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The new US–Mexico–Canada Agreement

The US, Mexico and Canada have signed a new modernised trade agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA). Oscar López Velarde and Daniela Iñigo Arroyo of Ritch, Mueller, Heather & Nicolau discuss the key highlights.

After multiple rounds of negotiations, on November 30 2018, the US, Mexico and Canada signed the USMCA at the G20 summit in Argentina.

The USMCA, which still needs to be ratified by their corresponding governments, will replace the 24-year old North American Free Trade Agreement (NAFTA), and will come into force three months after the last member party completes its internal approval process.

The new agreement is comprised of 34 chapters (relative to the 22 chapters included in NAFTA), which overall aim to regulate intellectual property, anti-corruption, digital trade, financial services, labour rights, agricultural technology and biotechnology standards, textile production, environmental obligations, and non-discriminatory treatment, among others.

Key highlights of the USMCA include:

International trade 

The new agreement establishes a transparent legal and commercial framework for business planning that supports further expansion of trade and investment. At the same time, it incorporates provisions to prevent technical barriers that are unnecessary or unjustified for international trade, address malpractices and acts of corruption, and enhances the involvement of small and medium sized enterprises in international trade.

Cross-border services - The USMCA establishes commitments between member parties for the liberalisation of cross-border financial services and market access.

Furthermore, it includes an effective competition framework for cross-border service suppliers and preserves non-discriminatory treatment.

De minimis 

To facilitate greater cross-border trade, the USMCA will raise the de minimis shipment value levels from 7% to 10% of the transaction value for small package/express shipments.


Labour

A new labour chapter was included in the USMCA to enforce member parties to comply with their labour legislation, and specifically, a new annex on worker representation in collective bargaining in Mexico is included to provide for the effective recognition of the right of collective bargaining.

Rules of origin

The USMCA’s rules of origin have been updated, and specifically for the automotive sector. The new rules establish a 75% regional value content (RVC) and labour value content (LVC) between 40-45%, which will depend on the type of vehicle, but should be manufactured by employees with wages of at least $16 dollars per hour.

Certification and verification of origin 

The USMCA encourages the removal or reduction of the formalities required for the certification or verification of products, and enforces cooperation between customs authorities to detect and prevent customs offences and tax evasion.

The formalities for the verification and certification of origin are simplified. The verification of origin may now be carried out through information requests or visits to the premises of the exporter or producer, whereas the certification of origin will not need to follow a prescribed format and may be carried out through any commercial document, to the extent it includes the information of the exporter, producer and product, and complies with the corresponding rules of origin. Furthermore, importers may claim for preferential tariff treatment, based on a certification of origin completed by the exporter, producer or importer.

Energy

While the USMCA was expected to include a renewed energy chapter for potential change in the energy sector due to the incoming government of Mexico's Andrés Manuel López Obrador, such a chapter was discarded. Similar provisions to the ones established for this sector under NAFTA, which ensured Mexican sovereignty in the framework of Mexico’s Energy Reform, were preserved.

Currency

A chapter on macroeconomic policies and exchange rate matters is included in the USMCA to address unfair currency practices.

Dispute settlement mechanism

The dispute settlement mechanism established under NAFTA, which allowed member parties to present allegations against other members’ unfair trading practices, is preserved. However, the investor-state dispute settlement mechanism, which allows investors to present allegations against member-country governments for discriminatory actions, will be limited to certain sectors for Mexico (e.g. oil and gas, power generation and telecommunication services).

The USMCA will be in force for 16 years, subject to review by the member parties in the sixth year of the new agreement. Every six years, the parties shall notify their intention to automatically extend the agreement for another 16 years.


This article was written by Oscar A López Velarde and Daniela A Iñigo Arroyo of Ritch, Mueller, Heather & Nicolau, S.C.

Oscar A. López Velarde (olopezvelarde@ritch.com.mx)

Daniela A. Iñigo Arroyo (dinigo@ritch.com.mx)

Ritch, Mueller, Heather y Nicolau, S.C.

www.ritch.com.mx



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