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What you need to know about the United States-Mexico-Canada Agreement

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On September 30, Canada, the United States and Mexico reached an agreement on a new, modernized trade agreement: The United States-Mexico-Canada Agreement (USMCA). The full text can be found here.

The conclusion of this negotiation speaks to the commitment of negotiators to uphold Canada’s interests and strive to strengthen relations with Canada’s largest trading partner. This modernized agreement maintains the tariff-free market access from the original NAFTA, and includes updates and new chapters to address modern-day trade challenges and opportunities.

The agreement provides key outcomes for Canadian businesses, workers and communities in areas such as labour, environment, automotive trade, dispute resolution, culture, energy, and agriculture and agri-food. Importantly, the USMCA recognizes the importance of progressive and inclusive trade, and includes language on gender and Indigenous peoples’ rights.

In the coming weeks, provincial officials will fully review the agreement and determine its scope of impact and implication for Alberta. In the meantime, we want to share some general conclusions, an initial assessment of Alberta-specific outcomes, and we encourage you to read the full document here.

General Conclusions

The trilateral structure of the NAFTA will, for the most part, be retained. Most of the market access that Canada has under the existing NAFTA will also be retained. The successful conclusion of negotiations is a signal of reduced uncertainty for investors and businesses looking to Canada as a destination for investment.

The new agreement will not come into force immediately, as it must be ratified by all three countries. This includes the need to implement legislation in Canada and the U.S. Ratification of the USMCA in the U.S., this could take until late 2019 or early 2020 to conclude. In the meantime, the NAFTA is still in effect.

Key Outcomes for Alberta – Initial Assessment

Energy

  • Canada’s market access for energy products into the U.S. is maintained. While there is no specific energy chapter in the revised USMCA, energy continues to be covered like any other good.
  • Canada had expected some energy-specific regulatory cooperation provisions to be placed in the transparency chapter. This has not happened; Canada is investigating the status of these provisions.
  • There are expected to be additional cooperative provisions, related to energy in other chapters.
  • Alberta will benefit from changes to the rules of origin for diluent, which will make cross-border movement of heavy oil less expensive and is expected to save industry upwards of $60 million per year.

Agriculture

  • Canada has made some new commitments with respect to supply managed agricultural products, including:
    • Elimination of its Class 6 and 7 grading system for milk proteins, which will allow more U.S. imports, as well as limitations on its exports of these products;
    • More market access (via changes to tariff rate quotas) to U.S.-originating supply-managed agricultural products, including dairy, poultry and eggs. The total impact of this on Alberta producers is still being determined;
    • Overall, after all the new Canadian commitments are phased in, U.S. access to the Canadian dairy market is estimated to be less than 4 per cent of domestic production.
  • The U.S. has also provided tariff rate quotas for access for Canadian-originating dairy products into the U.S., as well as sugar and sugar-containing products.
  • Canada has received an additional 9,600 metric tonnes of access for each of sugar and for sugar-containing products. This should benefit the Alberta sugar beet industry.
  • Unfortunately, Canada did not receive enhanced disciplines on U.S. meat inspections.

Binational Review Panel for Antidumping and Countervailing Duty Decisions (NAFTA Chapter 19)

  • The binational review process in the existing NAFTA Chapter 19 has been retained as a part of the USMCA. It applies only to trade between the U.S. and Canada.
  • There have been no significant changes to the original NAFTA provisions.

Intellectual Property

  • Canada has agreed to intellectual property protections, including for pharmaceutical patents that are similar to the protections in the original TPP.
  • This will include a Canadian commitment to a longer effective period of patent protection for “biologic drugs”, of 10-years. This extended patent protection for these drugs is expected to have cost implications for provincial drug plans.
  • The federal government has recognized these potential costs and committed to further discussions with provinces and territories about how to address them.
  • Canada has made commitments with regards to internet service providers and safe harbours. These commitments do not appear to go beyond current Canadian law, although further analysis will need to be completed in this area.

Government Procurement

  • In the USMCA, the procurement chapter only applies between the U.S. and Mexico.
  • Canada still retains its market access for the U.S. government procurement in the World Trade Organization (WTO) Agreement on Government Procurement (GPA).
  • Canada-Mexico government procurement will be governed by the WTO GPA and the CPTPP when it is ratified and in force.

Investment

  • Investor state dispute settlement (ISDS) in the USMCA investment chapter only applies between the U.S. and Mexico.
  • The U.S. and Mexico have agreed to a more limited form of ISDS than what existed in the NAFTA.
  • Once the CPTPP is ratified, Canada will have a comprehensive ISDS with Mexico. Canadian investors in the Mexican energy industry will be on a level playing field with U.S. investors in that sector.

Cultural Industries

  • Canada has an exemption related to cultural industries in the USMCA that is largely similar to the exemption carried through the NAFTA. Canada assumed some obligations related to re-broadcasting and home shopping networks.

Non-Market Economies

  • The USMCA contains a U.S. proposed provision related to the future of negotiating a free trade agreement (FTA) with ‘non market economies’ (e.g. China).
  • The party entering into an FTA with a non-market economy must notify the other USMCA parties and provide them with the text of the final agreement.
  • The article also provides that Entry by any Party into a free trade agreement with a non-market country, shall allow the other Parties to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement).

U.S. Section 232 Tariffs

  • Canada and the U.S. have agreed to a side letter on the U.S. imposition of Section 232 (national security) tariffs on autos. In the letter, the U.S. states that if it imposes Section 232 tariffs on autos and auto parts, it will exclude:
    • 2,600,000 passenger vehicles imported from Canada on an annual basis;
    • light trucks imported from Canada; and
    • auto parts amounting to 32.4 billion U.S. dollars in declared customs value in any calendar year.
  • Mexico has a similar side letter on autos and auto parts.
  • There does not appear to be any side letter addressing the existing U.S. tariffs on Canadian steel and aluminum.

Next Steps

The Government of Alberta will continue to work closely with the federal government and other provinces and territories to analyze the agreement and monitor the ratification process and eventual implementation.

For updates and to learn more please visit here.

If you have any questions, please email government.relations@ufa.com.