On Sunday, September 30, 2018, the U.S., Canada, and Mexico announced a new stand-alone trade agreement to replace NAFTA: the United States-Mexico-Canada Agreement (USMCA).1 The USMCA builds on the structure and substance of NAFTA but includes some changes for particular industries as well as new mechanisms for administration of the agreement. The parties are expected to sign the USMCA at the end of November, but the agreement cannot enter into force until all countries have ratified it—which could take months or even years. In the U.S., Congress must affirmatively act to approve the USMCA, but statutory procedures will likely prevent consideration by the legislation until after the new Congressional session begins next year. Until the USMCA is ratified by all three countries, NAFTA is still in effect.
Below is a summary of significant changes in the agreement:
- Includes 10 years of data protection for biologic drugs and other products.
- Requires a minimum copyright term of life of the author plus 70 years, and for those works with a copyright term that is not based on the life of a person, a minimum of 75 years after first authorized publication.
- Provides new protections for recognition of new geographical indications, including administrative procedures covering grounds of denial, opposition, and cancellation, as well as guidelines for “generic” determinations.
De Minimis Online Trade
- Raises Canada’s de minimis exemption levels to CAD $40 for tax purposes and CAD $150 for duty-free shipments (up from the previous CAD $20 for both) for items purchased online.
- Raises Mexico’s de minimis threshold for duty-free shipments to $117.
- Retains the U.S.’ de minimis threshold at $800.
Financial Services and Currency
- Includes most-favored-nation treatment, to ensure U.S. financial service suppliers receive the same treatment as those from other countries.
- Increases market access in Canada, by prohibiting, for example, requirements for local storage of customer data.
- Includes new rules regarding currency manipulation, monetary policy, and transparency in foreign exchange activity that will be subject to the state-to-state dispute settlement mechanism.
Automotive and Labor Provisions
- Establishes new rules-of-origin (ROO) requirements, including a streamlined ROO certification process, for North American automotive manufacturing. In order to qualify for zero tariffs, the following will apply and be phased in through 2023:
- 75% of automobile components must be manufactured in North America (up from 62.5% under NAFTA).
- 70% North American steel and aluminum must be used.
- 40-45% of automobile parts have to be made by workers who earn at least $16 an hour.
- Includes new requirements for Mexico to enact laws giving workers the right to union representation, extend labor protections to migrant workers, and protect women from discrimination—the countries may issue sanctions for violations of such provisions.
- Expands market access to Canada’s dairy, egg, and poultry markets, which will continue to expand over the life of the agreement.
- Creates a more level playing field for U.S. wheat exports.
- Eases restrictions on the sale of wine and alcohol.
- Expands U.S. import quotas for dairy and sugar products.
- Eliminates the energy “proportionality clause” – a limitation on the ability of the parties to constrain the export of energy products.
Section 232 Steel and Aluminum Tariffs
- Does not alter existing steel and aluminum tariffs imposed by the U.S. pursuant to section 232 of the Trade Expansion Act of 1962.
U.S. Investor and Administrative Provisions
- The mechanism known as Investor-State Dispute Settlement (ISDS), designed to resolve investment conflicts between companies and governments, will be phased out in Canada and scaled back for most investors in Mexico.
- U.S. and Mexico investors (except for the oil and gas, infrastructure, energy generation, transportation, and telecommunications industries) are limited to ISDS claims of:
- 1) direct expropriation
- 2) failure to provide most-favored-nation treatment
- 3) failure to provide national treatment
- U.S. and Mexican investors are also required to pursue claims in domestic courts for at least 30 months prior to using the ISDS, and are no longer allowed to use ISDS for claims over investments that are in the process of being established.
- Maintains the NAFTA Chapter 19 binational panel review mechanism for anti-dumping and countervailing duty investigations.
- Requires a three-month notice period before engaging in free trade negotiations with a non-market economy (e.g., China) and allows for the exclusion from the USMCA of a party that enters into a free trade agreement with a non-market economy following a six-month notice period.
- Has a 16-year expiration period. Countries will convene every six years and either affirm a desire to continue the agreement for another 16 years or undertake an annual joint review process until the agreement expires or until the parties decide to renew for a new 16-year period.
- NAFTA legacy investment claims may still be initiated for up to three years after the USMCA enters into force—with ongoing cases being unaffected by the termination of NAFTA and the initiation of the USMCA.