New United States-Mexico-Canada Agreement

Latin American Alert | December.03.2018

On November 30, 2018 the United States, Mexico, and Canada formally signed the new cross-border trading agreement known as the United States-Mexico-Canada Agreement (the "USMCA"), ending almost two years of economic uncertainty. As mentioned before in our Latin America Alert released August 29, 2018 "Mexico and U.S. are Back in Business", the USMCA is a revised version of the almost 25-year-old North America Free Trade Agreement and should unlock new opportunities in cross-border transactions between the U.S. and Mexico.

The following is a summary of some of its key terms:

  • Autos: At least 75% of an automobile's value would have to be manufactured in the United States or Mexico to qualify for lower-tariff import into the U.S., up from the NAFTA threshold of 62.5%. Also, 40-45% of auto content must be produced by workers earning an average base wage of $16 per hour.
  • Intellectual Property: A new chapter on Intellectual Property provides stronger protections for U.S. copyright holders. The deal establishes a zero-tariff level for digital content such as e-books and software, and strengthens distributor and consumer protections for digital goods.
  • Labor: The deal also creates a separate chapter for labor that requires all parties to adhere to the International Labor Organization's standards.
  • Agriculture: Tariffs on agricultural products traded between the United States and Mexico will remain at zero, and provisions were added to enhance information exchange and cooperation on agricultural biotechnology trade-related matters.
  • Disputes: The U.S. and Mexico agreed to eliminate a NAFTA provision that created an independent review process for resolving anti-dumping disputes, NAFTA's Chapter 19.
  • Investor Protections: The new agreement limits the kinds of legal challenges that investors can make against foreign governments under NAFTA. The oil and gas, infrastructure, energy generation and telecom industries are exempted from these more restrictive rules.
  • Sunset Clause: Departing from its original position, the U.S. dropped its request that NAFTA expire if it is not renegotiated every 5 years. The two countries agreed to a review of the trade pact every six years that would extend its life span for more than 16 years.

This new treaty is still pending ratification of the national legislatures of each of the three countries and once approved will replace the existing trilateral North American Free Trade Agreement. Each country has a particular legislative process, hence timing will depend on how quickly any concerns raised by each legislature are resolved.