USMCA Free Trade Agreement

On September 30, the Trump administration announced a deal with Canada to complete a trilateral update of the North American Free Trade Agreement (NAFTA).  The new agreement is called the United States-Mexico-Canada Agreement (USMCA).  The announcement followed a month of hectic negotiations designed to bring Canada into a bilateral trade pact that had been announced on August 31. The Administration has been pushing for a deal so it could argue it is complying with the Trade Promotion Authority (TPA) timetable and still sign the deal before December 1. (Under TPA, the administration must notify Congress at least 90 days before signing the deal.  Moreover, the Administration must release the text of the agreement no later than 60 days before it signs the deal.) Because the Administration wanted to sign the deal before the current Mexican President Enrique Peña Nieto leaves office on November 30, the original deal had to be notified in late August and the text had to be released when it did.

The new USMCA is not yet in effect as Congress must approve the USMCA first.   While Congress could in theory vote on the agreement in December in a “lame duck” session, the vote will likely occur sometime in 2019.

The new USMCA is a comprehensive agreement that largely keeps much of the original NAFTA while pulling in a number of new provisions from the proposed Trans Pacific Partnership Agreement that was negotiated among 12 parties, including the United States, but withdrawn at the beginning of the Trump Administration.  The TPP provisions in areas such as digital trade, regulatory reform and intellectual property are positive provisions that update the NAFTA, which was negotiated more than 23 years ago.

The agreement terms will not come into effect until action by the legislatures of all three countries.  In theory, the TPA timetable suggests that the US Congress will not be able to consider the deal until late in the first quarter of 2019 (at the earliest). This delay is because the U.S. International Trade Commission has up to 105 days after the deal is signed to analyze the agreement. However, the Administration may try to accelerate or even abandon the TPA timetable in an effort to secure passage of the agreement faster than that.

There is not much direct impact from a Canada/Mexico point of view, but this is the first time the dietary supplement sector has been specifically referenced in a U.S. trade agreement.  Hopefully it will be a template for future FTAs with countries where there are more restrictive regimes on direct selling.

Shortly after announcing the USMCA, the Administration publicly released the text of the deal, which can be found here. The text is divided into more than 30 chapters (on such diverse topics as trade remedies, rules of origin, customs, government procurement, and market access) as well as about half a dozen annexes.

Other points:

  • Inclusion of commitments from the Trade Facilitation Agreement into the Customs text; and
  • Inclusion of a 16-year term for the agreement, reviewable and renewable after 6 years.
  • On the rules of origin issues for 2106.90 (supplements manufacturing), we did get the increased de minimis from 7% to 10% making it easier to use some imports (from outside USMCA countries) while maintaining USMCA benefits.   There is also modification to the Surface Active Agents / 3402.20.
  • Regard members engaged in the ‘direct selling model,’ there is new language in the Cross-Border Trade in Services chapter, Article 15.10, footnote 7 to provision 1.


USMCA Impact on Trade in Natural Products

While industry groups, including NPA, are continuing to analyze the massive new agreement, there are a number of provisions that provide specific new opportunities and challenges for trade in natural products.

Whey Powder: Chapter 4 in the new USMCA included provisions on dairy ingredients like whey. Under the first year of the agreement, the quota for US whey powder will increase to 689 MT; in year two, 1,378; in year three, 2,068; the fourth 2,757; then 3,446 in the fifth year and 4,135 MT in the sixth year. Import quotas on certain US whey powders will be eliminated by year 10.

Dairy and Products of Natural Milk Constituents:  Under the first year of the agreement, the quota for imports of US natural milk constituents will increase to 460 MT; in year two, 920; in year three, 1,380; the fourth 1,840; then 2,300 in the fifth year and 2,760 MT in the sixth year.

De Minimis for customs duties purposes:  the agreement includes a provision that establishes an increased de minimis exemption from customs duties among the three countries ($100 for Mexico; $150 for Canada and $800 for US).   For example, as enforced by US customs, up to $800 per day to one customer can enter duty free (and similarly for US export to Mexico at $100 and Canada at $150) can be used for e-commerce fulfillment.

US food industry sees improved access: US dairy, poultry and pork industries see incremental improved access for exports to Canada with expansion of quotas and reduced tariffs.

US cosmetics industry pleased with regulatory annex:  The USMCA includes a high standard Cosmetics Annex, which commits all three countries to good regulatory practices for the sector. The US-Canada Appendix to the Annex uniquely recognizes the importance of regulatory alignment for OTC-like products and will have a significant commercial benefit for cosmetics trade.

Rules of origin:  Outside the auto sector, the USMCA includes positive changes to rules of origin making them in some cases more flexible. On the rules of origin issues for 2106.90 (supplements manufacturing), there is increased de minimis from 7% to 10% making it easier to use some imports (from outside USMCA countries) while maintaining USMCA benefits.

Intellectual Property:  The USMCA strengthens intellectual property protections and is viewed as positive by the US innovative sectors.  A new intellectual property chapter largely resembles the provisions in the Trans-Pacific Partnership trade agreement that the U.S. abandoned in early 2016. The new provisions strengthen key copyright and patent protections, including giving biologic drugs ten years of data exclusivity protection (Canada’s domestic law currently only protects biologics for eight years), and lengthening the protection on copyright to the term of the author’s life plus 70 years (Canada’s copyright law is currently only the life of the author plus 50 years). The Chapter also strengthens provisions for protecting trademarks, such as well-known marks.  On trade secrets, the strengthened provisions are based on the U.S.-passed Defend Trade Secrets Act on civil and criminal procedures to tackle trade secret theft. The agreement also strengthens requirements for government officials to protect confidential business information collected during regulatory practices.

Click here for NPA’s presentation on the Classification of Products Mexico 2018.

Click here for the Notice by the International Trade Commission.