tv Sen. Toomey on USMCA Trade Agreement CSPAN December 19, 2019 1:30pm-2:08pm EST
when we talk about this, it's worth having as a starting point about nafta. why was it that the administration felt it was to renegotiate nafta? that obviously is the starting point for usmca. was it that nafta was an unfair, unbalanced agreement? was it lack of reciprocity? in it that the tariffs left nafta too high, there were obstacles to trade? no to all of those questions. ight, nafta is a free trade agreement. zero tariffs on 100% of manufactured goods. 97% of iffs on agricultural goods? quotas, no obstacles, to of a free, itome fair, reciprocal trade
agreement. and since nafta was implemented, american exports to mexico are up over 500%. to mexico a exports have grown right along with that, over 500%. i think you can make a case signed in 1993, a lot has changed in the economy we have n, and so now this whole digital sector. we have this whole sector that didn't even exist. and so modernizing certainly sense. but that's not the reason the administration wanted to renegotiate nafta. in my view, that the administration wanted to renegotiate nafta was because espite the increase in our exports, imports from mexico had grown even more, and we have a mexico.ficit with despite the fact that it's my iew, and i think the view of most economists who have done a the f work in this space trade deficit with kahn with
significantly economically with the united states. despite, that's not the view of administration. and so they set out to at least significantly diminish or trade deficit with mexico and i think that's the central motivating fact and lot of bad e got a outcomes. because it was the wrong intent in the first place. the actual purpose was to diminish trade with mexico. and i am afraid that might happen. going to be it's severe. but on the margins it's ertainly going to cost us opportunity to exchange goods and therein lies the heart of my objection. specifics hrough the or the way i think about usmca nafta. you can look at usmca as nafta with two categories of changes. consideregory, i would the constructive modernizing
changes. there are mostly modest, i think, but they are not unimportant. it's about digital trade, data transfer, i.t. protection, locally is not mandated. mostly now in the usmca will be a codification of practices. that's all right. that's good. t.p.p. it was taken from so it wasn't terribly controversial or difficult to get there. and that's all all fine. very modest y, pening of some agriculture sector markets in canada and in particular, americans, probably, sell some more dairy products. our back of the envelope is the order of half of 1% of our dairy production, so large.lly but not a bad thing.
so that's category one, what i constructive changes and modernizing features. category two is where i have my objections. and these are changes that i think are protectionist in designed to e inhibit trade. so the first big category is the sector. of ou may know, the source the big majority with our trade ith mexico is in the auto sector and so unsurprisingly hat's the focus of really completely unprecedented provisions with the trade agreement. free eally the end of trade in autos between the united states and mexico. let's be clear about that. right. what the administration could have done is they could have had a straightforward limitation quota or a tariff. they, i guess, decided that be maybe too obvious and instead they create this omplicated but nevertheless
onero onerous minimum wage requirement force wages ned to on mexican factories that are well above the prevailing rates because mexico is, of course, a developing country with a low cost of living and -- much lower wages. make mexicanned to auto production less competitive nd raise the cost and the advocates for this agreement and the administration think this is thing. i don't think it's a good thing. i think imposing this minimum higher than uch prevailing wages will make the automotive an industry less competitive as a whole. raising the cost of components from one source are going to costs show up as higher in many cars that are produced in the country. it certainly means higher prices for consumers. be clear. this is a tax that american consumers will pay on autos and that come across our border. if the tariffs, which are the
the higher to minimum wage, either one way or the other, it will be a higher cost by design. the margin, increases pressure to shift more automation. just sourcing parts and cars in other countries altogether. think, over time, fewer american jobs in this space, not more. that's one of the difficult consequences of protectionist policies. that's the auto sector. second area i find very troubling is there is an expiration date on this. never had an expiration date on a trade agreement. the obvious reason, if you put expiration date, you introduce uncertainty about what the world looks like after that date. n order to extend the expiration date which is 16 years from the date of enactment or the day of signing, it's 16 years out, the three parties have to simultaneously
to add ether and agree as they designed it, six years a time. it might happen. it might not. if somebody is contemplating a cross-border investment they have to ask them self, what is the trading environment going to look like when we no longer have a trade agreement that governs not? at least we might be again, it has to detrimental to growth and trade across the border because we are levelssly injecting a new of uncertainty in these rules. third category i find investor ble is the state dispute settlement mechanism. mechanism -- let's be clear -- it's american investors. multinational corporation headquartered in the united states. it could be a group of investors making a purchase in another
country. sometimes the case that an american investor in a foreign doesn't get a fair adjudication in a local court. that happens sometimes. country in the world has some level of protectionist tendencies and some places at moments local indigenous competitors will be able to adjudication local process, the local courts, local egulators to put the foreigner -- in this case the american investor -- at a competitive disadvantage. know this is always a risk. and so we created this investor dispute settlement mechanism where we and our can have rtners confidence that there will be a fair adjudication. always win. i think the record is we've won every case we brought to an state dispute settlement mechanism. bilateral trade
agreements and free trade agreements that have this mechanism. in march of last year, 22 republican senators sent a letter to the administration this is very important ou don't water down the investor dispute mechanism. and what happens? it's gutted. back so , they cut it there would only be five sectors investor access to the state dispute settlement mechanism and that was under members of m congress, frankly. in canada, it's gone completely. mechanismo settlement in canada. so this probably makes the mexicans quite happy. they don't -- they don't have to deal with this. and i think it reflects an nderlying view in the administration, at least by some in the administration, that's very misguide. a classic f
protectionist view that it's to discourage direct foreign investment by american introduce risk, whether it's a sun sls set provision or e -- sunset elimination, that's a good thing because, and this istaken view of the world, if overseas investment are less attractive, that money will then e invested in had the united states -- invested by the united states instead. i think that is not the majority foreign direct investment. most of which is made to serve markets. and undermining that doesn't make us richer, doesn't create more opportunities. know, the companies i know in pennsylvania that have ub-sid yaers in other countries -- subsidiaries in other countries also have jobs in pennsylvania, you know, those and relating to ther -- those subsidiaries overseas. managerial. providing financial services, planning, administration. kinds of services.
so i completely reject the we somehow ought to discourage american investors overseas.ting so then let me get to the two things that changed late in the game. just e the provisions i went through were early features of this agreement. but two things that changed late game, in my view, made this agreement even worse. the first is the new set of provisions. and what -- the way this began u.s. negotiators agreeing -- deciding that we are adopt o force mexico to new labor laws. has e did that and mexico passed these laws and they have facilitating unionization of their factories generally. but we didn't stop there, right? previous trade agreements we historically said their labor laws are their business. now, we made it our business. usmca, we create this adjudicating body, paid for by
americans. year expense for american taxpayers. to enforce mexican labor laws in mexico. like, why is that our responsibility? but if you that, look at the details of this, the ay it is designed, it is -- it's designed such that a -- an of sation of a violation these mexican labor laws in mexico is presumptively deemed have an adverse impact on process creates a where whereby, you guessed it, new tariffs, new obstacles of trade, including embargoes, from the resumed to be offending factories can be imposed. head of the afl-cio said, and i quote, for the first time there truly will be enforceable standards, including a process that allows for the inspections of factories and filths that are not -- that are not living up to their obligations. there is an explicit obligation
onsite inspections. we will have five americans living in mexico. this is not gone over very well the mexicans, by the way, and their job is going to be do this enforcement. but here's the thing. is reciprocal. it's fully reciprocal. -- our trade agreement trade representatives says, don't worry, we've made sure mexicans can't send folks to inspect american factories. out see how that works when that gets litigated, because this is supposed to be a reciprocal agreement and it certainly allows americans to factories.ican and i think it's worth asking why is it that organized labor felt so strongly about this provision? hy is it that the openly protectionist members of congress felt so strongly about this provision? toomey's senator speech later on in our program schedule. also available at c-span.org. on the usmcal vote later this afternoon.
eturning now to debate a bill on state and local tax deductions. live coverage here on c-span. [captions copyright national cable satellite corp. 2019] national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] >> but i think there is more that.on than there is a huge opportunity for mischief given that there are a that american companies have subsidiaries in mexico and mechanism to accuse them of violating mexican process by nd a which they can then be punished for having done so with these embargoes and such. that leads to some bad developments. last thing i want to mention in provisions policy of usmca is the -- by the way, whole labor , this title, this whole approach is bob lighthizer, the u.s. trade rep, is very
proud of. he says this makes the agreement better. so i think that sheds a little light on how he thinks about this. now, the last provision i will mention is he acknowledges makes he had ement worse is negotiated 10 years of intellectual property protection biologics and the insistence of speaker pelosi, that goes to zero. view, this is a very, ery exciting new category of really, , biologics, some breathtaking medicines for illnesses that are very, very serious, and 12 years of protection to create the incentive, the ability to recoup development in biologics, hese new in mexico and canada, that goes to zero. report, the .t.c. international trade commission did a report in which they did of this ic evaluation and some of my colleagues and
supporters of the agreement cite this is going e to be really good for the economy. nonsense. so the data point that's most 176,000 new jobs created by usmca. all, if you of believe that that number is true, it's a trivial number, right? we have been cranking out 200,000 roughly new jobs a month this country. usmca, according to this data point, is going to produce over the next s 72 months. extremely small in scale. if you even believe it to be don't.nd i the report -- their argument hat trade restriction policies will diminish economic growth and cost us jobs but it will be added certainty of having codified the practices in referred to at
the beginning. maybe that's how it works out. they technology they don't even attempt to quantify the clause f the sunset because they don't know how to do it. ell, we know that's got to be negative. it can't possibly be positive in my view. we don't know the magnitude. there's been no analysis done whatsoever on these new provisions. sector was bor written after he the i.t.c. report was done. concession on biologics was likewise. tightening and more restrictive rule of origin in t steel and aluminum is this as well. and the i.t.c. acknowledged in more report that the strict you make the country's pecific rules of origin the more you restrict growth. we don't have a quantification diminishly it will diminish growth in jobs. line, i think this won't
produce any net new jobs. t's very small but probably a net negative to economic growth relative to where we are today. point on substance here, we have a c.b.o. score. came out this week. have seen it. it's relatively new. conclusion to the rules -- i should say the minimum wage rules on mexico are --n in they cannot be complied with. and so they won't be complied with. the alternative, under usmca, is that autos and auto parts that don't comply will be a tariff. the c.b.o. analysis says that into effect and, of course, that's a tax on american consumers. and it's about $3 billion. on top of everything, usmca is a $3 billion tax increase. $3 billion is not an enormous number. it is what it is. how i me just wrap up think about this. the way i look at this is we
agreement and de added some constructive features, taken largely from slapped on then we an expiration date. we imposed costly new estrictions on a trading partner. we eliminated the settlement dispute mechanism for investors. intellectual property, the most innovative new medicines and gave a big labor in a nized process designed to allow protectionists to impose new road.ctions down the we'll get little or no extra economic growth out of it. hit. a modest so it shouldn't be terribly speaker pelosi, a lifetime protectionist and other protectionists in congress were striking the football that the afl-cio has endorsed this deal. decades that they have enendorsed a -- endorsed a trade deal. this will probably pass by a big margin in both houses. just want to stress this should not be a template for
further future agreements. this should not be the way we approach trade in the future. we should not be looking to restrict trade. looking to expand trade. thank you very much. [applause] >> this will be a great time for the 20-some people that are standing up to sit down if they want to. otherwise you'll get tired and i would love for you to have questions. i notice that i am to the left of senator toomey as i'm sitting here which is definitely not true. but, you know, we could -- thank you for your remarks. and i could agree with them. we could spend the next 20 minutes agreeing with them. most e with you on trade -- the general approach to trade. i agree with you on the intent of key people in the administration with regard to usmca. i agree with you on intervening mexican or other labor markets.
senator toomey: that's a but to come. that's dull. let's not talk about what we agree on. let's talk about what we might or disagree partly on. i'll start with a key -- a key of this for you and i'm not sure it is for me. probably know, the administration -- the president originally wanted a much shorter review period. he wanted a review period in his second term so he could have the bailing out of usmca if he was still president and won re-election. to be a ind 16 years problem. trade agreements change in 16 years. should be evaluating almost every trade agreement after a while to see, as you mentioned, with digital trade, you know, the situation has changed. there are new technologies. there are now trade patterns. new issues that come up. actually, i find a review period at 16 years to be an excellent enforcement. don't start cheating because we will be looking at this 16 years case, 16 years later a lot better kind of enforcement than some of the
that things you mentioned i would also object to. let me come back at you about 16 review mechanism and say years isn't six years which is where we started. it's a reasonable amount of time. yeah, it creates some uncertainty at the end of the cycle but there will be the tainty anyway because world changes, politics change in the participating countries, a review er to have mechanism that's general rather some of the forced mechanisms that i know you and i have problems in the agreement. yeah.r toomey: so i would disagree with that. look, the point that the world change and you need to those in a trade agreement is a valid point. you ay i think about it, can always revisit a trade agreement. anytime you get the three parties together any day of the year, you can revisit it for really any reason. if you have a collective will to so. the questions for me is, what's the presumption?
what's the default settings? the default setting that it all goes away unless and until is get all three to agree or the default setting that we'll continue this, what i would hope liberalized free trading environment and we'll make changes when we all agree be?hat those changes should so i think it's a question of better default setting we have? derek: do you particular -- i agree. way to have a ht review mechanism. but do you think this particular is the regard to usmca default setting is to rip it up in the next or do we feel like setting is to rip it up because there are protectionists both in the administration and congress who if they're still around in 16 years their default is to rip it up? is it the rds, agreement that's doing this wrong or is it the political supporters of the agreement who thinking about the review mechanism in a harmful fashion? i think it's : both. derek: ok. senator toomey: i think it's
both. think the administration would have taken this in an even if protectionist direction they thought they could and still hold republicans. so i think that's part of their is to create an that.unity to do but i think it's both. it's fundamentally a mistake to there. in derek: second question. am 100% with you in intervention in the foreign labor market. you know, my instinct about nvestor state dispute settlement, that's u.s. intervention in foreign judiciaries. think of free trade, i on't think of giving extra protections to multinationals. you have enforcement of the agreement. you don't have a special clause for companies. a t like you don't have special clause as was added, unfortunately, to usmca for all intervention into labor. could you make -- i understand we win the cases. complete -- i breath completely agree with you. i see it to the benefit of
have this mpanies to provision. i don't see it as a free trade provision. advantage to our provision. do you think you can make a pro for this extra set of authorities for company's legal rights in foreign countries? senator toomey: so i get that know, we have you a -- we have a global infrastructure in the united states. we have a state department that sets up shop in every single country around the world. patrol the oceans and keep the sea lanes open with very navy.ive e do things outside of our borders to -- that part of which s designed to help facilitate commerce. so creating a mechanism to adjudicate a dispute in a place relied on be necessarily to do it fairly modest step. a it's fair. i don't think it's a system
designed to stack the deck in our favor but rather to outcome.r by the way, most foreigners investing in the united states feel like they'll get a fair shake in the u.s. federal for and so they don't opt the isds mechanism as often as we might. very reasonable provision. i think of it differently from mechanism to enforce mexican labor law. -- i think that's a creation to serve the u.s. labor.ed derek: let me ask you a specific question. biologics is an important issue. it's a growing industry and very to the american economy. but putting that aside -- and i realize that's a big thing to aside, what do you think of agreement? it's very important both in this agreement and in future
greements to have good i.p. protection. i am not trying to minimize biolodgics. biologics.ry -- that's a very controversial thing to put up. think the provisions are good? senator toomey: i haven't in much depth. my sense is it's moving in the right direction. strong there should be intellectual property protections and i think the this agreement-- does improve that. derek: ok. let me ask you about -- and i know, i am happy to talk about the agreement itself. maybe we'll have more specific the agreement. but a key point that you made at the end and at the beginning this to be at want temp plate. i have two questions about -- template. i have two questions about that. one of them is, look, we have a emplate with canada and mexico that was working well. i agree with you 100%. towards backwards protectionism in that template
seems like a bad idea. if we extend usmca to countries we don't have agreement with? it to the extended united kingdom, taiwan? we all agree we can do better. question is, if we took the usmca template which is a step nafta ds with regard to but use it with countries where we don't have free trade it as nts will you see backward or forward? senator toomey: the question we re asking, is this what have to settle for? -- i think wehuge have a huge moment, a huge opportunity with the u.k. agreementa free trade with the united states. they need one with the european they need one ut with the united states, so i kind of like the prospects one.tting a really good -- for getting a really good one. .
to diminish their productivity, to raise the cost of their products to american consumers. that just so goes to the heart of this. that to me goes to the heart of trade more than the expiration date. that is more than the investor dispute mcnism. if hi to pick one thing that would be the last thing i would want to see replicated would be
that. >> i certainly -- whenever governments pick out sectors and decide is there a favoritism or punishment or whatever, that cuts against people who support open markets. i'm with you. i do have -- want to open it up to the audience, not that i don't have more questions, i want to follow-up a little bit on that. one of the key elements in the auto sector has to do with an item you're familiar with it because you are familiar with trade. it basically is a rule on how much has to come from inside the trade agreement versus how much can come from outside the trade agreement. there are advantages to loose rools of origin, which is more liberalizing. my opinion there are also advantages to tight rules of origin because it means people have more incentive to join a trade agreement if it were going to expand. on the auto side or generally as you prefer, where do you see usmca's rules of origin? they got tighter. i have seen advantages to that. if we are going to bring this to other countries who can also
join, but there's also a disadvantage. do you see that as a minor issue, big issue? mr. toomey: i see that as a smaller issue than what is completely new. country's specific rules of origin. this is a multilateral, continental free trade agreement where previously we had rules of origin that pertained to requiring the origins from one of these three countries. i take your point. you can argue both ways. there's baret to that. there -- merit to that. there's opportunity to defeat the purpose of it if you don't have that. this goes to a new level of rule of origin that makes it country specific within the three countries. they don't name countries. instead, euse the wage rate as the proxy. 40% of car parts have to be made in a country with wages that pay over $16 an hour. that is meant to force the mexican auto and auto parts makers to import from the united states and canada. at least 40% of the content. and that is completely
arbitrary, unnecessary, and it runs counter to the idea of a continental free trade agreement. >> i'll just say prior to questions, i asked that question in particular because we may disagree on rules of origin but we completely agree on that point. the idea of rules of origin is for them to be simple and easy to understand otherwise you get a situation where you don't have a trade agreement because you don't know where you can make the product and under what rules it will qualify for the trade agreement. can you have a reasonable debate as you can over many free trade issues where you can decide i think this is ultimately good for open trade or not, but there are some parts of this agreement that are clearly just interventionist and they are not meant to promote trade as the senator has said so well. they are meant to restrict t do have more questions, but i would love to hear from the audience. i got that center table is making me very nervous. my colleague, claude, who is safer than these people right here.
>> i want to switch to politics. assuming for the moment that the president -- president trump is not re-elected, what will be stance of the republican party in 2021 and after do you think? is trumism there permanently? -- trumpism there permanently? will republicans revert to a more free trade, free market position? where do you think the party will be post trump? senator toomey: great question. le something many of us are wandering and trying to influence -- wondering and trying to influence. there has been a republican consensus for free trade for a long time but it's not universal among republicans. there is has always been some dissent among republican voters about the merits of free trade. but the consensus has been in its favor. the question had an opening
caveat that's a very, very important one. and that is the outcome of the election. i think it has a huge impact on the direction that the party takes. a re-election will be seen as a validation and political validation of all of the president's positions. and on domestic policy and economic policy, most of which i agree with. the tax reform i think is very constructive. the rollback of excessive regulation has been very, very constructive. the judicial appointments and confirmations have been terrific. i disagree with the president on trade. as a general matter. i don't know the answer i guess is the short answer. i don't know. but certainly if the president's re-elected, it's going to be a serious question -- >> we'll take you back live to the floor of the u.s. house. use. for what purpose does the gentleman fro