[CTC] Stakeholders laud Wyden-Brown proposal, knock Section 301 as NAFTA enforcement tool

Thu May 23 06:43:26 PDT 2019

Stakeholders laud Wyden-Brown proposal, knock Section 301 as USMCA enforcement tool
Inside US Trade
May 22, 2019 at 4:51 PM

Witnesses at a House hearing on Wednesday offered lawmakers several suggestions -- including a more robust version of a proposal advanced by two Democratic senators -- for how the administration could enforce the U.S.-Mexico-Canada Agreement, though all agreed that unilateral action under Section 301 of the 1974 Trade Act would be inadequate.

The stakeholders appeared at a House Ways & Means trade subcommittee hearing on “enforcement in the new NAFTA,” which lasted more than two hours. Witnesses from the International Association of Machinists and Aerospace Workers, the Environmental Investigation Agency and Cargill Inc. testified, as did former officials from the Office of the U.S. Trade Representative and the Labor Department.

Rep. Earl Blumenauer (D-OR), the chairman of the subcommittee, said in his opening statement that “When discussing enforcement, the Administration often points to the threat of unilateral investigations and sanctions under Section 301 to enforce commitments of the NAFTA 2.0.”

“Let’s be clear: Section 301 is no substitute for strong enforcement provisions in the new NAFTA,” he added. Reps. Ron Kind (D-WI) and Stephanie Murphy (D-FL) also said the 1974 statute, which the administration has used to levy tariffs on billions of dollars in imports from China, was an inappropriate enforcement tool for NAFTA 2.0.

Elizabeth Baltzan, principal with American Phoenix Trade Advisory Services and a former USTR official, called the use of Section 301 “acrimonious” and said it would be inferior to a cooperative proposal <https://insidetrade.com/node/166205> offered by Senate Finance Committee ranking member Ron Wyden (D-OR) and Sen. Sherrod Brown (D-OH). Under their proposed approach, the U.S. and Mexican government would be armed with more effective tools to detect labor violations in certain sectors. It would target enforcement actions against shipments from facilities in violation of USMCA’s labor standards and would allow the two governments to inspect suspected facilities.

The proposal, which draws from a verification tool in the U.S.-Peru Free Trade Agreement, is artful in that it “enables the Mexican government to work with the United States to identify and address factory-level labor violations,” Baltzan argued. “If successful, it reduces the likelihood that the United States will challenge Mexico for failing to enforce its labor laws.”

Sandra Polaski, former deputy director-general for policy with the International Labor Organization, said the Wyden-Brown proposal gets to the crux of the enforcement issue and could be built upon to include stakeholders and Congress.

It is a “more direct and timely approach to enforcement and focuses on the firms that engage in violations,” she said in prepared remarks <https://waysandmeans.house.gov/legislation/hearings/enforcement-new-nafta>. “The ability to investigate and sanction only violators rather than a whole sector or entire economy is a strong advantage of the approach. In addition to its targeted efficiency it has the potential to create substantial deterrent effects, as other firms observe that the labor chapter is being effectively enforced. Such an approach has precedents.” Polaski is a former deputy under secretary of Labor for international affairs in the Bureau of International Labor Affairs.

The proposal should be strengthened, she continued, to “assign stakeholders, such as workers’ unions and civil society groups, a strong recognized role in identifying violations of the USMCA labor rights commitments.” Also, she said, stakeholders should be given the opportunity to “identify specific firms and facilities that are alleged to be in violation of the agreement and to require the governments to investigate within strict time limits.”

Accordingly, when violations are identified, “there should be a requirement to deny entry to the goods, in order to incentivize prompt remediation as well as to create the desired deterrent effect,” she testified, and “Enforcement would be further strengthened by adding a legal right for stakeholders to compel action by the governments through national courts.”

Such measures, Polaski argued, would resolve concerns over an alleged “lack of political will” <https://insidetrade.com/node/166131> that has been “demonstrated by the U.S. reluctance to use the dispute settlement mechanisms to enforce labor obligations over the 25 years that such obligations have been part of trade agreements, beginning with NAFTA.”

Additionally, Congress should consider whether to give itself an oversight role that would involve a “standing committee that regularly reviews developments in the three countries’ labor markets and compliance with the labor obligations contained in the agreement,” Polaski said. Such a committee could also include the Mexican and Canadian legislatures, she added.

“The committee could invite labor unions and other workers’ rights organizations to submit complaints of non-compliance and utilize its various authorities to press the executive branch into active enforcement. Congress could also create a right for legislators or their designees to join the cross-border inspection teams. This could be accomplished through the implementing legislation for USMCA or as part of the renegotiation of the agreement,” she contended.

The administration has yet to send drafts of its USMCA statement of administrative action or implementing bill to Capitol Hill. Many observers have questioned whether sufficient time remains to approve the deal this year if the documents are not sent up well before the August recess.

Rep. Jimmy Panetta (D-CA) asked the witnesses at the hearing how the U.S. could implement changes to USMCA, questioning whether an annex to the deal or the insertion of clarifying footnotes would be “workable.”
Baltzan said the “the first thing I would do if I were in charge of the pen” would be to delete the language that led to a U.S. loss in a labor dispute with Guatemala in June 2017.

On the Wyden-Brown proposal, she continued, “I think that requires an amendment to the agreement. You would add it as an annex the same way that the Peru forestry annex was added to the [U.S.-Peru FTA] even after it was signed.”

Re-opening the deal?

Polaski offered a range of suggestions, all of which would require that talks on the agreement be re-opened. For example, an agreement between the parties could be structured “as something that is appended to [USMCA] but only if it was integrated in the sense that all of the authorities and all of the penalties in the agreement would be available for this as well in addition to the new enforcement mechanism,” she contended. “However, I think ... you would have to re-open to eliminate some … language that’s in the agreement that would get in the way of an effective enforcement mechanism, such as Brown-Wyden.”

Doing so would not be a heavy lift, she claimed. “Having been involved in U.S. negotiating teams over the years in different capacities, you can reopen agreements and agree with the parties that you are going to open narrowly only on a particular topic,” she testified. “The idea that once you re-open everything is back on the table is simply not the way negotiations work and it’s certainly not the case with eager partners like Canada and Mexico. So, it seems to me that you can re-open, put this in the agreement or append it in a way that it’s clearly integrated … and you would have a very serious step forward."

Panetta noted that all three governments have said they do not want to re-open talks. But Polaski, citing assertions made by the Mexican ambassador saying the country might be interested in a clarified and reciprocal <https://insidetrade.com/node/166314> Wyden-Brown proposal, said it would not be difficult.

Rep. Suzan DelBene (D-WA) asked whether the proposal should be modified to enable third parties to conduct labor violation audits. While Polaski did not discount the idea, she noted that during her time in government a similar monitoring effort was explored, and added that a full-fledged “North American” effort would be ambitious and costly.

U.S. Trade Representative Robert Lighthizer has suggested using Section 301 to enforce USMCA, though many have questioned how doing so would resolve a so-called “panel-blocking” issue with NAFTA. Democratic lawmakers remain concerned <https://insidetrade.com/node/166337> that USMCA’s state-to-state dispute settlement mechanism would allow parties to continue to block the formation of arbitration panels.

Kind asked whether enough was being done on to prevent such actions. Owen Herrnstadt, chief of staff to the international president of the International Association of Machinists and Aerospace Workers, called USMCA’s state-to-state language “really a step backwards” from NAFTA. And Polaski said the only recourse the U.S. has under NAFTA is “going to a panel of private arbitrators who don’t have a public responsibility,” adding after a panel decision is made there is no repeal process.

Wyden, in a May 22 letter <https://insidetrade.com/sites/insidetrade.com/files/documents/2019/may/wto2019_0149.pdf> to U.S. Trade Representative Robert Lighthizer, noted that he had expressed concern over dispute settlement before USMCA talks concluded, but wrote that “So far, the Administration’s justification for this mechanism has only increased my worry that the new Agreement will not be enforced.”

“I understand from Administration officials that there are defensive concerns regarding U.S. trade remedy laws behind the Administration’s apparent eagerness to opt out of panel-centered enforcement in the new Agreement,” the letter continued. “Yet, over the past few decades, the United States has only had to defend itself a handful of times at free trade agreement dispute resolution panels, and the last such occurrence was nearly 20 years ago."

Rep. Don Beyer (D-VA) asked if Lighthizer’s “defense” of maintaining the dispute settlement mechanism was a “particularly compelling” argument, prompting Baltzan to conclude that the USTR's concerns likely stemmed from experiences at the World Trade Organization. “I’m not sure the solution to that problem is to actually have what is effectively a Potemkin dispute settlement chapter,” Baltzan added.

Mexican labor questions

Beyer then pivoted to Mexican labor reform, which was signed into law on May 1, asking what “concrete signs” Congress should look for to ensure the law is fully implemented.

Polaski said a possible lack of funding and a series of special sessions <https://insidetrade.com/node/166431> scheduled during the Mexican legislature's upcoming congressional recess, which could result in changes to the labor legislation required by USMCA, were reasons to be concerned.

“To rush to a vote before we have a demonstration that the law is completely finalized and that the institutions are being built and being staffed up is a very important signal. And I also think it is very important to see changes in behavior in the Mexican businesses that have been … denying workers the right to have independent unions. I think we need to see some evidence of that,” she asserted.
Herrnstadt said Mexico likely would need at least four years to fully implement the labor reforms.

But Rep. Tom Rice (R-SC) disputed comments made by some panel members who alleged Mexico’s labor law was a small step in a larger process, asking what “will ever be enough?”

“We’ve gotten great concessions across the board,” Rice asserted. “You don’t think the laws that Mexico just enacted mean anything?”

“We’ve gotten to this point: ‘it could be better, it could be better,’” he added. “But I don’t know that if we pursue all this that you are talking about that we will ever get to the point that it will be enough. If we get to this line you will want something else.”

Herrnstadt, in his prepared remarks, outlined several suggestions for how the administration could improve USMCA -- among them the establishment of a “meaningful forum for victims of labor violations” and improved labor standards that “are subject to enforcement by including explicit references to [International Labor Organization] rights and reports in the text.”

 “The Agreement should explicitly include ILO rights and reports, not merely reference the ILO Declaration of Fundamental Principles and Rights at Work,” he asserted, adding, “Enforcement through side agreements and separate labor action plans are unacceptable.”

Meanwhile, Rep. Jason Smith (R-MO) said Democrats “have used many excuses to prevent a vote,” alleging their reluctance “started” with Mexican labor reform. “When will it be good enough?” he asked, adding, “It’s politically inconvenient for the Democrats to move something this president supports.”

“It is time to decide what is worse for them,” he contended. -- Isabelle Hoagland (ihoagland at iwpnews.com <mailto:ihoagland at iwpnews.com>)

Arthur Stamoulis
Citizens Trade Campaign
(202) 494-8826

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