Business Roundtable's Nasim Fussell Talks USMCA

A

I'm Scott.

B

I'm Bill and we're the Trade Guys. You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm Alex Kisling and I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys.

A

Thanks for listening to the Trade Guys. This is Trade Guy Scott. On this week's episode, Bill and I speak with Nassim Fusel, the Director of Trade and Investment at the Business Roundtable. Our subject is USMCA and all matters North American trade. We hope you enjoy this episode of Trade Guys.

B

Okay. Well, hello listeners. This is Trade Guy Bill once again coming on with a guest and we're excited to have Nassim Fussell with us today. Nassim is the Vice President for International Trade at the Business Roundtable, which is the leading CEO level business organization in town. I'd like to thank my former association, the National Foreign Trade Council gives them a run for their money, but they don't have as many CEOs as the BRT does. So welcome Nassim. She's a Hill veteran like me, so I'm delighted to have another Hill person on. She was the Senior Chief International Trade Counsel for the Senate Finance Committee under Senator Grassley, deputy under Senator Hatch, and then she also prior to that was in the House as Trade Counsel to the Ways and Means Committee under three different chairmen, Kevin Brady, Paul Ryan and Dave Camp. If nothing else testifies to your survivability, because lasting through three chairman at any committee is no small accomplishment. She's had private sector experience as partnered a law firm and at a government relations firm and currently serves as Chair of the Board of Directors at wida, which most of our listeners probably know and listen to as well. So Nassim, we're delighted to have you with us. The topic, as I warned everybody the last time, is mostly usmca and we delayed putting you on a little bit because we wanted to see what happened last week at the negotiations in Mexico, Mexico City. So let's start with that. Give us your take on what happened, where things stand and how you see things unfolding or unraveling as the case may be from here on.

C

Thank you so much, Bill and Scott for having me. It is a true pleasure to be invited to chat with the Trade guys. I feel like I'm in just really phenomenal company. Starting with your first question, I will say I was not down in Mexico City for this round, but many of my friends and colleagues in the Trade community both throughout the United States and Mexico were there. In fact, I was just with many of them talking about how the round went. And I'll tell you, the overwhelming feedback I got was that it felt really nice to all be down there together for what started to feel a bit more traditional after a year of a great deal of change. And so, you know, to have a formal negotiating round, to have stakeholders down there together. There was a congressional delegation that was in Mexico City as well as a congressional staff delegation that was down there. Some of our member companies were invited by USTR to participate in roundtable specifically in the auto and aluminum sectors. And then there was a steel roundtable as well. So overall, I think, you know, the first piece of feedback I got was it was great for everyone to be together and to be doing what for those of you who have been in the trade community for a while would agree to. It's felt a little bit more normal and traditional, but it was still different in some ways. And that is on the more substantive side of things and procedural as well. There wasn't a whole lot of material provided in advance. My understanding is that neither the Mexicans nor the industry received text very far in advance of the round. And so much of what was discussed on the topic of rules of origin was delivered fairly shortly before the negotiators got together for their meetings in Mexico City. So my sense is that it was an opening discussion on this very significant topic that will take a great deal of work and will require all three parties ultimately at the table. But notably it only included two parties, the United States and Mexico.

A

This leads me to a question of what is going on with Canada. As a general matter, I think Prime Minister Carney has said almost everything that can possibly be said and taken every possible position when it comes to trade with the largest trading partner, the United States. And from we don't need them, which is a little hard to swallow to we're ready to join the European Union. Would you think about that? To the speech he gave in New York where he wants to be the basically the preferred supplier for many critical minerals. You know, the last point I would say is wonderful. That's an outstanding way to balance the demand of the US economy for these materials. And to source them from our near nearest NATO ally would be fantastic. But like I said, there's been like every position. The only thing I haven't seen is Prime Minister Carney in a red hat. But what is the sense they missed the negotiating round completely? Are they going to engage in what manner and with what end?

C

I do believe that they will. And I can say, hot off the press, you know, we're recording on June 1st, and this is an important day in the review timeline, at least according to the USMCA Implementation act, which says that the parties may exchange their views a month ahead of the joint review itself. And Minister LeBlanc is here in Washington right now as we speak, and he submitted a letter to Ambassador Greer and to Secretary of Economy Abrar today indicating that Canada is all in and ready to negotiate and ready to be at the table and to do what's in the best interest of North America. So hopefully his meetings today are going well. I can speak for Business Roundtable and its members when I say that it is absolutely critical that this agreement remain trilateral, that Canada be formally at the table as soon as possible, because we cannot meaningfully get through this review without Canada at the table. Some of the biggest issues will require them there. And we mentioned rules of origin briefly. That is the elephant in the room. That's the big kahuna. Whatever the right expression is, they have to be there for that discussion. Another topic of discussion at this last round was economic security. This concept of fortress North America requires again, Canada at the table. If we're going to talk about what's in the best interest of North America, whether that is with regard to Chinese competition, whether that is with regard to critical minerals, we need them there because they're a critical partner. And I would say even the additional geopolitical dimensions of the first few months of this year, conflict in Iran, challenge in the Strait of Hormuz, access and impact on supply chains, oil, fertilizer. We have such a strong partnership here in North America between the United States and Canada and Mexico. We can work together to make sure that we are nationally, economically and food secure together in periods like this. So absolutely critical from a BRT perspective, that we have Canada at the table as soon as possible. And hopefully this Message from Minister LeBlanc today will help kick us in that direction very soon.

B

How do you see the US Playing that game? Do you think they're trying to slow roll Canada deliberately to lock in a deal with Mexico and then present Canada with a FET accompli? I don't know that. I'm just speculating.

C

And I would be speculating as well if I were to say that that is definitely what they're doing. But we've seen it before. We saw it in the first USMCA negotiation when we were renegotiating nafta during the first Trump administration, a similar playbook where the United States and Mex got together to essentially conclude significant elements of the deal together and present it to Canada. So it may be the case once again that that is what the US Administration is focused on doing. However, my sense is that with rules of origin and economic security being top priorities in the US Administration's plan, they recognize that Canada needs to be there for that. And if critical minerals is going to be some element of discussion, if energy is going to be some element of discussion, Canada needs to be there for as well. And so our position again at VRT will be to continue to encourage that, not just to the US Administration, but to Canada, of course, and even to Mexico, because Canada and Mexico have in the past several months, really over the past year, taken extra steps to strengthen their bilateral partnership as well.

A

You mentioned fertilizer, which is vitally important, and the components are not all domestic sourcing. So if I remember my chemistry properly, you have ammonia, which is source of nitrogen, but that's a natural gas, as the feedstock. You have phosphorus, which I think it starches sulfur, that's a contaminant in crude oil. And sulfuric acid gets converted to phosphoric acid, which leads to the phosphorus available for fertilizer. And then potash is the final ingredient for potassium, and that Saskatchewan has more potash than, I think, any place in the world. Perhaps those ingredients all come together, and that's why we can feed the 9 billion people on the world and all the people in North America as well. But we've got to work together to get those components together, and they're not coming through the Strait of Hormuz at the moment. So are those the kinds of products and trade that are being worked on actively, or is that just a background sense of importance? How did you see that play out in Mexico?

C

In Mexico, I can say those were not top issues on deck last week in Mexico. Top issues were autos, steel and aluminum and this broader concept of economic security. And that economic security concept, I think even relative to the rules of origin discussion, it was relatively minor. So focus overwhelmingly on rules of origin is my understanding. And within those three sectors in particular, what I don't know is whether they got into much deep discussion on other sectors that may be up for changes under rules of origin. We have heard here and there that electronics may be under consideration for some changes. But of course, for those of you who are hts familiar, the Harmonized Tariff Schedule of the United States, that's a huge chapter with many different products in it. So is not yet clear where within the chapter the Trump administration may want to focus. We've also heard potentially medical devices, potentially pharmaceuticals under review or consideration for potential changes. So not clear whether there was a whole lot of discussion on those other sectors. But steel, aluminum and autos, which as we all know is three sectors very much under focus period for President Trump and this administration.

B

The administration announced that the next round, which will be June 16th and 17th, I think in Washington, is going to take up agriculture. So I think some of these issues will be addressed then. But let's drill down for a moment on one of the ones that was the focus of last week, which is rules of origin, and particularly rules of origin for autos. It was publicly reported that the US position is to create a new rule which is 50% US content. Right now the focuses on North American content. So this would be a new thing, US content, 50%, and that they also want to bump up the percentage requirement for North American content from 75% to 82%. Talk a little bit about two things if you can Naseem. One, if you know anything about what the Mexican reaction to that was, but more importantly, from your perspective, how is that going to go over with the US Automobile industry? How would that affect companies that are producing the United States, both Ford and gm, but also the many Ford companies that have manufacturing facilities here, the 50% standard in particular, is that a standard that they can meet or how disruptive is this going to be to supply chains?

C

So I think it depends on many different factors. So I will focus my comments on specifically the U.S. oEMs. But, you know, worth pointing out that this impact will be significantly large for all the global OEMs that are invested in North America as well. But for the purposes of my views, I'll just focus on the U.S. oem. I think there was some degree of expectation that, I mean, we all knew that USTR would be very focused on auto rules of origin. It was not a surprise that they would be looking to increase North American content, potentially increase US Content with the goal of having more production in the United States. So I think we've all heard enough over the past year that, that there was some expectation that that would be the focus. What we had not seen prior to last week. And actually I will say, in fact, the industry still has not seen text, we have not seen the specifics, so we can talk about what was reported. But it's worth noting that despite the fact that there was this very much welcome, more traditional seeming Negotiating round, many of the industry trade advisory committees, including the auto ITAC for short, is not currently operational. And this is the method through which USTR has historically shared text proposals with industry. And so that component being that these ITACs are not currently operational was missing prior to this round. So again, conceptually an awareness that this was a goal and continues to be a goal of the Trump administration. But the specifics I'm not sure were provided to industry before they were provided to the Mexican team in Mexico City. What I can tell you is that with regard to whether this would be very disruptive if what the press is reporting is accurate, I can tell you that that will be nearly impossible to meet immediately for US industry. It may be achievable with timelines that are reasonable, like phase in periods. But even then there are some questions as to what is the incentive to do this. I would say is what it really boils down to because we have 232 tariffs in place currently that apply within North America. But Korea, the EU and Japan, they have reached deals with the Trump administration where they have 15% section 232 tariffs on autos. So if the new rule of origin is so stringent in usmca, the US companies are really going to need the time and the money to be able to make the investments necessary for this to be worth their while. Otherwise there may be a serious disincentive to comply with usmca. Given these other deals where these other countries are at 15%, why not just go set up a factory in Korea and then pay a 15% tariff if the cost to comply is so high that it just doesn't become worth the time and money to make the investment. It's a simple math problem. And so I guess my, my plea would be that USTR really work with industry closely to make sure that they understand what is ACHIEV and under what timelines to make sure that our industry is genuinely incentivized to meet these rules. And I think a big part of that incentive will be doing away with 232 tariffs within the North American market.

A

You're talking about the loss of the advisory committees and that's a major setback. You talked about ITACs. ITAC stands for Industry Technical Advisory Committee. And these are people with specific depth knowledge of an industry who are cleared to provide the government advice, potential decisions about make and what the impact would be on the industry. Sorry to hear they're not working, but because they're vitally important with a product as complicated as A motor vehicle somewhere between 75,000, 100,000 parts, components go into a typical vehicle and meeting rules of origin that are that stringent is no laughing matter. And the government may be flying blind. But just to broaden that out a bit, we can have an analogy for the ITACS some other time. But, but are there any other new issues where the governments, any of the governments are introducing them now and then? Are we going to spend a lot of time on the old issues like Canadian dairy that seem impossible to resolve?

C

I mean, just within rules of origin, as I said, there are these additional sectors that may be under consideration and that would very much be a new big change. So something that we'll want to make sure that industry is really included in as USTR considers what it may do as it works to study these industries and these supply chains. The other big component that is very new is economic security, which I touched on a bit earlier. We have some sense of what that could look like in terms of new provisions just based on some of the reciprocal trade agreements that the Trump administration has negotiated and concluded over the past year. These would be commitments from our trading partners, so in this case from Canada and Mexico to establish common investment screening systems. For example, you know, Canada has a CFIUS like screening mechanism and Mexico has recently put forward a proposal to set up a similar CFIUS like system. But the idea would be that the parties would agree to align and share information with one another about sensitive investments within the North American market, potentially aligning on export controls, things of this nature on the quote, unquote old issues. Dairy is very much a factor here still, but one that we think is surmountable. In fact, my understanding from talking to counterparts in Canada is that there is an appreciation there that there is a gap between what was agreed to in USMCA and what has been delivered. But I think their view of this is, is that they want to be sure that if they put forward a commitment that the goalpost isn't going to move. Right. So I think they're envisioning that they're at the table and this is all part of a negotiation versus table stakes and maybe the goalpost moving once they put forward a commitment, and I wish I could tell you I knew what it would take to give everyone the assurances that was going to be achievable. But I think that's what it's going to take. But again, really genuinely a surmountable issue. And then we have some issues in the digital realm as well with Canada. The Online Security act which passed and became one. Canada several years ago has had developments in its regulations that are very punitive to U.S. companies. And this is something that feels like an absolutely unnecessary irritant at this moment in time in particular. But it's worth noting too, that the USMCA has the strongest digital trade chapter of any trade agreement in the world. And it will be very important to make sure that we can address the issue through the Online Security act, not just because they're US Companies, but because we need to credibly uphold and adhere to this very strong chapter. So say the one final issue which you touched on, Scott, briefly, is critical minerals.

A

Yes.

C

It's not clear that this is something that the Trump administration wants to address within the USMCA review, but something that I think can really help help in terms of moving the US Canada relationship in a positive direction. Whether there are independent, separate U.S. canada conversations on critical minerals or whether those occur as part of the USTR led plurilateral talks on critical minerals, I think some alignment on that issue and commitments could really go a long way to help clearing the air a bit on the USMCA front. And it is a position of strength,

B

strength for Canada thinking about it in the way that a lot of other countries are thinking about it, which is how to make sure they're not just an extractive economy, but that they capture more of the value added after the minerals are extracted for themselves. So I think in the end you have a negotiation that's about processing facilities and manufacturing facilities, what's going to take place here and what's going to take place there is going to be an important issue if they get into it. I mean, the administration, as you said, may prefer to do that that bilaterally, but we'll see. Let me go back a step. I missed something. When you mentioned a number of other sectors, not just electronics, but pharmaceuticals and several others, you mentioned them in the context of new rules of origin that might require more North American or even American content in order for them to get favorable tariff treatment. Is that where you're heading?

C

That's my understanding, yes. But again, very, very little in the way of specific on any of those sectors at this moment.

B

I assume this is largely aimed at China from based on the rhetoric from everybody. Our assumption has been that that's actually a conversation that the Mexicans at least might be willing to have because they have some concerns about China as well. Do you have any sense of what the Mexican reaction to the security issues has been? Is this a conversation they're ready for and are willing to enter into.

C

I believe their reaction to it has been fairly positive. I mean, separating all of the other issues for a moment, just on security and Chinese competition, it is very much a topic that they're open to, their industry. And it's not just Mexico. Many other countries, for the course of the last, you know, six to eight years, as our tariffs on China have increased, that trade that was coming to the United States has, has diverted elsewhere throughout the world. And so there are a lot of other countries throughout the world dealing with Chinese excess capacity, Chinese dumping or, or simply increased Chinese investment. So, you know, maybe a combination of these factors. I think Mexico is experiencing all of them. They have a thriving domestic industry as well, and they are very much focused for their own reasons on making sure that their domestic industries are competitive vis a vis China. And so I think it is a conversation they are very open to. However, we can't talk about this in just a vacuum. And for them, the tariff, particularly the Section 232 tariffs that do apply to Mexican goods right now, that is a challenge. They would like some assurances that if they make commitments on economic security, on more stringent rules of origin, and many other things. Because the list of issues with Mexico is quite long, actually. Whether we're talking just about the new issues or compliance with USMCA and then a bucket of the National Trade Estimate Report issues, let's call them, the list is quite long, but they will want assurances that addressing these will also come with a commitment from the Trump administration that they will not continue to be hit with section 232 tariffs.

B

Yeah. My sense from conversations I had last year with negotiators is that that's going to be a hard commitment to get. The administration is not likely to promise not to move the goalposts, but we'll see. I've got a couple more questions, but, Scott, it's your turn.

A

Just one question on timetables and how this concludes. One of the things we learned from a previous guest was that what appeared to be very rigid timetables in the USMCA may not be as rigid as we thought they were. So how do you see this playing out over the summer? When would a conclusion be likely and how will we know things are complete now?

B

What happens on July 1st in particular? Anything or nothing.

C

I think most likely nothing. There could be a meeting, a formal meeting of. Of the Free Trade Commission, which is a group established under the USMCA whereby the parties come together annually for formal meetings. And it plays a prominent role in the joint review. The USMCA requires the parties to come together for a joint review on the six year anniversary, which is July 1, 2026. So this would be a meeting of the Free Trade Commission. However, it's June 1st and we have not heard anything about a potential Free Trade commission meeting on July 1. What we have heard though is two more negotiating rounds with Mexico that go into late July, actually the last round, that is.

B

Yeah, July 20th.

C

That's right. And so most likely, I think, whether there's a meeting, a formal meeting on July 1st or not, USMCA remains operational. It has a 16 year term. So that takes us through until July 1st of 2036. And if we don't have a decision on whether to extend on July 1st operationally, what happens is that USMCA remains and the parties continue to negotiate. And they can do that, you know, through the year, frankly, if they want to. And we don't fall off of a cliff. The only thing that causes us to fall off of a cliff within the year would be the President deciding that he wants, wants to officially withdraw the United States from usmca. Which don't get the sense, despite some things that he might have said recently. We don't get the sense that that is the direction that we're headed in. What we do sense is that we will be perhaps going through a negotiation that extends through 2026 and maybe into 2027. But I believe the Trump administration will want to leave its mark on USMCA a second time. And to me that that suggests that they will want to make their final determination, conclude negotiations and issue their notice of extension to the other parties before the end of this President's term and likely sooner than that.

B

Yeah, I was expecting more, more drama now, more extreme threats. I think he's distracted by Iran. So we haven't had quite as much threat here as there would have been otherwise. But, but I also think politically the White House has figured out withdrawal or some other cataclysmic event right before our election would be a mistake. So right now I can see continuing to talk with a result either that they kick the can until after our election and then just deal with it the end of this year, early next year ideally, or that they attempt to produce kind of a October surprise and produce an agreement then, which President will of course say is much better than the last one and historically brilliant and all due to his own negotiating skill and that that will produce a pre election victory. Where would you put the odds of these various outcomes? I take it you're sort of assuming that you're not looking for an outcome on July 1st where they wrap everything up.

C

No, most definitely do not expect an outcome on July 1st where they wrap everything up. However, I am hopeful that there may be the possibility of a positive indication from at least east, the United States and Mexico, and hopefully from all three parties that we will work hard on this because it is something we're all committed to and hope to be ready to extend in fairly short order. So a positive indication I think would be welcome in July by stakeholders in all three countries. So we would very much encourage that. And you know, one thing I'll say is that this was an absolutely fantastic achievement of President Trump's in his first term and it could be once again a fantastic achievement. All of the ingredients are there to have that. And we are, I can speak for BRT and say, very grateful that there is no drama around this.

B

Not yet.

C

Not yet.

A

There's always time.

C

Yeah, there is always time. But we hope that we're able to avoid. It is an incredibly important agreement for the United States, for manufacturers, for our farmers and for our workers. And we can only make it stronger.

B

You know, there is one missing ingredient, and that's Bob Lighthizer. And I don't know if. I mean, we'll see. It looks as though Ambassador Greer has great negotiating skills ultimately. Actually, this is a good closing question as someone with your background, is this going to have to go back to Congress for approval? And do you think Ambassador Greer is going to be able to do what Lighthizer did and get the Congress to sign off on it?

C

So if they limit their changes, it's really changes to US Law that require immigration to go to Congress.

B

Would that mean changes to the rules of origin?

C

No. So the USMCA Implementation act actually provides the President Proclamation authority to implement USMCA's rules of origin and it even authorizes President to change rules of origin subject to the consultation and layover requirements. And so it is something that will require close consultation with Congress if they adhere to the implementing bill. It will also require a layover period, meaning some time which would necessitate consultation during that period. They can't just flip a light switch and be done with it. And I sincerely hope, I think, you know, all of us industry hopes, particularly those that would be subject to these changes, that they also front load that consultation, not just with Congress, but as we discussed earlier, with the industries that would be impacted most directly. But regardless of what the implementing bill sets out, I can tell you my strong sense is that this administration and is not particularly interested in taking this to Congress. I think that they're very much aware that changes to U.S. law would require them to take it to Congress. And so they are approaching this with that in mind. And about Ambassador Greer, I will just say, at least from a BRT perspective, we have really appreciated his expertise on this subject. You know, really nobody in the administration understands this agreement better than him. He was there with Ambassador Lighthizer as his chief executive of staff in the first round. He was a great partner to the Hill and to industry then. And there's a genuine appreciation by BRT CEOs when they speak to Ambassador Lighthizer that they understand that he and USTR understand what they are talking to him about.

B

You mean Ambassador Greer.

C

Ambassador Greer, yeah. So we're, we're grateful to have him in his position and really appreciate that he really understands this deeply. So we have nothing but hopefully hope that he succeeds. But as I've said a number of times already today, I think that close consultation with industry is really going to be critical to getting this right. USTR is a small team, very smart expert team, but small and they aren't the industry. And so they'll need to partner with industry to really get this right in the U.S. interest.

A

Well, thank you for coming on the program. This has been a terrific update. I've really enjoyed hearing from you and doing this in real time I think think will be a great benefit to our listeners. So we really appreciate you coming on and joining us and thank you for the massive content that we got through in a relatively short period of time.

C

Thank you so much for having me.

B

Thank you. And we'll be back. You've been listening to the Tray Guys, a CSIS podcast. For more audio content, visit csis.orgpodcasts thanks for tuning in.