USMCA Takes Effect On July 1

Michael Best Strategies

The United States Mexico Canada Agreement (USMCA) goes into force in less than a week and is adding to an already challenging supply chain environment, as companies continue to deal with disruptions from the coronavirus pandemic.

The renewed treaty between the United States, Mexico, and Canada adapts the disciplines of NAFTA to the current needs of the 21st century economy. In fact, it utilizes concepts that were also utilized by the previous administration in negotiating the Trans Pacific Partnership Agreement. NAFTA was drafted under the Clinton Administration in the late 1990s and liberalized trade commitments and provided new rules for opening up North American markets that gradually eliminated nearly all tariff as well as many non-tariff barriers.

It is hoped that the implementation starting July 1 will increase the confidence of companies and investors sorely needed during the COVID-19 Pandemic.

The treaty itself includes 34 chapters and 12 side letters and keeps a lot of NAFTA’s free trade measures as well as new provisions that allow greater participation of small- to medium-sized enterprises (SME). The USMCA also provides real change to auto rules of origin, dispute settlement provisions, government procurement, investment, and intellectual property rights protection while bolstering employee protections and measures to combat corruption.

 





 

Critical new provision protecting workers will establish new labor standards including a process for inspections of factories and facilities to confirm they are meeting their obligations. This is important to ensure fair treatment of the people who make trade and economic prosperity happen.

The treaty also includes commitments to administer customs procedures in ways that will facilitate trade or the transit of goods while supporting compliance with domestic laws and regulations. And it retained a fair dispute settlement mechanism and a new way to revise the treaty.

Other key provisions include provisions encouraging:

  • Increased competition in the telecommunications sector;
  • Greater development of energy resources;
  • Greater protection of intellectual property;
  • Increased incentives for digital commerce;
  • Improved trade of financial services;

 





 

It also included new rules that solved trade problems that had arisen with the old NAFTA rules:

  • more stringent rules of origin for goods, raising the amount of content that must be made or sourced in North America in order to achieve zero-tariff levels for some items;
  • reinforcement of protections in movement of data, free flow of information, and free access to public data;
  • patent protection for new pharma products, chemical processes, business technologies, and computer software;
  • new copyrights protection for artistic and literary works;
  • dispute settlement mechanisms for labor and environmental conflicts;
  • recognition of the SME sector as a reinforcement for the global value chains; and
  • anticorruption practices to prevent corruption with established obligations for public and private sector.

The North American commercial environment has changed dramatically since NAFTA was enacted twenty-five years ago. The new agreement addresses many of the deficiencies and mistakes in NAFTA and will bring the U.S., Mexico, and Canada together as a global competitive force. And it also may serve as a model for other nations as they revise and modernize their trade agreements.

To view the full text of the agreement between the United States, Mexico and Canada signed on November 30, 2018, click here.

  • To view the main USMCA webpage, click here.

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