After months of inaction regarding the United States-Mexico-Canada Agreement (USMCA) — the proposed replacement for the North American Free Trade Agreement (NAFTA) — the pact cleared major hurdles on December 10, with the official text of the revisions published December 11, and appears headed toward ratification. The US House of Representatives on December 19 approved USMCA by a vote of 385 to 41; the Senate is not expected to act until early next year.
Note: The agreement is referred to differently by each signatory. In the United States, it is called USMCA; in Canada, it is officially known as the Canada–United States–Mexico Agreement (CUSMA) in English (though generally referred to as USMCA in English-language Canadian media) and the Accord Canada–États-Unis–Mexique (ACEUM) in French; and in Mexico, it is called the Tratado entre México, Estados Unidos y Canadá (T-MEC). This Insight will use USMCA.
Now that all three parties have agreed on amendments to the initial agreement, USMCA is expected to be on its way to taking effect. Businesses should start planning for the transition from NAFTA to USMCA in the expectation that ratification occurs in all three countries.
While the preferential tariff provisions in NAFTA remain largely intact, the significant changes to non-tariff measures in the areas noted above 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 need to examine their supply chain and operations in light of these new provisions to evaluate whether they meet the new requirements and what the companies may need to do to be in compliance.
Until ratification occurs, businesses may continue their operations under the existing framework.