On December 1, a day after signing the new U.S.-Mexico Canada Agreement (USMCA), President Trump suggested to the press that he would formally notify Canada and Mexico of U.S. withdrawal from the existing NAFTA, in order to pressure Congress to pass USMCA in 2019.

Meanwhile, on December 6, U.S. Trade Representative Robert Lighthizer met with Rep. Nancy Pelosi (D-California), House Democratic Leader and expected Speaker of the House for the 116^th Congress, on USMCA. Lighthizer had expressed the wish during the USMCA negotiations that the final agreement would attract substantial bipartisan support.  Following the meeting, Pelosi noted a number of positive aspects of the new agreement, but concluded that the USMCA lacked “real enforcement on the labor and environmental protection[s].” Other House Democrats including Rep. Richard Neal (D-Massachusetts) and Rep. Bill Pascrell. Jr. (D-New Jersey), who are expected to be chairs of the House Ways and Means Committee and the Ways and Means Trade Subcommittee respectively, have made similar statements.

These events set the stage for the debate in Congress over the fate of the newly signed USMCA in 2019.

While some Republicans have expressed concerns about the agreement[1], USMCA will likely face a greater challenge in the Democratic-majority House than in the Republican Senate. Despite some changes to NAFTA that may appeal to Democrats (such as limitations on investor-state dispute settlement and a wage-based rule of origin for autos), we expect the Democrats to seek additional concessions from the Administration, in particular on the enforceability of USMCA’s labor and environmental provisions.

Depending on the scope and magnitude of the changes sought by Democrats, any concessions might not require formally reopening negotiations with Canada and Mexico, which would likely delay USMCA passage. Democrats could seek to include any such changes in the implementing legislation or through side-letters or other types of political agreements with Mexico and Canada. The Democrats led by Pelosi have struck an agreement on labor and trade with Republicans in the past—the so called “May 10” Agreement in 2007 that Democrats reached with the George W. Bush Administration that added labor provision to pending and future U.S. trade agreements.

If needed in renewed talks with Canada and Mexico, the United States could use another point of leverage—prior to the USMCA entering into force, the President must certify that both Canada and Mexico have taken the necessary domestic steps to comply with their respective FTA commitments on “day one” of the agreement, according to TPA procedures.  Accordingly, implementation of the agreement can be delayed until all such steps have been taken.

If domestic disagreements over USMCA escalate, however, and lawmakers are not able to reach a resolution with the Trump Administration, we may see the President continue to raise the possibility of U.S. withdrawal from NAFTA. As we’ve previously noted, the President initiating NAFTA withdrawal would likely come with significant obstacles, both legal and political, and there is significant uncertainty over how Congress and in particular the Democrats will react. Congress would have a number of tools to oppose the President’s unilateral withdrawal from NAFTA—the question is if it would have the will to use them.

[1] A group of 40 Republicans criticized USMCA for its protections for LGBTQ workers. However, the final text version of USMCA included a footnote essentially excepting the United States from implementing any policy changes related to the LGBTQ commitment.