Insights

One Down, Two to Go: Mexico Is First Country to Ratify NAFTA Replacement

By: Maria Alonso, Associate & Queena Leung, Law Clerk
Date: 07/17/2019

On June 19, 2019, Mexico became the first country to ratify the United States-Mexico-Canada Agreement (USMCA). By a vote of 114 to 4, Mexico’s Senate approved the replacement to the North America Free Trade Agreement, making Mexico the first country to ratify to the new treaty.

In many ways a carbon copy of the old NAFTA,[1] the USMCA significantly impacts the $1.2 trillion in annual trade between the three countries, particularly in the automotive, agricultural, and services industries. The biggest changes include:

  • Country of Origin Rules: The USMCA contains a 75% originating-content requirement for most passenger vehicles and light trucks, and automotive parts (steel and aluminum) with at least a 70% requirement. Additionally, 40% to 45% of any vehicle production must be made by workers earning at least $16 per hour.  
  • Intellectual Property and Digital Trade: The USMCA contains a new 10-year protection period for biological-drug patents, and extends copyright protections to last for the author's lifetime plus an additional 70 years.
  • Agriculture: Both Canada and the United States will gain greater access to each other’s agricultural markets. The United States will be able to export more dairy, poultry, and eggs into Canada. In turn, Canada will be permitted to export additional sugar and sugar-containing products into the United States.
  • Dispute System: NAFTA's bi-national panel review for investor-state dispute resolution mechanism between the United States and Canada has been eliminated.
  • Currency: The USMCA includes a new chapter that addresses macroeconomic and exchange-rate matters with aims to reduce unfair currency practices.
  • Sunset Clause: The USMCA contains a 16-year sunset clause, with mandatory reviews every six years.

What's Next?

The USMCA has been in the works since mid-2017. Negotiations commenced on August 16, 2017, and an agreement was signed on November 30, 2018 by the leaders of each respective country.[2]

As noted above, Mexico’s Senate ratified the USMCA by an overwhelming majority. Both Canada and the United States have officially started the process for their respective ratification of the USMCA. Many obstacles to the passage of the USMCA in the United States are being removed. For example, the recent labor reform passed in April 2019 by Mexico’s Congress eliminated a major barrier for the agreement.[3]

Another critical step forward came on May 17, 2019, when the United States dropped tariffs on steel and aluminum imports from Canada and Mexico.[4] The lifting of those tariffs – and retaliatory duties imposed by Canada and Mexico – marks another milestone in the journey to the USMCA’s approval, which is expected to be fully ratified by the fall of 2019. 

For more details on the USMCA and its new provisions please refer to our previous article, The New NAFTA 2.0—The United States-Mexico-Canada Agreement. We will continue to monitor any new USMCA updates and developments. Please contact Torres Law if you have questions about the new treaty and how it will impact your business.

 

[1] The complete text of the USMCA is available at https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between (last visited July 12, 2019).

[2] Office of the United States Trade Representative, United States-Mexico-Canada Agreement, (available at https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement (last visited July 12, 2019).

[3] Press Release, Office of the United States Trade Representative, USTR Lighthizer Commends Passage of Historic Labor Reforms in Mexico, (Apr. 29, 2019) (available at https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/april/ustr-lighthizer-commends-passage).

[4] Press Release, Office of the United States Trade Representative, United States Announces Deal with Canada and Mexico to Lift Retaliatory Tariffs, (May 17, 2019) (available at https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/may/united-states-announces-deal-canada-and).

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