New North American Trade Agreement Will Enter Into Force July 1, USTR Says

Trade Update • April 25, 2020

U.S. Trade Representative Robert Lighthizer announced on Friday the administration had finally notified Congress that the United States-Mexico-Canada Agreement, which replaces the 26-year-old North American Free Trade Agreement, will enter into force on July 1. With the notification to Congress, the U.S. became the third country to inform the other parties that it had completed its domestic procedures to implement the agreement, the final step necessary for the USMCA to take effect. “The crisis and recovery from the COVID-19 pandemic demonstrates that now, more than ever, the United States should strive to increase manufacturing capacity and investment in North America. The USMCA’s entry into force is a landmark achievement in that effort,” Lighthizer said in a statement.

Implementation Concerns

The announcement comes despite recent calls by automakers, parts suppliers and industry trade groups for implementation to be delayed. A customs advisory group had recommended earlier this month that the administration “should delay USMCA’s entry into force until no earlier than January 1, 2021.”

Some lawmakers have also urged the Trump administration to allow more time for the deal’s implementation given that businesses don’t yet have the detailed regulatory information they need to adjust to the USMCA’s more stringent origin rules.

The USMCA requires 75% of auto content for passenger vehicles and light trucks be made in North America, compared with NAFTA’s 62.5%. It also establishes a labour content rule requiring 40-45% of auto content to be made by workers earning at least US$16 an hour.

“Entry into force should only happen after all necessary regulations are in place and our industries have had an opportunity to understand and implement them effectively,” members of the Senate Finance Committee wrote in a letter to USTR Lighthizer.

Deadline Also a Challenge for Mexico and Canada

Although Mexico and Canada have already certified they have completed the internal requirements necessary for the USMCA to take effect, many industry leaders and trade experts doubt the three countries can achieve a comprehensive implementation of the deal in such a short time. Even before the COVID-19 pandemic altered the equation, Trump’s summer target date was described by some as being “historically ambitious.”

Automakers to Get Extensions

The three countries reportedly plan to provide a certain amount of flexibility for automakers, which currently are either dealing with shutdowns or shifting production to manufacture urgently needed medical equipment.

The Trump administration recently indicated it will extend the July 1 deadline for automakers, allowing them to submit plans laying out a delayed process for complying with new USMCA rules by no later than August 31.

The USTR is expected to offer its draft uniform regulations setting out the detailed requirements for automakers to follow by the end of May.