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).
Pelosi established a House subcommittee 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.
Canadian Prime Minister Justin Trudeau tabled the bill to ratify the USMA on May 29, 2019 and Mexico became the first country to fully ratify the agreement on June 16, 2019.
With ratification complete in Mexico and all but guaranteed in Canada, the onus is now on Washington to ratify the trade agreement. However, ratification isn’t likely to occur in the Fall of 2019, after Congress’s summer recess. In the interim, House Democrats will continue to work with the USTR to find common ground on the outstanding issues.
U.S. President Donald Trump has stated that he has a backup plan in the event the USMCA is not ratified but did not provide clarification on what it is. However, he previously stated that if Congress won’t pass the USMCA, he will withdraw from NAFTA, which would put Congress on a six-month timeline to either ratify the USMCA or risk losing free trade in North America.
Over the course of 13 months, the parties engaged in heated debate and lengthy negotiations regarding a number of issues that had varying degrees of importance and impact on each of the parties. The following are some of the key differences between NAFTA and the USMCA.
The USMCA maintains Chapter 20 of NAFTA, which provided for a dispute-mechanism to resolve country-to-country disputes. More importantly, the USMCA maintains NAFTA Chapter 19, which provides for a bi-national dispute-resolution mechanism to resolve disputes over the imposition of anti-dumping and countervailing duties by one country on another.
Chapter 19 was a hotly debated issue during the negotiations. The United States had requested the dispute-resolution mechanism be removed, believing it infringed on U.S. sovereignty. Canada, which has effectively used Chapter 19 on more than one occasion to reverse the application of duties on Canadian imports into the U.S. (such as softwood lumber), insisted the dispute-resolution system be maintained.
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