“USMCA” all over again: further revisions to the new NAFTA
Once again, in the kind of eleventh hour negotiations that have characterized the process of updating NAFTA, Canada, the United States, and Mexico have reached an agreement on amendments to their trilateral agreement, officially known as CUSMA in Canada but popularly referred to as USMCA following the American acronym (which lists the United States first). Our analysis of the main agreement, made when it was signed in the fall of 2018, is available here.
While the final text and terms of the amendments have not yet been released, both the Government of Canada and the United States House of Representatives Committee on Ways & Means (the “Committee”) have posted summaries of the outcomes. These include extensive changes to the previous USMCA, and NAFTA, provisions, most notably with reference to:
- Pharmaceuticals and biologics: fewer protection obligations
The amendments remove the obligation of the parties to provide 10 years of data protection (market exclusivity) for biologics. They also remove a provision requiring parties make available patents for new uses, new methods or new processes of using a known product.
As a result, Canada will no longer be required to amend its domestic regime(s) to comply with the agreement.
- Ending panel blocking
No panel had been composed under the NAFTA Chapter 20 state-to-state dispute resolution provision since 2000, when the United States, as the respondent in a dispute with Mexico over sugar barriers, blocked the selection of a panel owing (in part) to the lapse of the roster. As any individual not on the roster was subject to pre-emptory challenge, the United States was able to prevent any panellist from being chosen.
This “roster problem” did not appear to be fixed in Chapter 31 of USMCA. Article 31.8 provides that the parties would establish a roster by the date of entry into force of the agreement. The roster would remain in effect for a minimum of three years or until the parties constitute a new roster. Under this wording, parties may well be left with dwindling and lapsed rosters if they are unable to agree on new ones (as the NAFTA experience suggests is likely to be the case).
Canada has confirmed that changes have been made to ensure that a roster of potential panelists is created, whereas the Committee’s summary indicates that the amendments remove “language allowing a responding party to block the formation of a dispute settlement panel.” Whether this finally solves the “roster problem” will need to be determined once the amendments themselves are released.
- Stronger labour protections
The amendments provide the parties with increased flexibility to pursue labour violations through the (newly amended) Chapter 31 dispute resolution process. They also remove the requirement that violations relating to violence against workers be committed “through a sustained and recurring course of action or inaction” in order to be actionable. Most significantly, the burden of proof has been reversed such that such violations are presumed to affect trade or investment between the parties, unless otherwise demonstrated.
The Committee has characterized these amendments as establishing a new, labour-specific enforcement mechanism that requires “verification of compliance by independent labour experts.” This will include "facility-specific, rapid-response mechanism" for enforcement.
Mexico’s Undersecretary for North America, Jesús Seade has confirmed that the labour enforcement provisions do not contemplate the employment of inspectors (which had been a key point of contention between the United States and Mexico) but rather the establishment of panels, perhaps under the amended Chapter 31 provisions.
- Automotive rules of origin: steel
USMCA added the requirement that 70% of the steel purchased by vehicle assemblers originate in one or more of the parties in order for the assembled vehicle to qualify as having originated in a party. The United States pushed for a more restrictive version of the requirement that would mandate that the metals be “melted and poured” in one of the parties in order to qualify as originating from them. The amendments instead clarify the requirement by stipulating that all steel manufacturing processes occur in one or more of the parties, except for metallurgical processes involving the refinement of steel additives.
In addition to these changes, there are a number of areas where the parties agreed not to make any amendments. Contrary to earlier rumours, there do not appear to have been any further changes to the main agreement provisions regarding access to the Canadian dairy market. There was also no change to requirement that all parties enact protections substantively identical to section 230 of the United States’ Communications Decency Act, which shelters tech platforms (such as Facebook and Twitter) from legal liability for content posted by users of their sites (even if that content is false).
We will be posting more detailed, in-depth analyses of these changes and their effects once the text of the amendments is released.
We note that the timeline for ratification and implementation remains uncertain owing to the domestic political situation in the United States. The White House has suggested it would like to see the amended agreement ratified by year end, whereas the Senate majority leader has suggested that this will not occur until January 2020, at earliest, and following any impeachment trial.
Canada has not announced a timeline for ratification but Deputy Prime Minister Chrystia Freeland has expressed a wish that Parliament move to ratify the amended agreement as soon as possible. As the Liberal Party of Canada is governing in a minority parliament, the government will require support from one or more of the opposition parties.
Mexico was the only party to ratify the original, pre-amendment main agreement, which it did in June 2019. Seade has suggested that the amended T-MEC (the preferred Mexican acronym) will be ratified in the coming weeks.