February 2020 Volume 2

WASHINGTON UPDATE

FIA Lobby Firm Report By Steve Haro, Mehlman Castagnetti Rosen & Thomas Special Report on the USMCA and Its Impact on Industry

In the last issue, we wrote that impeachment could ironically be the catalytic action-forcing mechanism to get USMCA over the finish line, as Democrats in the House would have to show that they could still legislate while the impeachment proceedings were taking place. So, the negotiations continued in earnest. Demands were made; demands were met; and a deal was struck. OnThursday, December 19, 2019, the House voted to pass USMCA by an incredibly lopsided vote of 385 to 41, with 193 Democrats voting in favor of the agreement. It is hard to overstate just how remarkable and historic this vote was given that so many Democrats supported it. But the overwhelming support and momentum did not end there as the Unites States Senate then took it up and passed USMCA on Thursday, January 16, 2020, by a vote of 89-10. As of this writing (mid-January 2020), all that is left for USMCA to go into force is for the Canadian Parliament to ratify it. There is little concern about Canada’s support as the House of Commons will convene in late January and is expected to pass it shortly thereafter. Mexico has already ratified the deal. USMCA Impact on the Forging Industry USMCA is a substantial policy and economic win that will have lasting effects on our industry and will set a precedent for future trade agreements. Though it includes many of the same provisions as the original NAFTA, it adds new provisions on digital trade and e-commerce while adding chapters on labor and environment that Democrats were pushing for. Specific to the forging industry, USMCA makes substantive changes to various manufacturing and small business provisions that will affect how we source our materials, create our products, and do business in North America. It updates the rules of origin and origin procedures for passenger vehicles, light trucks and auto parts with the goal of ensuring that goods and materials are sourced in North America and not abroad. Specifically, the deal uses trade rules to require that 40 to 45 percent of auto content be made by workers earning at least $16 an hour. It also updates the regional value content (RVC) requirements by increasing the current level of 62.5 percent to 75 percent, which means that 75 percent of auto content must be made in North America. The goal here is to preserve and reshore vehicle and parts production to plants in the United States. To further strengthen these RVC requirements, the USMCA eliminates NAFTA rules that allowed producers to “deem” non-North American content as originating regardless of actual origin. The agreement also requires that at least 70 percent of a producer’s steel and aluminum purchases must originate in North America. Thus, for our forgings to be used in automotive production, we would be wise to adhere to these standards to help incentivize the purchasing of our products.

For the 45,000 people in the United States and Canada who make up the forging industry, there is probably no greater public policy priority than that of international trade. The ability to sell our unique products to our customers with minimal to no tariffs helps us stay competitive internationally while avoiding a race to the bottom on employment and wages. Since 1994, the North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States has ensured our industry benefits from a stable tariff regime that avoids this race while allowing us to create world class forgings at competitive prices. And though it is clear that NAFTA has been a net economic positive for our industry, it nevertheless was not without controversy in other manners by which the agreement governed the $1.25 trillion in annual trade between the three member countries. And in the 2016 presidential election, those controversies and concerns came to the forefront of presidential politics with both candidates committing to reevaluating NAFTA. Soon after DonaldTrumpwas elected president of the United States, he ordered his new United States Trade Representative (USTR), Robert Lighthizer, to renegotiate NAFTA in a manner that brought the agreement into the modern economy and was a better reflection of the digital and globalized world in which we now live. Those efforts led to a new tri-lateral agreement signed by the three countries in November 2018 that came to be titled, the United States Mexico Canada Agreement (USMCA). Negotiating a free trade agreement is hard. Passing a free trade agreement in the U.S. Congress is harder. Regular readers of the Washington Update will recall that we dedicated a great deal of 2019 speculating whether USMCA could get ratified in the U.S. Congress. As we have always made clear: trade is tricky, political and controversial – made all the more so presently by the fact that we currently operate under divided government (a Republican Senate, a Democratic House, and a Republican White House). In early 2019, we took a bearish approach to USMCA getting done– the parties were too far apart on what a final deal should look like as Democrats felt the Trump Administration-negotiated product was too inadequate. However, USTR Lighthizer never gave up and kept everyone at the negotiating table through the summer and into the fall. With each passing day, the chasm that existed between the White House and congressional Democrats narrowed. And then on September 24, 2019, the House of Representatives decided to begin formal impeachment proceedings on the president.

FIA MAGAZINE | FEBRUARY 2020 29