The “NAFTA” will soon be the “USMCA”. The preliminary text of the new 34 chapter trilateral trade agreement has been posted on the website of the United States Trade Representative (USTR):
The agreement includes 12 side letters, two of which address automotive trade issues with the United States. If the United States imposes a measure on passenger vehicles under Section 232 of the Trade Expansion Act of 1962, the United States is required to exclude from the measure 2.6 million passenger vehicles imported from each of Canada and Mexico on an annual basis and all light trucks imported from the two countries. Canada will also receive a US $32.4 billion annual exclusion for auto parts and Mexico a $108 billion annual exclusion.
Steel and Aluminum
The US steel and aluminum duties imposed under Section 232 of the Trade Act of 1974 are left untouched, a notable omission from the agreement. Side letters recognize the rights of Canada and Mexico to challenge the duties under the WTO and impose countermeasures of equivalent commercial effect.
The text of the USMCA includes a provision that allows the United States and Mexico to terminate the agreement after giving six months notice, replacing it with a bilateral agreement that excludes Canada, in the event that Canada enters into a free trade agreement with China. While Article 32.10 does not expressly identify China by name, it refers to a “non-market country”, which it defines as “a country that on the date of signature of this agreement at least one Party has determined to be a non-market economy for purposes of its trade remedy laws and is a country with which no Party has a free trade agreement”. The article requires a USMCA party to give notice to the other parties at least three months before the commencement of negotiations with a “non-market country”, provide as much information as possible about the objectives of the negotiation, and “provide the other Parties with an opportunity to review the full text of the agreement, including any annexes and side instruments, in order for the Parties to be able to review the agreement and assess its potential impact on this Agreement”. This article clearly has important implications for Canada’s future trade negotiations with China.
Chapter 13 of the agreement, which addresses government procurement, applies only as between Mexico and the United States. This is a significant change for Canada. Under the NAFTA, the United States, Canada and Mexico are all granted national treatment and non-discrimination in covered procurement for a range of goods and services. Canada and the United States are both parties to the World Trade Organization Agreement on Government Procurement (GPA), which will continue to ensure access to certain procurement at the central government level. Mexico, however, is not a party to the GPA. When the Comprehensive and Progressive Trans-Pacific Partnership enters into force, it will secure mutually open government procurement markets for Mexico and Canada going forward.