Introducing the United States Mexico Canada Agreement…
While there has been a deal reached, we remind out readers that the USMCA still needs to be ratified by all three of the governments of Canada, the Untied States and Mexico (the “parties”) before it comes into effect.
What’s New? Chapter by Chapter Summary and What it May Mean
(The headings are in alphabetical order for the ease of navigation; please scroll to your desired section.)
Canada has made some concessions in the agriculture department, specifically in dairy, poultry and eggs. Notably, Canada has agreed to:
- Provide new market access to the U.S. in the form of tariff rate quotas for dairy, poultry, and egg products;
- Tariff elimination for whey powder and margarine;
- Ensure the elimination of current milk classes 6 and 7; component prices for these products will be calculated based on an agreed U.S. reference price;
- Establish a mechanism to monitor exports of skim milk powder, milk protein concentrate, and infant formula; above an agreed threshold these products will be subject to surcharges; and
- Allow U.S. grown wheat of varieties registered in Canada to receive an official Canadian grain grade.
Canada will continue to do the following:
- Criminalize and combat bribery in their countries;
- Protect whistleblowers from retaliation;
- Maintain measures on bookkeeping to help detect and prosecute corrupt activities;
- Act to promote integrity among public officials; and
- Encourage the private sector and society to be active in combatting corruption.
And has made new commitments to:
- Combat embezzlement by public officials;
- Discourage the use of facilitation payments, also known as “grease payments” which are made to foreign government officials to speed up or facilitate routine transactions;
- Encourage private sector companies to adopt compliance programs to combat corruption; and
- Enhance cooperation between the three countries on anti-corruption issues.
Automotive Rules of Origin
The new provisions of the Automotive Rules of Origin, specifically the minimum wages have the potential to improve Canadian automotive manufacturing’s competitiveness vis-à-vis Mexico. The overall goal, however, is increased levels of production and sourcing in North America.
The new rules include:
- A 75% regional value content requirement;
- Strong content requirements for core parts such as engines and transmissions;
- A 70% North American steel and aluminum requirement; and
- A labour value content requirement.
They also include a labour value content requirement which means that a significant percentage of the value of a vehicle must be produced by workers earning at least $16 USD/hour.
Finally, they include strengthened rules of origin for auto parts, and ensures that all parts used in the production of a vehicle are taken into consideration in determining if it qualifies as originating.
With overall goal of creating a fair, transparent, predictable and competitive business environment that ultimately benefits consumers, the parties have agreed to changes in the competition policy that:
- Includes commitments to ensure that parties will:
- maintain measures that proscribe anti-competitive business conduct;
- enforce these measures in accordance with the principles of transparency, non-discrimination and procedural fairness; and
- co-operate on matters pertaining to cross-border anti-competitive business conduct.
- Includes detailed commitments on transparency and procedural fairness that are to be followed by the parties in the enforcement of their domestic competition legislation.
- Includes consumer-protection obligations pertaining to fraudulent and deceptive commercial activities.
- The chapter is not subject to dispute settlement under the Agreement, but includes a consultation mechanism to address matters that arise under the chapter.
The parties in an effort to promote further economic integration among themselves and enhancing the competitiveness of North American exports, created the chapter on competitiveness that:
- Establishes a committee on competitiveness that will consult experts and stakeholders outside of government to guide its work. The committee will develop cooperative activities to:
- incentivize production in North America;
- facilitate trade and investment;
- enhance the regulatory environment;
- encourage the swift movement of goods and provision of services; and
- respond to market developments and emerging technologies.
- More specifically, the committee is tasked with:
- information sharing to support trade and investment within North America;
- assisting traders to take advantage of the USMCA;
- providing advice and recommendations to enhance continental competitiveness;
- identifying projects and policies to develop modern physical and digital infrastructure;
- considering action to combat market-distorting practices by countries outside of North America; and
- promoting trade and investment in innovation and technology.
- The committee will pay particular attention to enhancing the competitiveness of small and medium-sized enterprises and businesses led by women, Indigenous peoples, youth and minorities.
Canada succeeded in preserving its cultural industries. The parties have agreed to the terms of this chapter, which
- Maintains Canada’s existing cultural industries exception under NAFTA, a key provision designed to preserve Canada’s cultural sovereignty, including in the online environment. The USMCA defines cultural industries as those engaged in the publication, distribution or sale of books, magazines, film, video and music, as well as broadcasting.
- The general exception for culture preserves Canada’s flexibility to adopt and maintain programs and policies that support the creation, distribution and development of Canadian artistic expression or content, including in the digital environment.
- Preserves Canada’s existing broadcasting retransmission regime, but provides for simultaneous substitution during the broadcast of the Super Bowl and gives U.S. programming services specializing in home shopping access to the Canadian market by authorizing them to negotiate affiliation agreements with Canadian distributors.
Customs and Trade Facilitation
While the USMCA is generally a free trade agreement, the parties were able to establish several key points in this chapter to facilitate trade and maintaining a trade system that is transparent, namely:
- Publishing online the procedures and requirements of importing and exporting goods into and through the respective parties, including links to all duties and taxes;
- Publishing and communicating regularly with traders regarding new and proposed changes to these import and export procedures and regulations;
- Maintaining free to use enquiry points for interested persons concerning importation, exportation and transit procedures;
- Providing advance rulings to traders;
- Providing advice and information on duty drawback and deferral programs;
- Adopting/maintaining simplified customs procedures for the efficient release of goods;
- Adopting/maintaining specific expedited customs procedures for express shipments while maintaining appropriate customs controls;
- Using information technology to expedite procedures for the release of goods;
- Establishing or maintaining a single window system no later than December 31, 2018 that enables the electronic submission through a single entry point of the documentation and data the party requires for importation into its territory;
- Adopting/maintaining a post-clearance audit to ensure compliance with its customs and other related laws and regulations
- Maintaining a trade facilitation program for Authorized Economic Operators (AEOs);
- Adopting/maintaining measures that allow for the imposition of a penalty by a party’s customs administration for breach of its customs laws, regulations, or procedural requirements;
- Establishing a Committee on trade Facilitation; and
- Strengthening cooperation between the parties regarding enforcement including the provision of specific confidential information normally collected on importation, exportation and transit.
The new chapter on energy:
- Maintains obligations and provisions on trade in energy products and services, including in the areas of national treatment and market access, rules of origin, customs and trade facilitation, and cross-border trade in services and investment, and locks in Mexico’s services and investment-related commitments in the energy sector.
- No longer includes the provision known as the “energy proportionality clause.”
- Includes a rule of origin amendment to allow up to 40% of non-originating diluent in pipelines when moving crude oil, a longstanding Canadian industry request. Diluent is a petroleum-based liquid that is often added to crude oil to ensure that it flows properly through pipelines.
- Includes an enforceable side letter between Canada and the United States on energy regulatory measures and regulatory transparency. Included in an annex to the letter are:
- an article encouraging cooperation in the energy sector;
- provisions that require parties to establish or maintain an independent regulatory authority, and the establishment of transparency requirements for the authorization process in the energy sector;
- requirements for parties to provide a right of appeal or review for certain decisions concerning these authorizations;
- an obligation stating that measures governing access to or use of energy infrastructure must be neither unduly discriminatory nor unduly preferential; and
- the longstanding U.S. commitment from the Canada-U.S. FTA ensuring that the Bonneville Power Administration, the U.S. federal agency, afford BC Hydro treatment that is no less favourable than that afforded to utilities located outside of the Pacific Northwest.
- Includes sector-specific outcomes that build upon obligations related to technical barriers to trade and good regulatory practices. This includes a sectoral annex that recognizes the parties’ interest in harmonizing energy-efficiency performance standards and test procedures with a view to enhancing transparency and facilitating trade and future cooperation between the parties.
The new chapter on the environment:
- Integrates ambitious environmental provisions into a dedicated chapter within the USMCA rather than a separate parallel agreement, and fully subjects them to dispute settlement.
- Includes core obligations for parties to maintain high levels of environmental protection and robust environmental governance, including commitments:
- to enforce environmental laws;
- to not derogate from these laws to encourage trade or investment;
- to promote transparency, accountability and public participation; and
- a new commitment to ensure environmental impact assessment processes are in place for projects having potential adverse effects on the environment.
- Creates new commitments to address a range of global environmental challenges, including substantive obligations to:
- combat illegal wildlife trade; illegal logging; and illegal, unreported and unregulated (IUU) fishing;
- promote sustainable forestry and fisheries management, including a commitment to prohibit subsidies that negatively affect fish stocks;
- conserve species at risk;
- implement relevant multilateral environmental agreements; and
- take measures to protect the ozone layer and address marine pollution.
- Includes commitment from parties to work together to conserve biological diversity and combat invasive alien species, among others.
- Includes innovative fisheries commitments to prevent the use of explosives and poisons, and a binding commitment to prohibit the practice of shark finning—a first for Canada.
- Introduces articles on air quality and marine litter, a first for a trade agreement environment chapter.
- Sets out new commitments that aim to strengthen the relationship between trade and environment, including through the promotion of responsible business conduct and corporate social responsibility, trade and investment in environmental goods and services, and the use of voluntary measures to enhance environmental performance.
- Recognizes the important role of Indigenous peoples in the long-term conservation of the environment, sustainable fisheries and forestry management, and biodiversity conservation, and takes into account the constitutional rights of Canada’s Aboriginal peoples.
- Establishes a binding and enforceable dispute resolution process to address any questions regarding compliance, including recourse to the broader USMCA dispute settlement mechanism if countries are not able to resolve the matter through consultation and cooperation.
- Integrates the public submissions on enforcement matters process established under the North American Agreement on Environmental Cooperation (NAAEC), which is a key mechanism for promoting transparency and public participation on the enforcement of environmental laws in North America.
- In addition, the three parties have agreed to continue the operation of the Commission for Environmental Cooperation in accordance with a new environmental cooperation agreement that is being negotiated.
Protecting intellectual property rights across borders has been a relatively hot topic for the United States as of late, including its dispute with China before the WTO.
As such it is hardly surprising to see the parties agreeing to a chapter that:
Copyright and related rights:
- Includes provisions on Internet service provider (ISP) liability to address online infringement that enable Canada to maintain its current “notice-and-notice” framework.
- Requires a general term of copyright protection of “life plus 70 years” for works and 75 years for performances and sound recordings (Canada currently has terms of “life plus 50 years” and 70 years, respectively).
- Canada has a 2.5-year transition period to implement this obligation following the entry-into-force of the agreement.
- Includes a full national treatment obligation in regard to the protection of intellectual property rights, including for copyrighted works, performances and sound recordings.
- Provides protection and enforcement of copyrights and related rights, reflecting or building upon the WIPO Internet Treaties. Canada ratified the WIPO Internet Treaties in 2014.
- Requires civil and criminal remedies for circumventing technological protection measures (TPMs, i.e. “digital locks” on copyrighted works) and altering or removing rights management information (RMI, i.e. “digital watermarks”). Canada already provides criminal remedies in respect of TPMs. Under the Agreement, Canada would be required to provide these remedies with respect to RMI as well.
Patents and pharmaceutical IP:
For new biologic drugs, the Agreement will require a term of data protection of 10 years (Canada currently provides a term of eight years).
- Canada has a five-year transition period to implement this obligation following the entry-into-force of the Agreement. For chemical (small molecule) drugs, Canada can continue to provide a term of data protection of eight years.
- Includes an obligation on patent term adjustment to compensate patent applicants for unreasonable delays in the processing of patent applications.
- Canada has a 4.5-year transition period to implement this obligation in domestic law and policy.
- In line with outcomes in the Canada-EU Comprehensive Trade and Economic Agreement (CETA), Canada has scope to meet its obligations for an additional period of protection for pharmaceuticals by way of its existing Certificate of Supplementary Protection (CSP) regime.
- Includes provisions on the availability of patents for inventions in all fields of technology, in line with Canada’s current regime including criteria regarding exclusions from patentability.
- Ensures that exceptions under the WTO Doha Declaration on the TRIPS Agreement and Public Health continue to be available.
Data protection for agricultural chemicals:
- Includes 10 years of data protection for agricultural chemical products in line with Canada’s existing regime.
- Provides protection against infringing the use of trademarks, such as brand names and symbols, as well as protections for non-traditional marks such as sound marks and scent marks.
- Includes rules and procedures to ensure transparency and efficiency.
- Supports ongoing efforts to make Canada’s framework consistent with the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks, Singapore Treaty on the Law of Trademarks and Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks.
- Includes rules on transparent and fair administrative systems for the protection of new geographical indications (GIs), consistent with Canada’s system for GI protection.
- Protects industrial designs against unauthorized use.
- Is in line with Canada’s regime and supports efforts to make Canada’s legal framework consistent with the Hague Agreement Concerning the International Registration of Industrial Designs.
- Provides for civil and criminal enforcement and remedies or penalties for the misappropriation of trade secrets consistent with Canada’s legal framework.
- Provides rules for civil, criminal and border enforcement of IP rights, including the application of rules to the online environment.
- Includes appropriate remedies to combat trade in counterfeit and pirated goods.
- Includes comprehensive civil procedures and remedies available to rights holders.
- Requires parties to have criminal measures in place to address commercial-scale counterfeiting and piracy activities.
- Contains border enforcement measures, including:
- requirements to establish means for border officials to work with rights holders;
- applications to allow for the detention of goods suspected of being confusingly similar to registered trademark goods that are imported into Canada;
- legal authority for border officers to detain suspected counterfeit or pirated goods when they are imported, exported, in bonded warehouses, or in transit (Canada presently does not provide such authority for in-transit goods).
- Provides for criminal and/or civil measures for the protection of encrypted satellite and cable signals.
- Commits parties to ratify or accede to a number of multilateral IP agreements. These include:
- the Madrid Protocol and Singapore Treaty concerning trademarks;
- the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure dealing with deposit of microorganisms for the purpose of patent procedures;
- the 1991 Act of the International Convention for the Protection of New Varieties of Plants (UPOV 91), the WIPO Internet Treaties dealing with copyright and related rights, and the Brussels Convention on the distribution of program-carrying signals transmitted by satellite.
- Canada is either already a party to these agreements or is in the process of implementing and ratifying them, with the exception of the Brussels Convention. Canada has a four-year transition period to accede to this treaty following the entry into force of the USMCA.
- Commits parties to cooperation pertaining to IP matters, including with respect to small and medium-sized enterprises, education and awareness on IP, as well as cooperation to discuss proposals to enhance procedural fairness in patent litigation, including with respect to choice of venue.
The USMCA will not include a trilateral investor-state dispute settlement (ISDS) mechanism. Under the USMCA, the United States and Mexico have agreed to maintain a bilateral ISDS mechanism for a narrow set of disciplines and sectors. The parties have also agreed to a transitional period of three years, during which ISDS under the original NAFTA will continue to apply only for investments made prior to the entry into force of the USMCA. Apart from this transition period for existing investments, U.S. investors will not be able to launch an ISDS claim against Canada. The only recourse will be State-to-State dispute settlement if the U.S. government were to bring a claim against Canada on a U.S. investor’s behalf.
- Includes standard investment obligations that align with Canada’s existing treaty practice, including:
- national treatment: an obligation that trading partners should not discriminate against each others’ investors in favour of their own investors;
- most-favoured nation (MFN) treatment: an obligation that trading partners should not discriminate against each others’ investors in favour of investors from any other country;
- minimum standard of treatment: an obligation for countries to provide fair and equitable treatment to investments based on customary international law;
- expropriation and compensation: an obligation that protects all investments from expropriation or nationalization, except in specific circumstances and with full compensation;
- performance requirements: an obligation that prevents conditions from being placed on an investment that favours domestic industry, such as the requirement to purchase local goods, export a certain percentage of goods produced, or transfer technology to the host country;
- transfers: an obligation that allows investors to freely transfer capital and profits related to an investment in and out of the host country, subject to some exceptions, such as in the event of a financial crisis where a country can impose measures to prevent capital flight; and
- senior management and board of directors: an obligation that prevents governments from requiring companies to appoint senior managers of a particular nationality; however, governments can mandate that a majority of boards of directors conform to nationality or residency requirements.
- Preserves parties’ policy flexibility in sensitive areas such as health and Aboriginal affairs by allowing certain existing and future non-conforming measures (which are laws, regulations, procedures or requirements that would otherwise breach one or more obligations of the chapter).
- Reaffirms the importance of encouraging businesses to adhere to internationally recognized standards of corporate social responsibility that have been endorsed by the parties, such as the OECD Guidelines for Multinational Enterprises. The provision provides an illustrative list of CSR areas including labour, environment, gender equality and Indigenous and Aboriginal peoples’ rights.
In an effort to implement a more modern labour code across the parties and to address issues of sexual discrimination and abuse, labour rights and migrant workers, the USMCA:
- Contains commitments to protect and promote internationally recognized labour principles and rights that are fully subject to the dispute settlement provisions of the Agreement. This includes the 1998 International Labour Organization Declaration on Fundamental Principles and Rights at Work.
- Includes commitments to ensure that national laws and policies provide protection of the fundamental principles and rights at work, including:
- the right to freedom of association and collective bargaining
- the elimination of child labour, forced or compulsory labour, and discrimination in respect of employment occupation.
- Includes new provisions:
- for parties to take measures to prohibit the importation of goods produced by forced labour;
- to address violence against workers exercising their labour rights; and
- to ensure that migrant workers are protected under labour laws.
- In line with the goal of promoting equality of women in the workplace, includes a new requirement to implement policies that protect against employment discrimination on the basis of gender, including with regard to:
- sexual harassment;
- sexual orientation;
- gender identity; and
- caregiving responsibilities.
- Ensures that laws provide acceptable conditions of work with respect to minimum wages, hours of work, and occupational health and safety.
- Encourages cooperation on labour matters and establishes a mechanism for engaging in cooperative labour dialogue.
- Includes a non-derogation clause that prevents USMCA parties from derogating from their domestic labour laws in order to encourage trade or investment.
- Includes mechanisms to implement and monitor compliance with the commitments in the chapter that:
- allow for consultations among parties to discuss matters arising under the chapter and to jointly decide on any course of action to address the matter; and
- establish a mechanism in each USMCA party for the public to raise concerns about labour issues addressed in the chapter.
- Includes an Annex on Worker Representation in Collective Bargaining in Mexico, under which Mexico commits to specific legislative actions to provide for the effective recognition of the right to collective bargaining.
- Permits parties to seek recourse to dispute settlement under the dispute settlement chapter in cases of non-compliance to ensure that all labour obligations are respected.
Macroeconomic Policies and Exchange Rate Matters
Canada and the United States, as members of the G7, have already worked to restrain the manipulations of exchange rates to gain a competitive advantage. And now the USMCA has its own chapter regarding the same.
- Commits USMCA Parties to maintain market-determined exchange rates and refrain from competitive devaluation.
- Sets out enforceable rules for a high level of transparency and public reporting on exchange rates and other macroeconomic issues.
- Includes commitments for continued dialogue between USMCA Parties on macroeconomic policies and exchange rate matters.
National Treatment and Market Access for Goods
With the overall goals to help reduce the costs of conducting trade, enhance transparency and predictability for exporters and promote trade in goods the parties, the USMCA:
- Maintains NAFTA’s current tariff commitments, including those incorporated in the Canada-U.S. Free Trade Agreement of 1989.
- Maintains key obligations governing trade in goods within North America; these include provisions on national treatment, temporary admission of goods, import and export restrictions, administrative fees and formalities, and goods returned after repair or alteration.
- Eliminates provisions that restrict the ability of parties to constrain the export of products (known as the “proportionality clause”).
- Contains enhanced transparency provisions for import and export licensing procedures that will provide greater certainty and predictability, and new rules to address non-tariff barriers related to trade in remanufactured goods (i.e., used but still functional goods that have been reassembled, rebuilt and refurbished such that they perform the same as or similar to a new good).
- Establishes an enhanced committee structure dedicated to issues related to trade in goods.
- Introduces new procedures that provide for electronic processes, promotes trader participation during origin certification and verification, simplifies the certification process, encourages voluntary compliance, and provides for enhanced enforcement and cooperation among the customs administrations to ensure legitimate goods benefit from the USMCA.
- Similar to the original NAFTA, includes rules for traders and the customs administrations such as, certification, voluntary compliance, record keeping requirements, origin advance rulings, refunds, detailed origin verifications, appeal rights and cooperation amongst the customs administrations of the USMCA parties. These obligations will help to:
- Reduce the administration costs for traders, thereby promoting participation in the USMCA; and
- Ensure that traders are treated in a fair and transparent manner by the customs administrations in the application of the rules of origin.
- Specifically allows for:
- Certification by the exporter, producer or importer;
- A simpler means of certifying the origin of the good, through the use of the invoice, electronic transmission, including electronic signature;
- Appeal rights for exporters, producers and importers;
- Voluntary compliance; and
- Enhanced cooperation amongst the customs administrations.
Review and Ongoing Modernization Provision
In order to maintain a more adaptive agreement that changes as the global economic climate does, the USMCA:
- Establishes a requirement for a formal review by the Free Trade Commission (comprised of ministers) of the functioning of the Agreement every six years at a minimum, with more frequent reviews possible after the six-year review if requested by a party.
- Establishes clear procedures for reviewing the Agreement, either as a whole or for specific issues. This provides an opportunity for ongoing modernization that will encourage the parties to update the Agreement, as required, in response to changes in the global trade environment.
- Enables each party to confirm their participation in the Agreement, through each party’s head of government, for a period of 16 years. The 16-year term can be renewed every six years.
- Contains a rolling 16-year period provides adequate certainty for investors, traders, innovators and others to plan their activities and investments.
Small and Medium-Sized Enterprises (SME)
The USMCA will also include a new chapter on SMEs which is designed to complement commitments undertaken throughout the agreement, notably by fostering cooperation amongst the Parties to increase trade and investment opportunities for SMEs, and ensuring information is available to SMEs on the obligations and functioning of the Agreement.
The USMCA specifically:
- Promotes increased trade and investment opportunities for SMEs, including through cooperation on support initiatives, joint activities to promote SMEs owned by under-represented groups, and the exchange of information and best practices.
- Recognizes indigenous peoples, women, youth and minorities as groups who may benefit from strengthened collaboration on SME promotion activities designed to increase participation in international trade.
- Includes requirements to make information available that is specifically tailored for SMEs’ use, including information on entrepreneurship education programs for youth and under-represented groups, and information on obligations in the Agreement that are particularly relevant to SMEs – an issue previously identified by Canadian SMEs as a challenge to leveraging the opportunities created by FTAs.
- Establishes a Committee on SME issues and an annual trilateral SME dialogue, which includes private sector stakeholders, to discuss issues of the agreement that are relevant to SMEs.
State-to-State Dispute Settlement
Like the previous Chapter 20 of NAFTA, the USMCA provides a dispute resolution mechanism for the application and interpretation of the USMCA. Almost all of the obligations in the Agreement, including those related to labour and the environment, are subject to this dispute settlement system.
The new chapter:
- Sets out the mechanisms and processes for consultations and encourages other ways of more informally resolving the dispute (through the Commission, good offices, conciliation or mediation) before a formal panel process begins.
- Requires the parties to agree on a roster of 30 independent and highly qualified experts to facilitate the creation of panels.
- Provides a framework for transparent and open dispute settlement proceedings, including allowing non-governmental entities in USMCA countries to express their views to the panel, making submissions public, and modernizing litigation procedures by requiring electronic filing of documents.
- Sets out how benefits can be suspended by a winning party (trade retaliation), as well as a mechanism to ensure that a winning party does not go too far in its retaliation. It also requires that a winning party withdraw any retaliatory measures when a losing party conforms with the panel’s ruling.
Perhaps thanks in part to Canadian protectionism from the CRTC and Canadian telecommunications companies, the USMCA is relatively friendly to Canadian telecom.
- Builds on previous agreements by including strong commitments that will provide enhanced regulatory certainty for telecommunications service suppliers when operating or investing in USMCA markets.
- Similar to the original NAFTA, includes key obligations regarding access to and use of telecommunications services, value-added services, and transparency.
- Ensures that Canadian service suppliers will be treated in a fair and objective manner when providing telecommunications services to other USMCA markets.
- Also includes commitments on:
- competitive safeguards;
- interconnection of telecommunications networks;
- unbundling of network elements;
- the provision of private leased circuits;
- co-location of telecommunications equipment;
- approaches to regulation;
- universal services;
- telecommunications regulatory bodies;
- phone number portability;
- allocation and use of scarce resources;
- enforcement; and
- resolution of domestic telecommunications disputes.
- Does not apply to broadcasting services, except to ensure that broadcasters will have access to and use of telecommunications services.
Perhaps in contrast to the current United States policies on immigration and banning certain groups from the United States, the USMCA:
- Maintains the existing, reciprocal market access commitments covering four categories of business persons:
- Business Visitors;
- Intra-Company Transferees; and
- Builds on the original NAFTA disciplines with key changes aimed at improving clarity and certainty around the application of the temporary entry provisions, including:
- Clarifies the applicability of the temporary entry chapter, for example by carving out measures regarding citizenship, nationality, residence, or employment on a permanent basis.
- Does not exempt a business person from any licensing or qualification requirements; and
- Expands the mandate for the Temporary Entry Working Group.
Canada retains full discretion regarding visa or immigration policy, and to take measures to protect health, safety and national security.
Textiles and Apparel
The USMCA will include a new stand-alone chapter on rules of origin and origin procedures for textiles and apparel. This chapter will preserve the market access that Canada has to the U.S. and Mexican markets, including the tariff preference levels. The yarn-forward rules of origin, which are the foundation of the USMCA rules of origin for textiles and apparel goods, have been maintained.
The new chapter on textiles:
- Provides greater flexibility for producers that use small amounts of non-originating materials—a measure that will help such goods qualify for preferential treatment.
- Expands on an existing NAFTA provision to provide a special, facilitative pathway to origin for Indigenous textile and apparel goods.
- Maintains the yarn-forward rules of origin while relaxing the approach for niche, vegetable-based yarns and fabrics that are often sourced from outside the USMCA region.
- Preserves existing trade under Canada’s tariff preference levels (TPLs), as revised volumes remain well above current utilization rates.
- Includes new measures designed to encourage the use of North American sewing thread, narrow elastics and pocketing fabric.
- Introduces measures designed to increase transparency associated with the administration and allocation of TPLs by all parties.
- Establishes a methodology to effectively administer the rules of origin specific to textile and apparel goods in a manner that is transparent and predictable for both the traders and the customs administrations.
- Provides for enhanced cooperation measures and procedures to address the additional challenges faced by the customs administrations in ensuring compliance in this sector.
- Specifically includes enhanced cooperation among the customs administrations, as well as a streamlined approach to origin verification visits.
Trade and Gender Provisions
There gender-related provisions in the chapters on Labour, Investment and SMEs, designed to promote gender equality in business.
Trade and Indigenous Peoples Issues
The USMCA contains a general exception that allows the parties (and therefore Canada) to adopt or maintain measures it deems necessary to fulfill its obligations to Indigenous Peoples. Moreover, the environment and SME chapters pay special heed to the Aboriginal rights and treaty rights.
Trade Remedies and Related Dispute Settlement
Unsurprisingly, the USMCA has dispute resolution clauses that:
- Maintains the independent and impartial Chapter 19 binational panel review mechanism for anti-dumping and countervailing duty investigations.
- Provides that Canadian exporters affected by trade remedy measures will continue to have the choice of a transparent and expeditious binational panel process for settling disputes that is separate from a USMCA partner’s domestic legal system.
- Ensures fairness for Canadians, as the decisions are made by representatives of both countries.
- Provides that binational panel decisions may lead to a refund of duties collected, which is not available under WTO dispute settlement.
- Reaffirms the rights and obligations of the parties under three WTO agreements: the Agreement on Safeguards, the Anti-dumping Agreement, and the Agreement on Subsidies and Countervailing Measures.
- Retains the existing global safeguards exclusion, formerly in Chapter 8 of NAFTA. this provision will limit the uncertainty and potential trade disruptions when a USMCA party resorts to global safeguards.
- Includes new provisions to strengthen cooperation between USMCA partners to address the potential evasion of trade remedy duties, including through information-sharing and cooperation with respect to duty evasion verifications; these provisions will provide new tools to address unfair trade practices by non-USMCA parties
- Includes new provisions that enhance transparency of trade remedy investigations by:
- Improving access to public information by making legal, policy and case-specific information available electronically
- Requiring each party to establish and maintain an electronic filing system, which will facilitate interested parties’ participation in trade remedy investigations
- Setting out enhanced notification and information disclosure requirements
- Allowing for the sharing of information on trade remedy investigations between USMCA parties’ investigating authorities to better address unfair trade practices outside the region.
U.S. Section 232 Side Letters
Finally, while there is still some uncertainty about future United States decisions made for reason of “national security”, there are some benefits to Canada in this chapter:
- The United States will exempt Canada from any future Section 232 measures for at least 60 days, during which time the United States and Canada would seek to negotiate an appropriate way forward.
- In the event that the United States imposes Section 232 measures, the Canadian exemption for automobiles provides guaranteed duty-free access to the U.S. market for up to 2.6 million vehicles, a level that exceeds recent Canadian exports. Originating light trucks will not count toward this amount and are fully exempt from Section 232 duties.
- A similar outcome was achieved for auto parts; Canada will have guaranteed duty-free access to the U.S. market for up to US$32.4 billion worth of Canadian auto parts.
- Canada retains the right to take a measure of equivalent commercial effect in response to Section 232 measures that fall outside the scope of these exemptions.
- Canada’s rights under the WTO agreement to challenge Section 232 measures have been preserved.
What About the Steel and Aluminum Tariffs?
The Steel Tariffs and Aluminum Tariffs will remain in place for now. However, Canada now has its own provisional safeguards (25% surtax) in place with regards to 7 different types of steel products pending a further hearing to come in January 2019.
While the full implications of this new USMCA will only be clear as time goes by, we will provide updates as the USMCA is ratified (or not)!
John Reiterowski, DS Lawyers Canada, LLP
DS Customs & Trade team located in Paris, Brussels, Montreal, Toronto, Lima, Singapore, Vietnam, Beijing, Guangzhou, Dakar and Cotonou is at your disposal to provide you with additional information.