After more than a year of negotiation, the United States, Mexico and Canada reached an agreement to update the North American Free Trade Agreement (NAFTA), which governed trade among the three nations. The new agreement may not go into effect until 2020 because leaders from the three countries must sign it and then Congress and the legislatures of Canada and Mexico must approve it – a process that will take months.

The three NAFTA parties are expected to sign the agreement on November 30. After signing, for ratification in the United States, Trade Promotion Authority (TPA) procedures require the U.S. International Trade Commission (USITC) to perform an economic analysis of the agreement, for which it can take a maximum of 105 days. If USITC takes the maximum allotted time, Congress could vote on the agreement in March 2019 (though it is possible for this process to be accelerated). The November midterm elections in the United States could have an impact on whether and when the agreement will pass Congress.

Functionally, the proposed U.S.-Mexico-Canada Agreement (USMCA) picks up elements of the Trans-Pacific Partnership (TPP) and tightens others relative to what NAFTA provided.  Essentially, the major accomplishment of the USMCA is to keep the three-country agreement in place, despite Trump’s threats to withdraw from the NAFTA.  Some think that President Trump could still threaten to withdraw from NAFTA as a means of pressuring Congress to act on the USMCA.

The USMCA makes a number of significant upgrades to environmental and labor regulations regarding Mexico. It also requires additional Intellectual Property protections. U.S. pharmaceutical companies are provided 10 years of protection against generic brands in Canada.

Some of the other key industry points in the proposed USMCA are that Canada made concessions on dairy in exchange for being able to keep in place Chapter 19, the dispute settlement mechanism for reviewing Antidumping/Countervailing Duty determinations. Canada has used this provision to challenge softwood lumber provisions.

Investor-state dispute settlement (ISDS) will phase out for Canada and be limited to certain sectors in Mexico – oil and gas; power generation services; telecommunication services; transportation services; and ownership or management of infrastructure.

Below is a breakdown regarding how the various industries might be affected:

  • Steel and aluminum tariffs – remain in place, as do Mexico’s retaliatory tariffs.  These industries are subject to additional discussion.
  • Autos/auto parts – The goal of the new deal is to have more cars and trucks made in North America. The side agreements with Canada and Mexico spell out how much trade would be excluded from any future section 232 tariffs in this sector, if imposed.  The auto and auto parts sector will have new rules of origin (with the hourly wage component of $16/hour or “labor value content” required initially for 30% of the work accomplished, phasing up to 40% over three years) that could affect supply chain decisions.  For example in order to qualify, a car or truck must have 75% of its components manufactured in the United States, Mexico, or Canada (this is up from the current 62.5% requirement).
  • Textiles/apparel – More North American content is required.  Tariff Preference Levels (TPL) allowing use of non-originating fabric will be more restrictive.
  • Chemicals – a new approach to rules of origin for chemicals spells out a number of methodologies that could apply. This was an approach that industry wanted and is expected to make it easier for chemicals to qualify under the agreement.  The industry had done a study under the NAFTA and found that only about half of chemicals transactions received duty-free treatment under NAFTA because the paperwork discouraged claiming the treatment.
  • Dairy – Canada agreed to increase access under the USMCA to 3.59% (from the 3.25% that would have applied under TPP), and to eliminate Class 6 and 7 price mechanisms. But Canada will be required to establish safeguards (through specified price surcharges) to prevent surges in shipments of milk protein concentrates, skim milk powder and infant formula

The deal among the countries must be reviewed in six years before it goes into effect for the full 16 years. It will then be reviewed in another 16 years.

 

 

 

 

 

 

 

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Photo of John Brew John Brew

John Brew is the co-chair of Crowell & Moring’s International Trade Group and a partner in the firm’s Washington, D.C. office. He has extensive experience in import and export trade regulation, and he regularly advises corporations, trade associations, foreign governments, and non-governmental organizations…

John Brew is the co-chair of Crowell & Moring’s International Trade Group and a partner in the firm’s Washington, D.C. office. He has extensive experience in import and export trade regulation, and he regularly advises corporations, trade associations, foreign governments, and non-governmental organizations on matters involving customs administration, enforcement, compliance, litigation, legislation and policy.

John represents clients in proceedings at the administrative and judicial levels, as well as before Congress and the international bureaucracies that handle customs and trade matters. He advises clients on all substantive import regulatory issues handled by U.S. Customs and Border Protection and Immigration and Customs Enforcement, such as classification, valuation, origin, marking, tariff preference programs, other agency regulations, admissibility, import restrictions, quotas, drawback, audits, prior disclosures, penalties, investigations, Importer Self Assessment and Customs-Trade Partnership Against Terrorism programs, importations under bond, the Jones Act, vessel repairs, and foreign trade zone matters.

Photo of Frances P. Hadfield Frances P. Hadfield

Frances P. Hadfield is a counsel in Crowell & Moring’s International Trade Group in the firm’s New York office. Her practice focuses on forced labor and withhold release orders (WRO), import regulatory compliance, and customs litigation. She regularly advises corporations on matters involving…

Frances P. Hadfield is a counsel in Crowell & Moring’s International Trade Group in the firm’s New York office. Her practice focuses on forced labor and withhold release orders (WRO), import regulatory compliance, and customs litigation. She regularly advises corporations on matters involving customs compliance, audits, customs enforcement, as well as import penalties.

Frances represents clients before the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit, as well as in proceedings at the administrative level. She advises corporations on both substantive federal and state regulatory issues that involve U.S. Customs and Border Protection, the Federal Trade Commission, Food and Drug Administration, and U.S. Fish & Wildlife in matters pertaining to product admissibility, audits, classification, import restrictions, investigations, marking, licenses, origin, penalties, and tariff preference programs.