If the turbulence of 2018 caused business executives grief, 2019 is unlikely to provide much relief – particularly in light of the United States-Mexico-Canada Agreement (USMCA). If most political pundits are correct, the three governments are likely to ratify the USMCA by the beginning of 2020, if not earlier.
In 2018 the US imposition of Section 232 tariffs on many steel and aluminium imports wreaked havoc around the globe. These are likely to continue throughout 2019, as will the Section 301 tariffs on more than $200 billion worth of imports from China. In addition, towards the end of 2018 Commerce Secretary Ross announced a possible new Section 232 investigation on automotive imports, a decision that must be made by February 2019.
2018 was also the year that US Trade Representative Robert Lighthizer announced the administration's intent to start talks on new trade pacts with the European Union, the United Kingdom and Japan. Once Congress approves the plan, those negotiations will inject their own uncertainty into the overall international trade environment throughout 2019.
On 30 September 2018 the negotiating teams finally reached an agreement on the USMCA. The government leaders in all three countries will now act to debate and approve the negotiated provisions, which will launch a critical period of rule implementation by all three countries.
This period represents an important time during which companies can develop their programmes and compliance efforts to take full advantage of the USMCA.
Equally important is the opportunity that this period presents to develop a forward-looking strategy of international trade competitiveness.
The USMCA will have world financial consequences for many companies and many company executives have already started to plan for the changes ahead.
One of the primary objectives for the three countries during this implementation period is the completion of the uniform regulations. These regulations must be in place before the USMCA comes into force so 2019 is the year of the agreement's rulemaking. As the final set may come quickly company executives must stay on top of developments, be informed, understand the risk calculation and prepare sound strategy based on sound understanding.
Like its NAFTA predecessor, the regulations must be implemented consistently by all three countries, hence the term 'uniform' regulations. These will dictate the how, when and what of the hundreds of new requirements under the USMCA. In other words, the uniform regulations will provide the guidelines for much of the critical fine print relating to, qualifying for and claiming USMCA duty-free treatment.
Virtually every chapter and aspect of the USMCA uniform regulations will present opportunities for companies to affect how the agreement is implemented and the way in which the companies can best use the provisions of the agreement.
Changes to NAFTA uniform regulations
Below are a few insights into the 1994 NAFTA uniform regulations and ways in which the USMCA might treat these regulations:
- The use of the average inventory method was vital in the NAFTA – particularly the manner in which the average inventory method was implemented. The question is now how will the USMCA rules treat this approach?
- It is important to consider the manner in which fungible goods subject to the average inventory method will be classified as originating or non-originating. The US and Canada ended up with different allocation methods in the NAFTA rules.
- The possible guidelines for use in verifications must also be considered. For example, in the petroleum industry, the NAFTA rules provided that the 'diluent' used to dilute bitumen would be disregarded as long as it did not exceed 40% in volume of the product. How will this be treated and verified in the USMCA implementing rules?
- Finally, in relation to the energy sector, a NAFTA rule involving natural gas changed the origin to allow the re-gasification of liquefied natural gas to meet the tariff shift rule. It is still uncertain whether the new rules will establish a presumption that, absent information to the contrary, all natural gas imported from Canada should be considered originating.
These are few examples of why the USMCA uniform regulations in 2019 will be important to fully understand. They will be complex and potentially far reaching.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.