A tripartite agreement to save the North American Free Trade Agreement (NAFTA) has just been reached. Since June 2017, the United States, Canada, and Mexico have been renegotiating NAFTA. After over a year of negotiations, late on Sunday night, September 30, 2018, Canada agreed to sign the revised agreement. That agreement is called the United States-Mexico-Canada Agreement, or USMCA.
How an agreement was finally reached
The USMCA involves Canada opening up dairy access beyond what Trans-Pacific Partnership (TPP) would have achieved, allowing President Trump to claim victory on that point; all in exchange for retaining an NAFTA Chapter 19 dispute process to review antidumping and countervailing duty (AD/CVD) orders and special rules on films and publications for Canada’s francophone population.
Key points of the USMCA
The USMCA text has just been released. The devil, as always, is in the details. We provide a brief summary of key points below:
- Automotive. The existing auto production capacities of Canada and Mexico will be excluded from President Trump’s threatened Section 232 aluminum and steel tariffs. That current capacity is 2.6 million autos from each country. We note the United States reached a side agreement with Mexico on auto safety standards. However, the USMCA is being touted as having much stricter automotive rules of origin.
- Steel. The United States and Canada did not reach agreement on U.S. steel and aluminum Section 232 tariffs. U.S. and Canadian officials said that the steel and aluminum tariffs and NAFTA renegotiation were separate issues.
- Biologics. The USMCA will give biologic drugs 10 years of data exclusivity, which is what the United States and Mexico agreed to in August 2018. Canada’s domestic data exclusivity for biologics has been eight years. We also note that the United States reached a side agreement with Canada on guidelines for research and development expenditures.
- Intellectual property. USMCA includes stricter IP protections for patents and trademarks.
- Labor and environment. President Trump describes the USMCA as having much stronger labor and environmental provisions than the TPP. In addition to the Mexican auto safety provisions mentioned above, the USMCA stipulated that Mexico must make unions more accessible to its workers.
- Sunset provision. The USMCA will have the “sunset” provision that the United States and Mexico agreed to in August 2018. That sunset provision provides for a “review” by the three parties every six years.
- Miscellaneous. The USMCA also contains what President Trump describes as a “host of new provisions to combat unfair trade practices in a number of areas,” such as currency manipulation, state-owned enterprises and duty evasion.
When does the USMCA come into effect?
Short answer: not so fast.
The key to the timing is that Congress needed to be given 60 days’ notice of the text to approve. Mexican President-Elect Lopez Obrador wanted current President Pena Nieto to be the one to sign, which means USMCA must be signed before President Nieto leaves office on November 30th. Similar pressure exists in the United States with the rapidly approaching midterm elections on November 6, 2018.
As we detailed in our January 2017 NAFTA blog, the process to change NAFTA will take a long time. The USMCA is expected to take effect around January 1, 2020.