The first result of the NAFTA modernization, although merely formal, is the possible change of name of the Agreement to The United States, Mexico, Canada Agreement (“USMCA”), although it should not be discarded that any future reference continues to be to the NAFTA.
Unlike NAFTA that included 22 chapters, the USMCA now has 34 chapters, among which we can identify the following as new:
i. Recognition of the Mexican State’s Direct, Inalienable and Imprescriptible Ownership of Hydrocarbons (chapter 8);
ii. Temporary Entry of Individuals (chapter 16);
iii. Digital Trade (chapter 19);
iv. Competition Policy (chapter 21);
v. Labor (chapter 23);
vi. Environment (chapter 24),
vii. Small and Medium Enterprises (chapter 25);
viii. Competitiveness (chapter 26);
ix. Anticorruption (chapter 27); and
x. Macroeconomic Policies and Exchange Rate Matters (chapter 33).
Without a doubt, the sector that will have the most significant impact, at least for Mexico, with this modernized agreement is the automotive due to the change in the rules of origin, whose provisions will be subject to a transition period of 5 years so the regional value content is increased from the current level of 62.5% to 75%, as well as the implementation of the requirement that between 40% and 45% of the value of the vehicle comes from companies that pay a salary of at least USD$16.00 per hour to their employees, among other requirements. Also, the existence of “side letters” becomes relevant in this chapter as they foresee a quota of vehicles and auto parts that would be exempted from the application of restriction measures that could be implemented by the U.S. due to national security (the so called Section 232 measures).
Throughout the hundreds of pages of the draft agreement that shall be analyzed and approved by the Mexican and U.S. legislative branches and the Canadian Parliament, there are other provisions that are relevant and we mention below:
In rules of origin, it is foreseen that no formal certificate of origin has to exist, and that the tariff preference may be requested by any other means, including the commercial documents. Also, the tariff preference due to the origin of the merchandise may be requested and certified by the importers.
Origin verification visits will continue to be a permitted proceeding to verify the origin of the imported merchandise, including visits to the importers.
The agreement also foresees certain changes to other rules of origin different from those applied to the automotive sector that shall be analyzed on a case-by-case basis.
With respect to trade remedies (safeguards and antidumping and countervailing duties), the agreement maintains the provisions of NAFTA regarding safeguard measures, which foresee the exemption of imports originating in Mexico and Canada from any measure, when certain conditions indicated are met at the moment of the imposition of global safeguards.
The agreement also foresees that the Parties will cooperate to prevent circumvention of the safeguards and antidumping and countervailing duties, by cooperating to share information with respect to imports, exports and transit of merchandise.
Finally, the Dispute Resolution Mechanism to review final determinations, issued by investigating authorities of the three countries with respect to trade remedies, are maintained (foreseen in chapter 19 of the NAFTA).
The USMCA includes provisions that settle that if any of the Parties to the agreement negotiates a free trade agreement with a country that is considered as a non-market economy, the other Parties may terminate the agreement with such Party. These provisions are apparently directed to commercial relationships with the People’s Republic of China and Venezuela, among others.
The Agreement establishes that its initial duration is of 16 years. On the sixth anniversary of the Agreement, the Parties shall review the operation of the agreement and will determine if it is their desire to extend the duration of the agreement for an additional 16 years as of the conclusion of the review, in which case the agreement will be reviewed again on the sixth anniversary of such extension.
No doubts that the modernized agreement requires a more extensive and in-depth analysis to determine the impact that it may have in the operation of each sector and client. The attorneys at EC Legal Rubio Villegas are at you disposal in case you have any questions.
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