Companies with global operations were relieved to hear last week that U.S. and Canadian trade reps struck a deal to keep the North American Free Trade Agreement largely intact.
When the new NAFTA deal — now renamed the United States-Mexico-Canada Trade Agreement — was announced, reports mostly centered on changes affecting the auto manufacturing and dairy industries. But details of the USMCA’s provisions have trickled out over the past week to give international trade and business attorneys a clearer idea of how, if at all, their clients in other industries might be affected. Those experts say that while there are tweaks to note, such as a new sunset clause and stronger intellectual property protections, the USMCA is mostly NAFTA with a new name and some Trans Pacific Partnership elements included.
With the 24-year-old NAFTA framework in flux over the past several months, global companies weren’t sure whether the new steel and aluminum tariffs would be eliminated or tariffs on other goods might get tacked on. Businesses also stood to lose some of NAFTA’s perks, including a convenient worker visa program, which still remain in the USMCA.
“I think what this outcome really does is eliminate some uncertainty,” said Tyler Rauert, an international business attorney and partner at Messner Reeves in Denver who represents both foreign and domestic clients. The NAFTA renegotiation, he added, “unsettled a lot of [clients’] supply chains and investment decisions because we just couldn’t depend on NAFTA remaining in place, at least not the way it had been.”
The USMCA will raise the percentage of a vehicle’s parts that must come from a NAFTA nation in order for that vehicle to avoid a tariff, and it will set certain wage requirements for the workers producing those parts. U.S. dairy farmers will have an easier time exporting to Canada.
But the U.S. pharmaceutical and entertainment industries might marginally benefit from stronger IP protections. Biologic drugs will get 10-year exclusivity in Canada and Mexico, up from eight and five, respectively. Copyright in Canada will be brought in line with the U.S. to last 70 years, not 50 years, after the author’s death.
But what notably hasn’t changed in the negotiations is that the steel and aluminum tariffs the Trump administration placed on Canada and Mexico in March remain in place for now. Also, NAFTA’s TN visa program that encouraged mobility of workers among its three nations appears to be untouched.
Marcy Stras, an international trade attorney and member at Boulder firm Caplan & Earnest, said the fact that USMCA isn’t much more than a mild update from NAFTA is a good thing for her clients.
“U.S. businesses are relieved that the NAFTA has been renegotiated and updated, and it allows them to continue their businesses as before, pretty much, with a couple of industries having stronger provisions,” Stras said. “The final agreement looks like it’s just an updated NAFTA with provisions of the TPP thrown in.” The TPP, which the U.S. withdrew from in January 2017, also proposed extended biologics and copyright protections.
“We’ve [still] got the TN visa, which, thank God that’s still in there,” Stras said.
Another notable addition that the Trump administration insisted upon was a 16-year sunset clause for the agreement, which will also require the nations to review the deal every six years. Stras said this could be a plus, adding that NAFTA was nearly 25 years old and suffered from not having been updated for modern commerce and the internet in that time.
Rauert said he “doesn’t love” the sunset clause “because it injects yet more political uncertainty into the agreement.”
Leaders from the three countries are set to sign the USMCA deal by the end of next month, but their respective legislatures must all ratify it. Congress might not vote on the USMCA until next year, though it’s possible a vote could occur in the so-called lame duck session between the November elections and the next Congress. Canadian lawmakers have panned the USMCA, particularly its concessions on dairy and IP. Rauert said those criticisms aren’t likely to derail the deal, seeing that Canada would nonetheless stand to lose too much by not approving it.
Stras said there’s little concern the USMCA won’t ultimately become official. “When the dust settles, I think all three countries will ratify it.”
Rauert said that for all the consternation that a renegotiated NAFTA brought international companies, the new deal turned out to be “kind of a nothingburger.”
“If you take a step back, this was really a lot of … show, and not a whole lot changed,” he added.
“The jury is still out” on which industries besides U.S. dairy will significantly benefit or suffer from the USMCA, Stras said. “There are certain provisions that look promising, but most don’t kick in until 2020, so we don’t know who are going to be the winners and losers here.” She added that closing the book on NAFTA for now allows the Trump administration to set its sights on China — a far more imposing player in trade negotiations.
— Doug Chartier