democrats in the U.S. House of Representatives are now discussing with U.S. Trade Representative Robert Lighthizer. Whether a vote on a revised NAFTA is taken and when will be determined by the pace of progress on the improvements Democrats are demanding.

That reality cannot please Donald Trump. Given the prominence he gave to NAFTA, Trump is keen to deliver on his 2016 campaign promises to fix or get out of the pact. But if he were to withdraw, U.S. exporters of beef, pork, poultry and dairy in red states and swing states would be the hardest hit. That is because without NAFTA, World Trade Organization (WTO) tariff levels would apply between the NAFTA nations. Under WTO terms, most industrial goods would be duty-free or face very low tariffs – as would most U.S. corn exports to Mexico. But U.S. meat, poultry and dairy exports to Mexico and Canada would face significant tariffs without NAFTA.

Passing a revised deal requires the administration to work with House Speaker Nancy Pelosi, who has made clear that the NAFTA 2.0 text Trump signed in 2018 is dead on arrival unless new monopoly rights for pharmaceutical firms that lock in high U.S. drug prices are removed. She also has made clear that the pact’s labor and environmental standards must be strengthened and subjected to swift and certain enforcement and the implementation of Mexico’s law reforms must start in order to counter ongoing race-to-the-bottom job outsourcing under NAFTA. Last week, unions, on-line activist groups and Public Citizen deliver hundreds of thousands of petitions to Congress from people nationwide demanding that the agreement signed last is fixed to meet these criteria before a vote. A Pelosi-appointed group is negotiating with Lighthizer on necessary changes.

Meanwhile, corporations pushing for a speedy vote on the pact as-is have seen each of their imagined “Pelosi-detour” routes closed. They argued that somehow a bloc of New Democratic Caucus members would pressure Pelosi for a quick vote on the deal as-is, or that freshmen Democrats elected from districts Trump won would do so. Instead, the Democratic Caucus is remarkably unified on the changes needed to the pact. One reason is that Democrats won the House in part by campaigning to lower medicine prices, and the Intellectual Property chapter of NAFTA 2.0 would lock in policies Democrats that make U.S. drug prices the highest in the world. A series of House Ways and Means Committee hearings have revealed unusual consensus on that issue as well as concerns about the pact’s labor, environmental and enforcement terms and the state of Mexican labor law reform among Democrats who have supported past pacts and those who have not. Last week, half of the signers of a freshmen Democrats’ letter to Lighthizer supporting Pelosi’s improvement demands were New Dems, while seven represent districts Trump won.

 Recent history provides a map for avoiding fatal detours as Democrats and Lighthizer seek a path to NAFTA 2.0 passage.

 No “Vote No!” campaign, yet Although the pact as-is could not get through Congress, notably, unlike past pacts there is not yet a campaign to kill it. That is because Lighthizer addressed some of longstanding concerns of Democrats, unions and other critics, such as by mostly whacking Investor-State Dispute Settlement and securing a Labor Annex that could help end wage-suppressing “protection” union contracts in Mexico. But that Annex, among other terms, are not yet sufficiently enforceable to make a difference. And new pharmaceutical company protections are worse for consumers than the original NAFTA. Still, Lighthizer now looks prescient for having addressed those concerns. With the Democrats now controlling the House, absent those improvements the revised NAFTA would be facing opposition the likes of which kept the Trans-Pacific Partnership dozens of votes short of passage throughout 2016. Instead, the debate is about what improvements are still necessary to stop NAFTA’s ongoing job outsourcing and not lock in high drug prices. Whether these issues are addressed will dictate whether a revised deal is approved.

But the process could go over a cliff if the White House tries to rush a vote. Several corporate coalitions have pledged tens of millions to try to railroad the deal through as-is. This crew’s strategy of pushing for the deal to be submitted to Congress quickly guarantees defeat. (It’s also a bad look for Trump that those pushing his deal are firms certified for 500,000 trade-related job losses.) Bizarrely, some in the White House also seem to believe that trying to force a vote is the way to go. President George W. Bush already demonstrated that trying to use Fast Track to force a trade-pact vote is a dead end. In 2008, Bush sent the Colombia Free Trade Agreement (FTA) to Congress after Pelosi warned him not to. Bush was quickly reminded that House rules can be changed by a majority vote. Pelosi created a new rule ending the Fast Track timeline that otherwise provides a no-amendments House vote in 60 days. The Colombia pact went into the deep freeze for three years.

Another sure-fire way to derail approval of a revised NAFTA is for the president to again allow his border wall obsession to translate into threatened tariffs against Mexico. Many representatives from states that border Mexico and who are interested in seeing a revised NAFTA enacted also are the most unwilling to do so while the president is simultaneously threatening to unilaterally rewrite U.S.-Mexico trade terms. It is not only that they want to avoid any association with a wall – whether made of bricks or tariffs. As well, passing a revised NAFTA is meaningless if their districts’ economies could be thrown into disarray by Trump threatening tariffs that would be higher than the tariff rates that would be in place if there was no NAFTA.

We’ve seen this movie before: The last four U.S. trade deals that got through Congress all had to have their texts changed after they were completed and trade-partner nations that rushed to pass signed deals before the U.S. Congress had to hold votes on revised texts. In April 2006, President George W. Bush signed a trade deal with Peru that most congressional Democrats opposed. Peru’s Congress passed the deal on June 28, 2006. Democrats then won a majority in the U.S. House in November 2006. Early in 2007, House Democrats informed the White House that the Peru deal had to be improved if it was to obtain a vote. On May 10, 2007, Bush and Democratic Ways and Means Committee leaders agreed to alter the text to remove monopoly rights for pharmaceutical firms that undermined access to affordable medicines and to add stronger labor and environmental terms and enforcement, among other changes. This package of changes became known as the May 10 Agreement. Recognizing that these changes were necessary for a deal to pass the U.S. Congress, within weeks, Peru agreed. Then on June 27, 2007, the Peruvian Congress had to vote again to approve the revised deal. The U.S. Congress approved the revised Peru Free Trade Agreement (FTA) in November 2007.

Republican and Democratic presidents alike have altered trade pacts signed under Fast Track to ensure their passage. That the Mexican government rushed to approve the revised NAFTA is especially baffling because Peru having to vote again on its FTA after congressionally required changes was not an anomaly. In 2007, Bush also had to amend the Colombia FTAs signed in late 2006. Colombia’s Congress had rushed to pass the deal in April 2007, even as U.S. House Democrats and Bush were negotiating changes to the text. As a result, Colombia had to hold a second vote in October 2007. Meanwhile, in 2007, Bush also had to alter the texts of the Panama and Korea FTAs, which had been completed in 2006. Then in 2010, President Barack Obama had to again amend the Korea FTA text to win support in Congress.

Each time, the U.S. administration and the governments of our trade partners insisted that it was impossible to alter the texts of signed deals – until they did. The Trump administration’s situation is similar to what Bush faced in 2007 with the trade deals completed in 2006. A GOP-controlled House may have passed the revised NAFTA that Trump signed in 2018. But that text’s Intellectual Property rules lock in policies that keep U.S. medicine prices high, undermining the drug-price-lowering priority of the Democratic majority. And its labor and environmental terms are not strong or enforceable enough to stop ongoing NAFTA outsourcing. As Pelosi has made clear repeatedly, the only way to fix deal is to alter the agreement’s text.

Changing the text is not complicated as a legal matter. In 2007, the United States and its four trade partners signed supplemental agreements listing modifications to the previously signed FTA texts. The follow-up agreements functioned like packages of self-executing amendments. They altered specific provisions of the underlying FTA texts, and then ceased to exist as separate legal instruments. Thus, the 2007 changes to the Peru, Colombia, Panama and Korea pacts are reflected in the final texts and the only copies of the original signed text to be found are old print-outs. However, when the Korea FTA was amended a second time in 2010, changes were enacted differently. The underlying FTA text was not altered. Instead, documents signed by both countries that list amendments are appended to the FTA text, with terms such as: “Notwithstanding paragraph X of Article Y” the United States (or Korea) will do something other than what is required in the underlying text.

While the four Bush FTAs that were altered all were enacted, refusal to change the Trans-Pacific Partnership (TPP) text meant that it never garnered a majority in the House. This was despite a major campaign jointly conducted by the Obama White House and a broad corporate coalition during the year after the pact was signed in 2016. The TPP also had many of the provisions locking in monopoly protections for pharmaceutical corporations that are included in the revised NAFTA, but the terms in NAFTA 2.0 are more expansive than in the TPP. The TPP’s labor and environmental terms and enforcement also were deemed by most congressional Democrats to be too weak to be effective.

The bottom line is that the only way a revised NAFTA will be enacted is if the administration works with congressional Democrats to make the improvements needed to obtain broad support. And as Pelosi has said, the timeline for that process will be determined by the substance of the negotiations.