Washington, D.C. is the home of the surreal these days but the timing of the announcement by Democratic House Speaker Nancy Pelosi still raised eyebrows.
Just minutes after the House committees investigating President Donald Trump voted two articles of impeachment, Pelosi, backed by 30 of her House colleagues said that Democrats had secured enough changes in the trade agreement that would replace NAFTA to back it in a vote next week.
The outcome hasn’t really been in doubt since the AFL-CIO signed off on new provisions on labor enforcement in the treaty after tough negotiations with U.S. Trade Representative Robert Lighthizer. The negotiations also resulted in what the Democrats characterized as big improvements in rules on the environment, drugs, and enforcement. For the Trump administration Lighthizer said “After working with Republicans, Democrats, and many other stakeholders for the past two years we have created a deal that will benefit American workers, farmers, and ranchers for years to come.” Replacing NAFTA, the North American Free Trade Agreement, has been a high priority of President Donald Trump who characterized NAFTA as the worse trade deal ever.
Representatives from Canada, Mexico and the Trump administration will meet in Mexico City today to sign the amendments to the trade agreement. Pelosi later told reporters she hopes to vote on the deal, known as the USMCA, “before the end of the session” on December 20. There are easily enough votes in the Republican-controlled Senate to pass the bill.
Among other changes the revisions removed a loophole in NAFTA that allowed any country to object to the formation of enforcement panels. The deal creates a new labor-specific dispute panel system covering all goods and services, and labor violations can lead to “penalties on goods and services.” Democrats also managed to remove a provision that would have guaranteed 10 years of data protection for biologic drugs. Drug companies, no surprise, had lobbied to maintain that provision. The revisions did not remove a provision granting legal liability protections for Internet companies.
The iShares MSCI Mexico Capped ETF (EWW) was up 1.60% today as of 2:30 p.m. New York time. The iShares MSCI Canada ETF (EWC) was up 0.03%.
One side effect that I can see: The approval of the USMCA deal puts more pressure on China to sign a Part 1 agreement that would end some elements of the U.S.-China trade war. Mexico becomes a more attractive low-cost export base now that the uncertainties surrounding the terms of trade with the United States have been resolved.
