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United States-Mexico-Canada Agreement amendments

United States-Mexico-Canada agreement

On Dec. 10, 2019, Canada, the United States of America, and Mexico agreed to substantial amendments to the United States-Mexico-Canada Agreement (USMCA), the trade agreement that is slated to replace the long-standing North American Free Trade Agreement (NAFTA). Canadian Deputy Prime Minister (former Foreign Affairs Minister) Cyrstia Freeland, U.S. Trade Representative Robert Lighthizer, and Mexico’s chief negotiator, Jesus Seade, met Tuesday morning in Mexico City to sign the revised trade agreement.

The amendments update elements of the USMCA, including the chapters relating to state-to-state dispute settlement, labour, the environment, intellectual property, and rules of origin. The USMCA was originally signed on November 30, 2018, but had not been ratified by either Canada or the United States.

A major improvement to the dispute settlement chapter is that state-to-state dispute panels will be established automatically upon request. Under NAFTA Chapter 20, the U.S. Government blocked the creation of state-to-state dispute settlement panels for decades by not agreeing to the appointment of the panellists. The amendments also create a roster of potential panellists and introduce more clarity and transparency in the procedural rules that will guide the operation of panel hearings.

Additionally, Canada and the United States separately established bilateral mechanisms with Mexico under the dispute settlement chapter relating to labour obligations. The new mechanism provides Canada and the United States with the ability to trigger facility-specific rapid-response investigations by independent panels of labour experts of concerns relating to freedom of association and collective bargaining at Mexican facilities.

The labour chapter has been updated to increase the flexibility parties have to pursue violations relating to violence against workers. The amendments also reverse the burden of proof in the labour chapter, such that a failure to comply with the labour obligations will now be presumed to affect trade or investment, unless the defending party can demonstrate to the contrary.

The environment chapter sees a new article added to recognize the three members’ existing commitments to enact multilateral environmental agreements (MEAs) to which they are a party. Canada has several MEAs that will be implemented as a result of this new article, including the Montreal Protocol on Substances that Deplete the Ozone Layer. The amendments also reverse the burden of proof for obligations arising out of the environment chapter.

The revisions to the intellectual property chapter affect the patent and pharmaceutical provisions. The changes remove the obligation to provide ten years of protection for biologics, eliminating the obligation on Canada to amend its current laws, which afford eight years of data protection. The parties have also agreed to remove a provision related to the availability of patents for new uses, methods, or processes of known products and the provision on protection for new indications of prior drugs. The amendments also include new language for obligations relating to patent-term restoration, patent linkage, and protection of small molecule drugs.

The amendments to the rules of origin affect the automotive sector. The USMCA rules of origin include a provision that requires 70% of the steel purchased by vehicle assemblers to qualify as USMCA originating. That rule now stipulates that all steel manufacturing processes must occur in one or more of the Parties, except for metallurgical processes involving the refinement of steel additives, for the purposes of meeting the 70% originating rule.

Before the new agreement enters into force, each Party must follow its domestic processes for ratification and implementation. Canada previously stated that it would ratify the USMCA at the same time as the United States. The U.S. House of Representatives is expected to vote on the Agreement before the New Year, while a U.S. Senate vote would likely take place in early 2020. Mexico, which was the only Party to ratify the prior version of the USMCA, will need to ratify again. A full summary of the changes is available on the Global Affairs Canada website and the full text of the amendments is available on the U.S. Trade Representative’s website. U.S. Trade Representative Robert Lighthizer issued a statement. Mexican Foreign Secretary and Undersecretary also released a statement on the USMCA modifications.

By Richard G. Dearden, Wendy J. Wagner and Hunter Fox, Gowling WLG

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In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at editor@firstreference.com. If you liked this post and would like to subscribe to Inside Internal Controls blog click here.

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