The US Senate, by a vote of 89-10 on January 16, approved the United States-Mexico-Canada Agreement (USMCA) -- the replacement for the North American Free Trade Agreement (NAFTA). President Donald Trump has announced he will sign the agreement during the week of January 20.
For prior coverage of USMCA, see PwC Insights, USMCA takes major steps toward completion, December 13, 2019; and USMCA moves toward entry into force: Key changes and next steps, December 20, 2019.
Ratification of USMCA, especially by the United States, eliminates one of the most significant areas of uncertainty from the past three years — the possibility of complete US withdrawal from NAFTA. Not only is that threat now gone, but the replacement agreement is considered an improvement in many ways over the prior standard. Businesses will face a transition as they acquaint themselves with new policies and procedures, but a period of new certainty lies ahead for the foreseeable future with regard to North American trade.
Further, the overwhelming bipartisan vote from both the House and Senate, as well as widespread support among a variety of constituencies from big business to big labor, suggest that USMCA may enjoy a level of stability going forward that NAFTA lacked. That is, USMCA is less likely to become a target for political attacks, at least in the near term, which should give USMCA’s provisions time to come into effect and mature. Continued bipartisan support will be critical as the deal contains a sunset provision that takes effect in 16 years.
Substantively, while the preferential tariff provisions in NAFTA remain largely intact, USMCA makes significant changes to non-tariff measures in the areas of labor standards, environmental standards, intellectual property rights and enforcement, automotive, transportation/logistics, and pharmaceuticals. The modifications in these areas may impose additional costs for companies operating in all three countries due to the implementation of any changes needed to comply with the new rules and stricter standards.
Companies planning to take advantage of USMCA should act quickly to examine their supply chain and operational processes and procedures in light of these new provisions in seeking to meet the new requirements and to identify what changes may be necessary for compliance.