In less than two days, the U.S. trade picture has made a massive turn for the better, with the Trump Administration marking two milestones: “Phase One” of a wider China deal, and the long delayed passage of the USMCA pack intended to replace the discredited NAFTA.  News of the Senate’s bipartisan approval of USMCA came as no surprise, but was long awaited after the deal was hung-up in the House for a year before mutually agreeable changes were made to some environment and labor provisions. [The three signatory countries: the U.S., Mexico, and Canada had penned the agreement some 14-months ago.  It now awaits only Canada’s final approval, after the President’s signature, for the pact to go into effect].

On Wednesday, January 15, the President signed the so-called “Phase One” portion of a larger Sino-U.S. trade deal that will have additional steps or elements to be negotiated in the coming years. Albeit thought unlikely by some who criticized the use of tariffs to bring the Chinese to the table, the monumental agreement signaled a more pragmatic tough-minded approach to dealing with the Chinese when it comes to the new realty of the 21^st century, where China is now the second largest economy in the world and at best a competitive force to U.S. interests/security. 

The White House released a summary of the key elements of “Phase One” China Trade Agreement:
The historic agreement will begin to re-balance our vital trade partnership with China and benefit both of our countries (more evenly or fairly). The signing of this agreement should be a boost for American businesses, farmers, manufacturers, and innovators.

ENACTING CRITICAL REFORMS:
China has agreed to make significant structural reforms in a wide range of critical areas.

(a) The agreement will help level the playing field for America’s innovators to compete and win (adding protections for intellectual property).  Importantly, the reforms included in the pack are fully enforceable and include a strong dispute resolution system to ensure effective implementation and enforcement. For the first time in any trade deal, China agreed to end its practice of forcing foreign companies to transfer their technology to Chinese companies in order to gain market access.

(b) China will address numerous longstanding intellectual property concerns in the areas of trade secrets, trademarks, enforcement against pirated and counterfeit goods, and more.

(c) China agreed to strong commitments on currency practices regarding currency devaluations and exchange rates.

(d) The agreement addresses a wide range of trade and investment barriers that have prevented American financial services companies from being able to compete in China.

(e) The agreement addresses structural barriers that have unfairly limited United States food and agricultural exports; and

(f) The agreement also includes significant commitments by China on accepting United States agricultural biotechnology products.

Yesterday, the House passed President Trump’s signature trade achievement, USMCA, after a year’s delay in taking-up the critical rework of the often criticized NAFTA deal. The US-Mexico-Canada trade pack (i.e., USMCA) was a top priority for the Administration throughout 2019, after the U.S. Trade Representative had pulled-off what was considered impossible, that is – a complete and utter rewrite of the 20-plus year old NAFTA agreement.  The measure will be considered under Trade Promotion Authority (TPA). In accordance with those rules, Congress cedes authority for negotiating trade agreements to the Administration, which must follow consultation requirements and congressionally determined negotiating objectives. Once draft implementing legislation is submitted, Congress has up to 90 legislative days to hold votes in both chambers. A simple majority is required for passage and no amendments are allowed. Finally passage is expected with the President eager to sign the treaty into law sometime early next year.

BACKGROUND/DETAILS:
The U.S. House of Representative approved the U.S.-Mexico-Canada Agreement (U.S. law will be adjusted to comply with it under H.R. 5430). The measure also appropriates funding to implement and enforce the deal.

NAFTA, which took effect in 1994, integrated the three countries' economies and covers most of the $1.25 Trillion in trade among them. The USMCA includes many of the same provisions as NAFTA.  However, it adds new chapters on labor and the environment, which were previously addressed in side agreements; as well as updates to reflect the modern economy, including new provisions on e-commerce and digital trade. It also includes North American content and labor value requirements for automobiles, stronger intellectual property protections, and expanded agricultural market access between Canada and the U.S. [After the three countries signed the deal in 2018, House Democrats announced changes they wanted related to labor, the environment, pharmaceuticals, and enforcement. Following further negotiations, the three countries signed the revised agreement. The revisions remove a provision that would have required the countries to provide at least 10 years of exclusivity for biologic drugs, as well as a provision from NAFTA that allowed countries to block the formation of dispute resolution panels. It also adds additional labor and environmental oversight provisions].

Among the many provisions included in the $1.4 trillion spending package that Congress passed and the President signed this week is full repeal of the “Cadillac tax” on high-cost employer-provided health plans. Enacted as part of the Affordable Care Act, the Cadillac tax would have imposed a 40 percent excise tax beginning in 2022 on employer-provided health plans that exceed $11,200 for an individual and $30,100 for a family. The goal of the tax initially was to keep health-care costs down and help pay for the ACA, but Democratic and Republican lawmakers gradually realized that the tax would have ended up hurting working families that have health coverage through their jobs.  [NOTE: To avoid the 40-percent tax hike coming in 2022, many employers were already looking to alter their benefit packages to mitigate the tax hit].

The American Tort Reform Association (ATRA) released today its new judicial report produced by its Foundation that highlights the worst local courts and states for abuses of the civil justice system.  The 2019-2020 Judicial Hellholes Report (see full report at: Judicial Hellholes), shines a light on this year’s top abusers of the civil justice system and state legislative bodies, as well as listing areas on the cusp of becoming a Judicial Hellhole, while identifying several troubling legal trends that are emerging.  Tiger Joyce, ATRF president points out that: “Litigation abuse drives up insurance costs and drives away jobs, and the money businesses spend fighting often-frivolous lawsuits takes dollars away from research and development of new consumer products.”  [CIRT has been a long-time member and supporter of ATRA].

Report Flags Emerging Civil Litigation Trends: 
The 2019-2020 Judicial Hellholes report also identifies several worrisome areas emerging in civil litigation including an increase in local governments filing local lawsuits to address national public policy issues, legislation seeking to ban arbitration, and new data privacy liability concerns.

• Trial lawyers pitch their services to local governments and convince them to sue over public concerns, resulting in a flood of lawsuits creating legal chaos and confusion. These lawsuits attempt to solve national public health concerns like the opioid crisis, climate change and vaping.
• In 2019, a myriad of laws expanding employment liability were enacted in states across the country, including four bills in California, Illinois, New Jersey and New York which seek to ban arbitration in the employment context.
• California’s Consumer Protection Act and Illinois’s Biometric Information Privacy Act contribute to a regulatory patchwork of data privacy laws in the U.S. These “no-injury” lawsuits are not new, but they are becoming more prevalent and are imposing significant costs on legitimate businesses offering useful services — all without enhancing consumer privacy. 

Voicing his misgivings, Joyce noted: “National and global problems cannot be solved through litigation in local courts.”

As of now, the long anticipated bi-partisan supported transportation authorization legislation that sets many infrastructure spending elements, standards, and approaches has taken a back seat to the political wrangling that has consumed the Congressional calendar.  Notwithstanding, valuable work has continued on key issues facing the industry and decisions makers about elements of the next bill.  Listed below are some materials, studies, and reports Reason Foundation has recently identified on these subject of financing.

RESOURCES [Financing Alternatives]:
(A) Mileage vs. Gas Taxes: The major problem facing advocates of mileage-based-user-fees: unpopularity. The National Cooperative Highway Research Program’s NCHRP Synthesis 487 found that the average support for MBUFs in numerous polls was just 24 percent. This is partly because of public concerns and media portrayals of mileage-based user fees (MBUFs) as “Big Brother in your car.” It also reflects fears that this will end up being an additional tax, rather than a replacement for fuel taxes.  A recent policy brief takes this challenge head-on: “How a State Could Transition From Per-Gallon Gas Taxes to Per-Mile Charges,” suggests ways MBUFs can represent a genuine value proposition for those expected to pay per mile instead of per gallon.

(B) Public-Private Partnerships (P3’s): The debate over the efficiency, costs, and return (in terms of savings for clients, and/or margins for contractors) continues to rage, if not having intensified in recent.  Two reports weigh into the subject: (1) to address some of the claims[“Leveraging Private Capital for Infrastructure Renewal” is a recent product of the National Cooperative Highway Research Program, published as NCHRP Synthesis 540, and available at no charge from the TRB website]; and (2) a status report on the magnitude or number of projects using the P3 approach in the U.S. [Reason’s 2019Annual Privatization Report on Surface Transportation contains news on state P3 legislation and concession activities, while noting that overall, compared to other countries, the U.S. continues to lag in public-private partnerships].

(C) Assets Recycling:  While still relatively underutilized, contractors, state and local governments interested in asset recycling should review a 2014 report from the Mowat Centre, a public policy think tank in Ontario, Canada: “Recycling Ontario’s Assets: A New Framework for Managing Public Finances.”

U.S. Senator Lamar Alexander (R-TN), current chairman of the Health, Education, Labor & Pensions Committee (HELP), took an important step last week by including a robust, well-designed version of the JOBS Act in the Student Aid Improvement Act – legislation designed to take a first step toward reauthorization of the Higher Education Act. If successful, the “JOBS Act” language would become a provision or title in the larger Act, so that shorter length courses aimed at job skills sets needed by businesses (including the A/E/C industry) would be recognized and funded through Pell Grant dollars. The so-called “Workforce Pell” grants which are championed by Sens. Portman (R-OH) and Kaine (D-VA), as well as the White House strongly support this legislation. What matters most in this debate is not whether the entity offering the courses is a public vs. private institution, but rather the quality of the training and whether or not it’s cost effective. To this end, the Student Aid Improvement Act includes thoughtful safeguards to protect against abuses.

The Opportunity America Jobs & Careers Coalition (which CIRT is a member) pointed out in a letter supporting Sen. Alexander’s approach: “Training is often offered in the more flexible, fast-moving continuing education division of the college. Many if not most programs prepare students to earn qualifications – industry certifications, technical certificates, and licensure – highly valued in the labor market.”  However, the Coalition confirmed that one of the greatest barriers or impediments to these offerings, is the fact: “federal student aid isn’t keeping up with this innovation.”  Even though, the Pell Grant program disbursed some $28.2 billion last year in needs-based funding to cover tuition and other college costs. Under current law, “Pell Grants are available only to students working to earn academic certificates or degrees, and they cover only programs that are at least a semester in length.” [See, Coalition letter on this matter for details].

Sen. Alexander appears to be making a valiant attempt – a serious effort –to attract bipartisan backing.  However, to date HELP ranking member Sen. Patty Murray (D-WA) has not joined Sen. Alexander in introducing the legislation, and some education advocacy groups are hesitating to endorse it because it would allow students to use Pell Grants for short job training programs at for-profit colleges as well as community colleges. 

The Senate Judiciary Committee is apparently interested in moving forward with the so-called TITLE Act (S.1889). The proposed bill would require states to collect personal/private information (including: name, date of birth, address, driver’s license numbers, etc.) from anyone with an ownership stake (i.e., “beneficial ownership”) of small businesses at incorporation; as well as require annual and periodic updates of that information. It has been estimated it will create a new reporting burden for over 5 million small businesses.  Failure to comply with this legislation would result in up to 3 years in prison and $1 million in fines.

This bill would also allow the personally identifiable information of business owners submitted to the states to be subpoenaed by Congressional Chairman for any reason, and would allow State’s the authority to publicly post the information.  No doubt this information can be used to name and shame small businesses out of political activity. Although, right now the legislation is targeted at “small businesses” if passed it could be a vehicle to extend the same requirements to non-publicly held larger businesses across the United States, for this reason CIRT has joined a coalition of business groups, organizations, and associations voicing strong opposition to creating yet another data bank for outsiders to use or hack for nefarious, criminal, or political purposes. [For details see, Joint Letter on the matter].

California Governor Gavin Newsom is expected to sign into a law a far-reaching landmark bill requiring California companies (and those doing business in the state) to designate freelancers or independent contractors as employees.  The legislation seeks to extend labor protections and employee benefits like health care, overtime, and minimum wage to many workers formerly considered contractors. If and when signed, the measure would go into effect January 1, 2020.

The legislation is intended to codify a 2018  CA state Supreme Court ruling that said contract workers were entitled to the benefits of regular employees. The court decision created the “ABC” test to help classify workers in California. The test is far stricter than federal regulations for determining employment status. It states that a worker can only be considered an independent contractor if they are: free from the “control and direction” of the company they work for; performing work that is “outside the course” of the company’s usual business; and have their own independently established trade, occupation or business.

Fortunately, for many CIRT members the bill explicitly exempts some occupations, including: doctors, dentists, lawyers, engineers, accountants, architects and realtors.  HOWEVER, it appears to be silent as to “construction” and construction related employment situations which often may rely on independent contractors to deliver projects. To determine whether or not these arrangements are affected, the “ABC” test for determining employment status in California will have to be applied.

While the design and construction community has been offering proposals promoting comprehensive infrastructure initiatives (see, CIRT’s Strategic Vision on Infrastructure), it has also urged passage of more traditional vehicles like a transportation bill.  To that end, before leaving on summer recess the Senate Environment & Public Works (EPW) Committee approved a five-year surface transportation reauthorization bill. While the overall proposal ramps-up spending, it does not offer any increase in user-tax revenue. As a result, the bill calls for spending $287 billion over five years, a 28 percent increase over the previous authorization without any clear revenue enhancements or increases. [To be clear, in the Senate the Finance Committee is where tax increases must come from; but, it has been no sign of any coordination between EPW and Finance on this subject, nor have any serious revenue proposals been floated or discussed to date].

As in most massive pieces of legislation, the bill is a combination of improvements, non-starters, and missing elements.  The Reasons Foundation points out the EPW Committee’s proposal suffers from these same maladies.  As they note:

(a) Good Elements.  The bill: (1) expands current federal efforts to encourage states (and groups of states) to do pilot programs testing how to implement mileage-based user fees (MBUFs) to replace declining fuel tax revenues in coming decades; (2) it includes innovative financing, expands the categories of projects eligible for TIFIA loans and includes some attempts at much-needed streamlining; (3) a section would codify Exec. Order 13807, which established the One Federal Decision program to speed federal approvals for major projects; (4) another would provide a new congestion relief program for urban areas, offering grants for projects that would toll all lanes of a congested Interstate (Pricing required to be consistent with the Interstate Commerce Clause of the U.S. Constitution); and finally, (5) Section 1507 would require states that do Design Build Finance Operate Maintain (DBFOM) public-private partnership (P3) projects to report to the United State Department of Transportation (US DOT) on the terms of the deal, which sounds harmless to me, and the increased transparency could reduce the hesitancy of some legislatures and DOTs to embrace this important procurement method.

(b) Not So Good Elements. The bill: continues the ongoing trend of making the federal highway and transit program ever-more detailed and focused on every level of government (federal, state and local), disregarding the sensible principle of allowing each jurisdictional level to concentrate and/or be left to do what it prioritizes and is best suited to do. For example, it (a) increases spending on “transportation alternatives” that draw money away from basic needs to fund such options such as – local infrastructure for bikeways, recreational trails, sidewalks, etc. including expansion of the “Safe Routes to School” program for high schools; (b) would divert highway user tax revenue to waterway projects (Sec. 1115, the Congestion Mitigation and Air Quality (CMAQ) program would now include projects to modernize a lock, dam, or marine highway, and the new National Highway Freight Program (NHFP) would be able to do likewise); and (c) the new climate-change provisions in Sec. 1401, there are grants for EV recharging and alternative fuel services along designated “alternative fuel corridors,” but none are located on the Interstates, where these services are most needed.

(c) Missing Elements: The bill does not include: (a) Private Activity Bonds (PABs) -- the $15 billion cap that Congress legislated over a decade ago is nearly used up, and the program is no longer an experiment. The cap should be removed, making surface transportation PABs comparable to those used for other infrastructure, such as airports and seaport facilities, for which there is no cap. [In addition, as recommended last year by the White House infrastructure proposal, PABs should be made applicable to P3s to rebuild and modernize existing infrastructure, rather than just for new (greenfield) P3 projects]. (Note: the Senate Finance Committee, may take this up as part of its jurisdiction); (b) Tolling flexibility: With nearly a dozen states discussing or considering toll-financed projects to rebuild aging Interstate highways and bridges, removing the 1956 ban on using toll financing on these facilities is missing, and (c) P3 incentives: Both the White House proposal and ARTBA’s recommendations for the 2020 reauthorization bill include various federal incentives for states to enact workable P3 enabling acts and to actually use them for much-needed projects.

Opportunity America Coalition, which CIRT is an active member, joined a panel to highlight the importance of what is commonly referred to as “workforce” Pell Grants to address current business and economic needs.  The event was hosted by the U.S. Senate Career and Technical Education Caucus, under the topic of “Short-Term Job-Focused College Programs.”  As noted during the conversation: “Some of the most innovative and effective career education available today is at community colleges, and programs are often shorter than a semester – just long enough to learn the skills needed to get a job or a better job. Shorter offerings can be particularly appealing to older students and those juggling work, school and family. They’re also popular with employers struggling to fill jobs in a tight labor market.”  However, it was pointed out, under current law students enrolled in shorter programs are not eligible for Pell Grants.

The JOBS Act was introduced in the Senate to address this gap, by identifying ways to qualify short, job-focused programs offered on college campuses; so their costs can be covered for the students under the Pell Grant program. The proposed Act would likely be included as a title or portion of the bill reauthorizing the Higher Education Act. [See, CIRT’s story on the JOBS Act for more details].

White House:  In further developments, CIRT raised the importance of passing the JOBS Act with senior representatives from the White House, seeking the Administration’s support in not only promoting passage but also the President’s signature once passed.