Background On USMCA’s Finalization
On Sept 30, 2018, the governments of the United States, Canada and Mexico announced they had reached a trilateral free trade agreement (in principle), concluding more than 13 months of negotiations.
Dubbed the United States-Mexico-Canada Agreement (USMCA), the deal is intended to replace the North American Free Trade Agreement (NAFTA) and creates a modernized free-trade system between the three parties that addresses recent and emerging critical issues, such as the harmonization of regulatory systems, e-commerce and the protection of intellectual property.
In addition, the USMCA changes some of the rules and processes governing how certain goods are traded within North America and the mechanisms available for how trade disputes are resolved.
The agreement was officially signed by all three parties on Nov. 30, 2018 and text of the agreement went before Congress for a 60-day review period, during which time Congress had the opportunity to make suggested edits. Democrats in the House of Representatives, including House Speaker Nancy Pelosi, noted key concerns with the agreement’s text, including the enforcement mechanisms for labor and environmental provisions, and the rules governing the protection of intellectual property (specifically for biologics).
How The Deal Was Ratified
Pelosi established a House sub-committee to work with the Office of the United States Trade Representative (USTR) to identify how the agreement can be modified to meet Democrats’ expectations, but as of July 2019, no agreement had been reached. The sub-committee, led by House Ways & Means Chair Richard Neal worked with the U.S. Trade Representative Robert Lighthizer to find common ground on some of the most contentious elements of the agreement in an effort to ensure the USMCA would be acceptable to the majority of Democrats in the House of Representatives where Democrats held the balance of power.
In December of 2019, Lighthizer and Neal announced the parties had come to a consensus on the remaining issues and released a Protocol of Amendment that would alter some of the provisions of the original agreement.
On December 19, 2019, the U.S. House of Representatives ratified the USMCA in a vote of 385-41, paving the way for the U.S. Senate to then vote on the trade. That vote took place on January 16, and the U.S. Senate voted 89-10 to ratify the trade deal.
Mexico had already ratified the agreement on June 16, 2019 and quickly moved to ratify its amendments shortly after the Protocol of Amendments was published.
Canada preferred to keep its ratification in tandem with the U.S. As result, the legislative process to ratify the deal in Canada did not begin until after Washington ratified the deal. The legislative process in Ottawa is now well underway and the trade deal is likely to see full ratification by early April 2020 at the latest.
At that time, all three countries will begin (or continue) to put in place the various mechanisms necessary to meet the new deal’s requirements. There is no set timeline for preparation period and it could take place over several months. Each country will notify the other when it has completed its preparations.
The agreement will take effect on first day of the third month after the final country provides notification.
Following are some of the key differences between NAFTA and the USMCA:
Certification of Origin
- Under the USMCA, importers will no longer be required to complete a formal certification document.
- Certification of origin can be achieved using informal documentation, such as commercial invoices and can be completed by importer, exporter or producer.
- Previous NAFTA certificates and certification documentation under USMCA must be kept for a minimum of five years.
- The USMCA changed the threshold within which low-value goods could enter each country duty free.
- The de minimis thresholds under USMCA are:
- Canada – $150 CAD for customs and $40 CAD for taxes
- Mexico – $117 USD for customs and $50 USD for taxes
- United States – $800 USD
- NAFTA Chapter 20, country-to-country dispute resolution mechanism maintained
- NAFTA Chapter 19, anti-dumping/countervailing duty dispute-resolution mechanism maintained
- NAFTA Chapter 11, investor-state dispute resolution mechanism (ISDS) eliminated between Canada and the United States, but maintained between the U.S. and Mexico.
Automotive Rules of Origin and Regional Value Content
- Total North American content of a vehicle must equal 75% (up from 62.5%).
- 70% of all steel, aluminum, and glass used in the production of the automobile must originate in North America. In the Protocol of Amendment, the definition of steel was modified to note that it must be “melted and poured” in North America in order to qualify for duty exemption. The new definition will take effect seven years after the USCMA’s implementation. The definition of aluminum remains the same as under NAFTA but will be revisited 10 years after the USMCA’s implementation.
- Part content will be divided up into core, principal, and complementary parts with content requirements of 75%, 65%, and 60% respectively.
- 40% of an automobile and 45% of a light truck must be produced using an average labor wage of $16/hour.
- Quotas totalling 2.6 million Canadian and Mexican vehicles (well above the current 1.8 million) were established the USMCA
- Quotas of $32.4 billion in Canadian auto parts imports and $108 billion in Mexican auto parts imports were established in the USMCA
Dairy Market Access
- Restrictions on the import of U.S. ultra-filtered milk into Canada have been removed
- U.S. producers will have access to an additional 3.6% of Canada’s dairy market
- Canada’s dairy supply management system, which places limits on foreign imports is maintained
- Patent changes on biologics in the original agreement were to be set at 10 year for all countries. However, the Protocol of Amendments removed this provision, leaving the patent period the same as it was under NAFTA – five years in Mexico, 12 years in U.S. and eight years in Canada.
- The term of copyright was extended from 50 years after an author’s death to 70 years.
- The terms of USMCA will remain in effect for a period of 16 years, at which time the parties can choose to revisit and/or renegotiate those terms, or withdraw from the agreement altogether.
- However, after six years, the term of USMCA’s sunset (16 years) can be revisited and potentially extended if the parties feel doing so would be beneficial.
Section 232 Tariffs
- The United States maintains the right to impose tariffs under Section 232 of the Trade Expansion Act of 1962, which authorizes the president to impose tariffs on the grounds of national security.
- Such tariffs were imposed on Canada and Mexico, as well as a number of other countries in the summer of 2018. Canada and Mexico imposed countermeasures on U.S. consumer goods, but the parties resolved the dispute in the Spring of 2019.
- A side letter was signed as part of the USMCA to provide Canada and Mexico with a consultation period of 60 days before Section 232 tariffs could be applied on Canadian or Mexican goods.
Supporting Our Customers’ Needs
The ratification of the USMCA and its imminent implementation will mean significant changes for businesses engaged in North American trade. At Livingston, we offer numerous educational resources as well consultation and trade facilitation. If you have any immediate questions regarding the USMCA and how it differs from NAFTA, or how to prepare for its implementation, please contact
1-800-837-1063 or email firstname.lastname@example.org.