Trade Compliance

GHY discusses changes to international trade regulations and explores cutting-edge compliance strategies.

The Road Ahead For The USMCA

Posted October 11, 2018


While businesses on both sides of the border heaved a collective sigh of relief when the U.S. and Canada eventually managed to reconcile their outstanding differences on the framework for a “modernized” North American Free Trade Agreement, the revamped trilateral pact has not yet been completely finalized – consultations will be ongoing with the private sector in all three countries until October 26 and, in the U.S., with lawmakers until November 29 – and won’t actually come into force until all three countries ratify it at some point in time next year.

Importers and exporters therefore still have a generous amount of leeway to familiarize themselves with revisions to the nearly 25-year-old trade agreement and make any necessary adjustments called for by the significant changes in the new deal as it relates to the automotive industry and new policies on a host of other issues such as labour and environmental standards, intellectual property protections and some digital trade provisions.

Once the 60 day consultation period noted above has ended and the finalized text of the agreement has been scrubbed by government lawyers, the first step in making the updated NAFTA a reality is for the three leaders to sign the deal, now known as the United States-Mexico-Canada Agreement, or USMCA. According to various reports, the official signing event is expected to take place at the end of November; possibly at the upcoming G20 summit in Buenos Aires.

After the deal has been signed, the ratification process can then get underway in accordance with the respective legislative procedures of the three countries, which are as follows.

Mexico

As was highlighted by a recent quibble over Trump’s USMCA re-branding that prompted incoming President Andrés Manuel López Obrador to call it “inadequate” and instead ask people on Twitter to pick a new name, in Mexico the trade pact is not officially viewed as an “agreement” because it is governed by the current interpretation of the “treaty clause” of the Mexican Constitution. In this respect, it should be noted that in Mexico, NAFTA is called Tratado de Libre Comercio de América del Norte (TLCAN or TLC). As a treaty, the revised trade pact can be ratified by a simple majority of the Mexican Senate.

Given that López Obrador fully endorsed stances taken in the trade negotiations undertaken by his predecessor Enrique Peña Nieto and seeing as the Juntos Haremos Historia political alliance to which his Movimiento Regeneración Nacional party belongs now holds a commanding majority in the Mexican Senate, the new tratado is expected to pass with ease. Even so, the ratification process could take several weeks or even months as it must first undergo a thorough review by the Mexican Senate Foreign Relations Commission to ensure that the trade deal’s provisions don’t contradict the Mexican Constitution or any of the country’s existing laws.

Canada

Here in Canada, any needed implementing regulations to bring Canadian law into compliance with the terms of the agreement must be debated and adopted by the House of Commons and Senate through the normal parliamentary legislative process before the Trudeau government can proceed to ratification.

Seeing as there has generally existed all-party support for the Liberal-led re-negotiation of NAFTA, the new deal is widely expected to be approved without too much opposition, but with the next federal election slated for October it’s quite likely that partisanship may slightly hinder the process.

As for timing, once the deal has been signed, the government must table legal text of the agreement in the House of Commons to provide Members of Parliament with 21 sitting days of discussion. Only after this discussion period has transpired can the government then table its implementation legislation.

With that in mind, if the new deal is signed at the end of November and tabled during the first week of December to take advantage of the time remaining before Parliament rises for winter break from mid-December until the end of January 2019 and accounting for the brief spring break the following month, the earliest date the government would be able to present implementation legislation would be February 20, 2019.

Once the legislation eventually makes it through both chambers of Parliament and is adopted, the government can then proceed with its decision to ratify the agreement, a process which will require the issuance of an Order in Council by the Cabinet authorizing the signature of an Instrument of Ratification. That means a bill implementing the USMCA could have until the end of June – when Parliament rises for the last time under the current government – to receive royal assent and be ratified in time for the election.

United States

It probably won’t surprise anyone that ratification of the new deal will face its biggest challenge in the hyper-partisan political atmosphere of the United States. With the mid-term elections just weeks away, top Republicans have stated that Congress “most definitely” won’t consider the agreement until next year, when it is possible that power could have shifted in one or even both chambers.

Although both Democrats and Republicans have supported modernizing NAFTA and, so far at least, have been generally receptive to most changes in the USMCA, it remains to be seen whether that will hold true after the election when a fresh cohort of lawmakers assumes office.

When it does eventually take up the matter, among the issues that Congress will be considering are: whether the new deal meets mandated negotiating objectives and other requirements; the impact of certain provisions that would further restrict or manage trade such as automotive rules of origin; whether it achieves Trump’s stated goal of increasing domestic manufacturing; its impact on U.S. trade liberalization; and whether it represents a template for U.S. trade agreements going forward.

Concerning the timing involved, because the USMCA doesn’t just amend the existing NAFTA text but instead replaces it with a “brand new” stand-alone trade agreement, the 2015 Trade Promotion Authority, or TPA establishes a strict process for its ratification.

60 days after the trade agreement is released, the president can sign it — so November 30, in this case. Within 60 days after signing, a description of changes to U.S. law that would be required to bring the United States into compliance with the agreement must be presented to Congress. Concurrently, within 105 days after the agreement is signed, an International Trade Commission report assessing the economic impact of the deal becomes due.

At least 30 days before submitting an implementing bill, a draft statement of administrative action must be submitted, along with a copy of the final legal text of the agreement, and environmental review, employment impact review and a plan for implementing and enforcing the agreement.

Once all that has been done, the administration can send implementing language to Congress, which initiates the process during which lawmakers have a maximum of 90 legislative days to consider and implement the trade deal. It should be noted that there is no actual deadline for when the implementing bill must be submitted – the administration generally takes this step once it feels the congressional votes needed to pass it have been secured.

Passing the legislation requires a simple majority in each chamber. In accordance with the “fast-track” TPA, Congress cannot amend the legislation, but must make a straightforward up-or-down vote on the agreement that was concluded last month “as is.” That said, it can still influence the drafting of implementation language and also has the ability to use various procedural levers to avoid voting on deals that it views unfavourably.