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On November 30, 2018, the United States, Mexico and Canada officially signed the United States-Mexico-Canada Agreement (USMCA), a proposed free trade agreement that, if approved by Congress and ratified by the governments of Canada and Mexico, would revise and modernize the North American Free Trade Agreement (NAFTA). Known as “NAFTA 2.0” during the trilateral negotiations, the USMCA is expected to be debated by the 116th Congress in the coming months as it considers legislation to implement the agreement. The new free trade agreement, consisting of 34 chapters and 14 side letters, retains many of NAFTA’s chapters but also makes notable changes and additions to the original trade agreement among the three countries.

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Upon its entry into force, the USMCA will supersede NAFTA with “a 21st Century, high standard new agreement to support mutually beneficial trade leading to freer, fairer markets, and to robust economic growth in the region,” as stated in the Preamble. The proposed USMCA will result in changes to the rules of origin for motor vehicle and agriculture products, while modernizing provisions on intellectual property rights, digital trade and trade in services. The agreement allows U.S. dairy producers further access to the Canadian dairy market, adds new obligations on currency misalignment, and includes revised provisions on government procurement and investment. It includes new chapters covering the activities of state-owned enterprises (or designated monopolies), and on anti-corruption to prevent and combat bribery. Other provisions generating debate during the negotiations were the inclusion of a sunset clause for the agreement and a provision that allows a party to withdraw from the agreement if another party enters into a free trade agreement with a country it deems to be a non-market economy (e.g., China). What follows is an overview of key aspects of the USMCA, which updates a range of issues covered in the 25-year-old NAFTA, including new clauses affecting trade, special treatment for certain goods and sectors, and revised provisions of certain NAFTA clauses.

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As a “new generation” agreement, the USMCA will provide intellectual property protections to pharmaceutical products that are or contain a “biologic” for at least 10 years from the date of the first marketing approval. A biologic is used for the prevention, treatment or cure of a disease or condition and is or contains a virus, serum, toxin, antitoxin, vaccine, blood product, allergen or protein. These protections will keep out for 10 years generic versions of any biologic receiving a marketing approval first unless the marketing approval holder consents to the use of the data.

The USMCA adds a chapter covering labor and employment issues, a contentious topic during the negotiations. The chapter promotes compliance with fundamental labor rights, including the protection of migrant workers, protections against sex-based workplace discrimination, the abolition of forced or compulsory labor, freedom of association and protection of the right to strike, and the prevention and elimination of all forms of violence arising from the exercise of these rights. Certain provisions apply specifically to Mexico, such as the right to collective bargaining.

For e-commerce, which was only in its infancy and not covered at the time of NAFTA’s passage, the USMCA will “recognize the economic growth and opportunities provided by digital trade and the importance of frameworks that promote consumer confidence.” The agreement holds that no USMCA country will impose duties or other charges upon the importation or exportation of electronically transmitted digital products (e.g., music, images, videos, etc.). USMCA countries will also adopt or apply consumer protection laws against fraudulent or deceptive activities to protect digital trade users’ personal information and limit unsolicited commercial electronic communications.

While NAFTA was not subject to a termination date, the USMCA will be subject to a 16-year term (with the possibility to extend its term for another 16 years upon agreement by all three countries). Further, it must undergo a “joint review” six years after its entry into force; if the USMCA countries do not confirm its extension after that review, it will be reviewed annually until the end of the original term or until the 16-year extension is confirmed by all USMCA countries.

Duty-free and tax-free de minimis shipments

Under the chapter for customs administration and trade facilitation, the USMCA countries agreed to new duty-free and tax-free de minimis shipment levels under specific expedited customs procedures for express shipments. Duties and/or taxes will not be assessed on shipments equal to or less than US$800 for the United States; US$117 for customs duties and US$50 for taxes for Mexico; and C$150 for customs duties and C$40 for taxes for Canada.

The USCMA includes a chapter covering fair competition, requiring transparency and establishing obligations concerning the enforcement of each country’s competition laws and administrative anti-competition investigations. The USMCA countries are also required to adopt or maintain national consumer protection laws or other laws or regulations that proscribe fraudulent and deceptive commercial activities.

Special Treatment for Certain Goods and Sectors

The regional value content (RVC) requirement for automobiles under the chapter on rules of origin was one of the most contentious issues addressed during the negotiations and was considered a potential deal-breaker by President Trump. In the end, the countries agreed to these changes:

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The USMCA updates the original NAFTA chapter on textile and apparel goods by addressing these issues :

One of the more significant achievements of the USMCA negotiations was the countries’ agreement to “relax” certain agricultural rules and permit cross-border access of certain agricultural goods:

Revised Provisions of Certain NAFTA Clauses

The USMCA significantly curtails the existing private investor-state dispute settlement mechanism under NAFTA’s Chapter 11. The availability of investor-state arbitration under the USMCA’s investment protection chapter is limited to Mexico and the United States; Canada is excluded. Upon implementation, the USMCA contains these revisions:

Financial services are specifically excluded from the scope of this revised chapter.

Certification of origin and verification procedures

The USMCA modifies the original text of NAFTA requirements for certifying the origin of goods to claim preferential treatment:

This revised NAFTA chapter – which covers antidumping, countervailing duty and safeguard investigations and binational panel appeals – now requires each country’s cooperation in stopping the evasion of trade remedy duties through the enforcement of or assisting in the enforcement of these duty payments by sharing customs information and/or conducting related verification procedures.

The USMCA increases and broadens the original NAFTA chapter’s protections related to intellectual property, including geographic indications, patents, trademarks, copyrights and matters involving internet service providers. Updates include provisions for:

This chapter highlights an “exception” giving each member country the right to protect public health and, in particular, to promote access to medicines for all. In doing so, it addresses certain exceptions in case of national health emergencies or other emergencies, including crises related to HIV/AIDS, tuberculosis, malaria and other epidemics.

While this alert provides an overview of what are generally considered to be the most significant elements and impacts of the USMCA, it by no means covers all of the nuanced revisions and updates to the original NAFTA text, nor does it include a discussion of all of the USMCA’s new provisions. <a href="https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between" target="_blank" rel="noopener">A full chapter-by-chapter searchable text of the USMCA</a> is available on the Office of the U.S. Trade Representative’s web site.

Maria Luisa Mendoza* 202.263.4174 <a href="mailto:Maria.Mendoza@ThompsonHine.com" target="_self" rel="noopener">Maria.Mendoza@ThompsonHine.com</a>

Scott E. Diamond Senior Legislative &amp; Regulatory Policy Advisor, International Trade Not licensed to practice law 202.263.4197 <a href="mailto:Scott.Diamond@ThompsonHine.com" target="_self" rel="noopener">Scott.Diamond@ThompsonHine.com</a>

David M. Schwartz Partner, International Trade 202.263.4170 <a href="mailto:David.Schwartz@ThompsonHine.com" target="_self" rel="noopener">David.Schwartz@ThompsonHine.com</a>

*Ms. Mendoza is spending time in Thompson Hine’s Washington, D.C. office as part of a program of the New York State Bar Association’s International Section. She works in the Mexico City office of Sanchez Devanny, a Mexican law firm.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

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https://admin.thompsonhine.com/wp-content/uploads/2022/04/International_Trade_Update_-_What_to_Expect_in_the_USMCA.pdf

What to Expect in the USMCA (a.k.a. NAFTA 2.0)

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