As we previously reported, the United States, Canada, and Mexico have reached agreement on the United States-Mexico-Canada Agreement (“USMCA”) to replace the North American Free Trade Agreement (“NAFTA”), which has governed trade between the three countries since 1994. Article 32.10 of the agreement requires each country to notify the others of any intention to negotiate a free trade agreement with a “non-market country.” The provision defines a “non-market country,” as any country that: (1) one or more USMCA member countries has determined to be a non-market economy for purposes of the USMCA member country’s trade remedy laws; and (2) none of the USMCA member countries has a free trade agreement with.

Last year, as a result of the expiration of certain language in China’s World Trade Organization (“WTO”) Protocol, the U.S. Department of Commerce conducted a review of its designation of China as a non-market economy country for purposes of the U.S. antidumping laws. The Department announced the results of its review of China’s status on October 26, 2017, concluding that China continued to be a non-market economy country. Further, none of the USMCA member countries have a free trade agreement with China. As a result, China would be considered a “non-market country” for purposes of the USMCA.

Article 32.10 requires a USMCA member country seeking to negotiate a free trade agreement with China, or any other “non-market country” to:

  1. Inform the other member countries of their intention to negotiate such an agreement, at least three months prior to commencing negotiations;
  2. Upon request of another USMCA member country, provide “as much information as possible” regarding the negotiating objectives; and
  3. Provide the other USMCA member countries an opportunity to review the full text of the agreement at least 30 days before the date of signature.

Additionally, if a USMCA member country enters into a free trade agreement with a “non-market country,” the other two USMCA member countries are permitted to terminate the USMCA and replace it with a bilateral agreement.

This provision, as well as a number of other provisions aimed at strengthening trade enforcement, including Article 10, Section C, regarding the prevention of duty evasion of antidumping, countervailing, and safeguard duties, reflect the Trump administration’s strong stance against unfair trade practices by China.