The New NAFTA 2.0—The United States-Mexico-Canada Agreement (USMCA)

Author:Ms Maria Alonso and Pierfilippo Natta (Legal Intern)
Profession:Torres Law, PLLC

The North American Free Trade Agreement ("NAFTA") has been in effect since January 1, 1994, and more than two decades later, on May 18, 2017, the United States Trade Representative ("Trade Representative"), Robert Lighthizer, notified Congress of the United States' intention to renegotiate NAFTA. The United States commenced renegotiations with Canada and Mexico on August 16, 2017. On August 27, 2018, a preliminary trade agreement was announced between Mexico and the United States. Moreover, on August 31, 2018, the Trump Administration formally notified Congress of its intention to enter into a trade agreement with Mexico, and Canada, if it was willing, which commenced a 90-day deadline to rework the trade deal. The November 30, 2018 deadline was set to ensure that the Mexican government signed the trade agreement before President Enrique Peña Nieto leaves office on November 30th. In accordance with the Trade Promotion Authority ("TPA") or the fast-track authority, the Trump Administration needed to submit the "revised text" to Congress 60 days before Congress could ratify it bringing the Administration's deadline to October 1. At times it seemed that Canada was not going to reach an agreement with the United States and consequently, only a bilateral trade agreement between the United States and Mexico would be reached. But on September 30th, Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland announced that "Canada and the United States reached an agreement, alongside Mexico, on a new, modernized trade agreement for the 21st Century: the United States-Mexico-Canada Agreement (USMCA)."1 The USMCA will replace the North American Free Trade Agreement and is not expected to enter into force until late 2019 or early 2020.

The Administration published the text of the USMCA on September 30th and now the agreement can be signed by outgoing-Mexican President Peña Nieto before he leaves office. The trilateral trade agreement has a new name—the United States-Mexico-Canada Agreement, although the new name no longer includes "free" or "trade agreement," the USMCA continues to avoid tariffs. In all, the USMCA consists of 34 chapters, 3 schedules, 18 annexes, and 12 side letters. The USMCA addresses a wide range of areas that will regulate the $1.2 trillion in annual trade among the three countries. Below are brief summaries of selected provisions found in the USMCA.2

Automotive and Rules of Origin

New automotive industry rules of origin will apply, 75% of auto content must come from North America, from a current 62.5%, and 40-45% must be made by workers earning at least $16 per hour. At least 70% of steel and aluminum content must come from North America. There is also possible Section 232 tariffs exclusion for the automotive industry. The United States is currently considering whether it will restrict imports of automobiles and automotive parts from Mexico and Canada. However, the United States has agreed to exclude...

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