On Sunday night, the United States and Canada reached a last-minute deal regarding the North American Free Trade Agreement, keeping the agreement alive, but rebranding it the "United States–Mexico–Canada Agreement" or "USMCA."
Below is a summary of some of the principal provisions of the deal:
- Dispute Resolution: The deal will retain Chapter 19 dispute settlement has been retained. The U.S. had wanted to remove the chapter entirely, whereas Canada insisted the provision be part of any deal reached.
- Dairy: The U.S. will be permitted to increase its imports of dairy exports into Canada. Canadian protections for its dairy industry had been a long-standing sore spot for President Trump.
- Enhanced Intellectual Property Protections for Certain Pharmaceuticals: Canada has agreed to extend patent protection for certain types of pharmaceuticals known as biologics, from eight to ten years, despite opposition from generic manufacturers.
- De Minimis: Canada agreed to raise the threshold for applying duties to cross-border purchases – a key demand from the U.S. Canada's new de minimis threshold will be CAD 150 (USD 117) for the applicability of customs duties and CAD 40 for the applicability of sales taxes.
- Investor-State Dispute Settlement (ISDS): Chapter 11 dispute settlement mechanisms will be gradually phased out between the U.S. and Canada but remain in place between the U.S. and Mexico, to varying degrees, depending on the industry (e.g., protections are stronger for the energy and telecom sectors), although companies will first need to utilize domestic proceedings before triggering ISDS. Chapter 11 provides companies and investors in one NAFTA country with a special arbitration process for resolving investment disputes with a government of another NAFTA country.
- Autos: The USMCA will require 75% of the regional value content of a vehicle, per the net cost method, to be manufactured in North America in order to qualify for duty-free treatment between the U.S., Canada, and Mexico, up from the current 62.5%. Furthermore, at least two-fifths of an originating vehicle will need to be built by workers earning at least USD16/hour.
- Tariffs: Steel and aluminum tariffs will remain in place on Canada for the time being, pending further negotiations.
Lawmakers have said they do not expect Congress to vote on the deal until early next year.
Please contact Venable's International Trade Group if you would like further information about the USMCA as a whole or any particular chapter and its potential impact on your business operations.