How USMCA Could Bring a Flood of Labor Cases



Megan Cassella | POLITICO

A key part of the U.S.-Mexico-Canada Agreement is a revolutionary new system of policing labor violations — one that some experts believe could spark an influx of complaints, potentially straining cross-border relations between the two countries.

The new setup, called the rapid response labor mechanism, allows any member of the public to file a complaint with the U.S. government alleging a Mexican firm is violating the country’s recent labor reforms covering workers’ rights to organize unions and bargain collectively. All other labor violations could be handled under the USMCA’s dispute settlement mechanism, which is also new. Critics of NAFTA long complained that environmental and labor issues weren’t subject to dispute settlement.

A major change: Labor complaints under other trade agreements can only be filed over violations of specific obligations. But under the USMCA, complaints can be filed directly against individual companies — and the U.S. can impose sanctions if the rapid response mechanism finds the firm has not done enough to correct the issue.

“It’s revolutionary not just because of the politics — not just because it was the last piece that enabled us to get over the hump to garner sufficient political support in the United States to pass USMCA — but it’s really groundbreaking in its approach to dispute settlement,” said Ted Posner, a partner at Weil, Gotshal and Manges, at a recent discussion hosted by the Washington International Trade Association.

A partisan USMCA celebration: Trump is set to sign the deal on Wednesday in a ceremony at the White House, but it looks like he’ll exclude some of the key players in getting the deal done: Democrats.

As of Sunday afternoon, the offices of key Democrats involved in the USMCA talks on Capitol Hill and supporters of the revised deal told Morning Trade they had not been invited to the ceremony. One Democrat suspected it was due to the highly partisan impeachment trial, and didn’t expect an invitation between Sunday and the ceremony on Wednesday.


 The Trump administration expanded steel and aluminum tariffs to include products where steel and aluminum comprise two-thirds or more of the value of the good. The proclamation issued by the White House late Friday came from a recommendation from the Commerce Department, which determined that the pre-existing tariff coverage was falling short of getting domestic steel producers to the goal of boosting capacity utilization to 80 percent or more. Trump imposed a 25 percent tariff on steel and a 10 percent duty on aluminum under a law that allows the president to put in place trade restrictions to protect national security.

“Stabilizing at that level is important to provide the industry with a reasonable expectation that market conditions will prevail long enough to justify the investment necessary to ramp up production to a sustainable and profitable level,” the proclamation said.

The proclamation highlights an increase in imports of derivative articles that include steel nails, tacks, drawing pins, corrugated nails, staples and other steel products. Aluminum derivative goods identified include stranded wire, cables and plaited bands.

Backlash: “This is the long slippery slope to protectionism,” said Rufus Yerxa, president of the National Foreign Trade Council, which runs a coalition of companies affected by the steel and aluminum tariffs. “Once we start down that road it will never end. The consequences will be terrible .”


Senators are pressing the Defense Department on its reported role in blocking a proposal that would tighten export restrictions on Huawei. The Wall Street Journal reported on Friday that the Pentagon pushed back against a rule that would narrow a de minimis loophole to allow U.S. companies to continue supplying the blacklisted Chinese telecommunications company. U.S. semiconductor companies that rely on Huawei for a large share of business can still sell to Huawei if the components contain a maximum of 25 percent of U.S. origin content. Commerce has proposed cutting that threshold to 10 percent.

Sens. Ben Sasse (R-Neb.), Marco Rubio (R-Fla.) and Tom Cotton (R-Ark.) sent a letter to Defense Secretary Mark Esper requesting a briefing from the Pentagon to explain its position. Huawei is already on the Commerce Department’s entity list, effectively cutting off U.S. companies from doing business with the firm. Commerce has granted a limited number of waivers and exceptions.

The Pentagon opposed the rule over fears that cutting off a major source of business for U.S. chipmakers could hurt their ability to invest more into research and development. Esper admitted as much at a public event on Friday: “We also have to be conscious of sustaining those companies, supply chains and those innovators. So that’s the balance we have to strike.”


U.S. whiskey exports to the European Union from Tennessee, Kentucky and 40 other U.S. states plummeted nearly 30 percent last year as a result of a 25 percent retaliatory duty imposed by the EU in June 2018 in response to the national security tariffs Trump put on steel and aluminum imports.

This week, top officials from the Distilled Spirits Council of the United States will be in Europe to urge officials to lift the duties. Such a move is unlikely unless Trump also rolls back the steel and aluminum tariffs. Trump did agree to discuss that possibility in June 2018, not long after the EU retaliation went into force, but so far nothing has changed.

But now that the two sides seem to be talking again about negotiating a bilateral trade deal, U.S. whiskey producers hope there is at least some chance of relief on the horizon, DISCUS President and CEO Chris Swonger told Morning Trade ahead of his visit.

Airbus dispute: Further complicating the matter, in a separate dispute over subsidies for Airbus, the Trump administration in October imposed a 25 percent tariff on single malt Scotch Whiskey, single malt Irish Whiskey from Northern Ireland, as well as certain liqueurs, cordials and wines from Germany, Ireland, Italy, Spain, France and the United Kingdom.

USTR has proposed increasing those duties to 100 percent and hitting additional European alcoholic products, with a decision expected by around Feb. 14.

Earlier this month, the Scotch Whiskey Association was in Washington and together with DISCUS made the case to various administration officials why the current tariffs should be removed, rather than increased or expanded to additional products.

The transatlantic spirits industry is so “interconnected” that tariffs on either side of the ocean hurt both American and European firms and jobs, Swonger said.


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