NAFTA Is Dead, Long Live NAFTA

On September 30, 2018, the US, Mexico and Canada announced the successful conclusion of talks to replace the North American Free Trade Agreement (NAFTA). The US-Mexico-Canada Agreement (USMCA) contains a number of chapters not included in the original deal, including sections on digital commerce, currency policies and state-owned enterprises (SOEs). Other standard chapters - such as Intellectual Property, Rules of Origin, and Sanitary and Phytosanitary (SPS) Measures - have also been updated to reflect the 21st century economy. Companies operating in North America must now closely examine the deal to determine how it could impact their supply chains. (For an actual/prospective timeline for Congressional consideration of the USMCA, click here).

What Is New?

The Office of the US Trade Representative (USTR), which led negotiations on behalf of the Trump Administration, has characterized the new agreement as a "plus-ed up" version of the Trans-Pacific Partnership, adding this deal will serve as the "model" for future trade agreements negotiated by the US.

Companies operating in North America must closely examine USMCA to ensure they understand the impact of its changes on trade across the continent, which could range from domestic content requirements to legal recourses available for disputes to customs procedures and much more. These changes include the following:

Digital Commerce. USMCA contains provisions on digital trade, an issue not previously discussed in NAFTA. One provision would ban data localization requirements, or laws that regulate the collection, storage and international transmission of data collected within the country. Notably, USMCA does not exempt financial services firms from this prohibition. More in line with American policy, USMCA also contains language that would not hold internet companies liable for content posted from third parties. Another provision would establish that companies wanting to do e-business need not have a physical presence in a jurisdiction to operate there. Rules of Origin. USMCA tightens rules of origin for a variety of "steel intensive goods," including - but not limited to - autos and auto parts. USMCA requires a 75% domestic content for auto inputs manufactured in North America in order for automobiles to qualify for preferential, duty-free treatment. This represents an increase from the current 62.5% requirement in NAFTA. Other, non-automotive steel goods would also be subject to more stringent...