On December 10, the Trump administration announced substantial updates to and completion of the U.S.-Mexico-Canada Agreement (USMCA), following months of meeting with House Democrats and working towards a finalized text to present to Congress. House Democrats have lauded the new USMCA, viewing it as the modern standard for U.S. trade agreements, with plans to vote on the deal before the end of the year; however, Republicans have been critical of the changes, with Senate Majority Leader Mitch McConnell (R-KY) admitting the USMCA was “not as good as [he]’d hoped for.” Mr. McConnell stated he would not bring the new agreement to the Senate floor until 2020, following the likely impeachment trial of President Trump. We note that the USTR released the latest version of the USMCA text on Friday, December 13; however, it is possible that there will be additional changes before the agreement is implemented.
Although the majority of the new trade deal mirrors NAFTA, important changes have been adopted that affect a multitude of industries, including the pharmaceutical, labor, environmental, and IP sectors.
- Changes Affecting Labor. New language was added to the USMCA intended to protect labor unions, requiring Mexico to alter its laws to allow workers to easily unionize. This will theoretically create a rise in wages in Mexico, discouraging companies from moving manufacturing to the country. In addition, the USMCA created a formal committee that will track labor issues in Mexico and, if necessary, penalize accordingly.
- Environmental Protections. There are several provisions advancing protections for the environment included in the new USMCA, such as conservation efforts towards marine life, halting illegal fishing and overfishing, efforts to reduce pollution through the Border Water Infrastructure Program, and only allowing legally harvested goods to be imported from Mexico.
- Drug Restrictions on Pharmaceutical Companies. The USMCA plans to create tighter limitations on drug companies, completely eliminating the current twelve-year exclusivity period on expensive drugs, known as biologics, in both Mexico and Canada. Additionally, language regarding patent protections for these same companies was also thrown out entirely.
- Currency Manipulation Prevention. Under the USMCA, Canada and Mexico have agreed to “market-determined exchange rates.” The two countries, along with the United States, will receive and monitor updates relating to government manipulation in regards to currency. This provision’s purpose is primarily to demonstrate to other countries, specifically China, the U.S.’s intent to prevent methods of intervention in global currency markets.
- Auto Industry Changes. Provisions under the USCMA will now require 75% (instead of the current 62.5%) of a vehicle’s parts to be manufactured in the U.S., Canada, or Mexico, in order to avoid tariffs. The USMCA also calls for automobile parts to be made by workers earning wages at a minimum of $16/hour, with the U.S. seeking to increase auto production within its borders rather than in Mexico, which typically pays its workers less and provides companies with reduced manufacturing costs.
- Updates to Intellectual Property. A new section on IP protections for trademarks and patents for various industries has been included in the new USMCA. This comes as no surprise, as NAFTA was placed into law in 1994 and had not been updated to include intellectual property prior to now.
- Removal of Option to Challenge Government Decisions. NAFTA’s Chapter 11, which covered litigation over treatment of foreign investment, has been removed completely for Canada and almost entirely for Mexico. Chapter 11’s purpose was to allow entities to formally resolve disputes with the United States, Canada, or Mexico. However, provisions from Chapter 11 will stay intact for some industry sectors, including energy and oil and gas, to challenge the Mexican government if it decides to alter any rules in the future.
- NAFTA Chapter 19 Dispute Resolution Procedures for Antidumping and Countervailing Duty Matters Stay Intact. Despite strong efforts by the U.S. to eliminate it, NAFTA’s Chapter 19 will stay in place, thanks to a strong push from Canadian Prime Minister Justin Trudeau. Chapter 19 allows the U.S., Canada, and Mexico to challenge each other through a representative panel in regards to any disputes relating to antidumping and countervailing duties, which Canada has taken advantage of in the past in regards to the United States’ restrictions on lumber.
- Other Advantages. A multitude of additional provisions addressing issues in a number of industries, specifically the agricultural sector, have been included in the new USMCA, such as a rule allowing U.S. farmers to sell more “Class 7” dairy products, eggs, and turkeys to Canada.
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