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.

 

 

 

 

 

 

 

Venezuela has frequently been in the news lately, not only because of domestic politics, but also because of sanctions and bribery enforcement actions brought by U.S. authorities. In this podcast, Crowell & Moring’s Cari Stinebower, Dalal Hasan, Eduardo Mathison, and Mariana Pendás provide an overview of recent political and enforcement developments in Venezuela and explain what U.S. companies need to know about how these developments could impact business and trade ties with Venezuela.

Discussed in this 23-minute podcast:

  • An overview of the political situation in Venezuela.
  • Implications of U.S. and EU current sanctions targeting Venezuela and the potential for new sanctions.
  • FinCEN guidance on identifying corruption and money laundering red flags from Venezuela transactions.
  • Legal protections and International Dispute Resolution options for companies provided in Bilateral Investment Treaties (BITs) signed by Venezuela.
  • Takeaways for companies with business ties to Venezuela.

Click below to listen via the embedded player or access from the link:
SoundCloud

On January 11, Mexico signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). ICSID is a World Bank organization that administers investor-State arbitrations and is the leading institution for the resolution of international investment disputes.

It is important to note that Mexico signed the ICSID Convention but has not yet ratified the ICSID Convention, something that would be necessary to formally join ICSID. Under the Mexican Constitution, the Mexican Senate must first ratify the Convention before it becomes effective. Under ICSID Convention rules, the treaty will not enter into force for Mexico until 30 days after Mexico deposits its instrument of ratification with ICSID. Given the upcoming presidential elections in the summer of 2018 and the intrinsic uncertainty that elections sometimes bring, it is possible that Mexico’s membership in ICSID may be delayed or never confirmed.

If the ICSID Convention is ratified, investors may be able to choose to initiate international investment arbitration against Mexico before ICSID. Favorable awards would be directly enforceable in the courts of any of the over 150 ICSID State Parties as if they were final judgments of their own local courts. As a member State, Mexico would participate in ICSID’s Administrative Council and would also have the right to name arbitrators and conciliators to the ICSID Panels.

By signing the ICSID Convention, some commentators have suggested that Mexico may be viewing the dispute settlement provisions of ICSID as a “plan B” in the event that the NAFTA renegotiations with the United States fail. If the United States were to pull out of NAFTA, the signing of the ICSID Convention would signal investors that it is still open to investor-State dispute resolution.

Mexico’s signing of the ICSID Convention should be viewed as a significant step forward not only for Mexico but for the investor-State Dispute Settlement (ISDS) system. By signing the ICSID Convention the Mexican government is sending a message to investors that it apparently intends to continue to provide international dispute resolution protections to foreign investors as a way to continue to attract foreign investment. Moreover, by signing the ICSID Convention Mexico is also signaling a vote of confidence to the ISDS system—despite recent criticisms—which may influence other countries in the region.