Canada, the United States, and Mexico have agreed to a revision of the North American Free Trade Agreement (NAFTA) that preserves tariff-free access across North American borders, puts in place some new regulatory requirements especially for the automotive sector, and otherwise makes minor tweaks to existing market access and trade rules that should have limited impacts on most companies. The new trade pact will be called the United States-Mexico-Canada Agreement or USMCA. Ratification is possible in 2019, with the agreement entering into force as early as 2020.
The long-anticipated NAFTA renegotiation preserves tariff-free access for goods and services moving across North American borders and as a result should have a minimal impact for most businesses. Although the imposition of additional tariffs is still a possibility, especially if the US Congress does not ratify the deal by mid-2019, the threat is most acute in the automotive, steel, and aluminum sectors. Businesses should review the text carefully to determine how strong an impact new provisions on government procurement, new local content requirements, new labor laws in Mexico, and other provisions will have on their operations.
USMCA may offer new opportunities or require some companies to modify supply chains and product designs. Modeling the holistic effect of these new provisions at a granular level is essential prior to making any significant changes to the product, sourcing, manufacturing, transportation, and labor structures that exist currently.