What USTR Just Told Congress about the USMCA

February 8, 2019 10:45 AM
Photo Credit: 
REUTERS/Leah Millis

Two months after signing the United States–Mexico–Canada Trade Agreement (USMCA) to replace the 1994 North American Free Trade Agreement (NAFTA), the Trump administration has submitted to Congress a list of the changes in US law that are needed to comply with its terms. As expected, the January 29 notification reinforced the perception that what President Trump called "the largest, most significant modern and balanced trade agreement in history" requires very few changes in US law because much of the new accord replicates or closely parallels NAFTA and other recent US trade pacts. But Congress usually insists on additional changes in trade pacts and US law before approving implementing legislation. Some members already are pressing for new enforcement authorities to ensure that the labor, environment, and currency chapters are faithfully implemented. So passage of USMCA implementing legislation probably won't come easily or quickly.

The US Trade Representative (USTR) notification, due 60 days after the pact was signed on November 30, 2018, is one of the requirements set by Congress to expedite implementing legislation for US trade agreements. The most important changes in the submission involve increased restrictions on US auto imports and decreased US barriers to farm goods shipped from Canada.

Here are six key takeaways from the USTR notification on the USMCA:

First, the notification itself is only six pages. That is meant to tell Congress that the deal is not about US concessions but rather new commitments by Canada and Mexico to make North American trade more "balanced." Of course, many of those obligations are not new but rather echo (and in some instances augment) those contained in the slightly revised Trans-Pacific Partnership Agreement that Canada and Mexico already implemented on December 30, 2018.

Second, the notification highlights key areas where the USMCA largely replicates NAFTA and where implementing legislation does not require substantive changes in US law:

  • Binational review in lieu of appeals to national courts of final decisions to impose antidumping/countervailing duties against dumped or subsidized imports that harm domestic industry (Articles 10.8-10.18 and Annexes 10-B.1 through 10-B.5).
  • Exclusion of imports from Mexico and Canada when the United States imposes temporary safeguard measures when US imports cause or threaten serious injury to domestic industry (Article 10.2).
  • Temporary entry for business persons to conduct trade and investment in each market, subject to national immigration laws and visa policies (Annex 16-A).
  • Waivers for Mexico from discriminatory Buy America requirements under US government procurement laws; Canada no longer is accorded this waiver under the USMCA (Chapter 13).
  • Prohibition of duty drawback (the rebate on export of duties paid on imported components in the product), except for minor changes for some sugar products (Article 2.5 and Annex 3-B).
  • US-Canada energy regulatory measures (US-Canada letters of November 30, 2018, which are integral parts of the USMCA).
  • Exceptions for Canadian support for cultural industries such as publications, films, music, and radio/TV/other broadcasting (Article 32.6).
  • Comprehensive ("yarn-forward") domestic content requirements for textiles and apparel; the pact also adds new input requirements and revised tariff preference levels (Chapter 6).

Third, almost one-third of the notification covers required changes to rules of origin for automotive products and enforcement of the more detailed auto content requirements. This will add a substantial compliance burden on domestic producers and importers. The pact also updates origin rules for "optical fiber and for certain steel, glass, titanium, and chemical products."

Fourth, implementing legislation will need to authorize new US tariff cuts and tariff-rate quotas for farm imports from Canada (e.g., dairy, sugar, peanuts, and cotton) not previously subject to NAFTA reforms. Revisions to US law also will need to exempt farm goods from Canada and Mexico from special agricultural safeguards, provided those imports qualify for preferential treatment under the USMCA; farm goods subject to most-favored-nation treatment are not exempt (Article 3.9).

Fifth, no statutory changes were deemed necessary to comply with USMCA obligations in Chapter 14 on investment, the revised investor-state dispute settlement procedures that will apply only to US-Mexico disputes after a short transition period, or the new currency provisions in Chapter 33 (which draw heavily on recently enacted US law).

Sixth, no changes are required for the express shipment provisions that expedite customs clearance, including the de minimis thresholds under which low-value shipments can clear customs with simplified procedures and no taxes or tariffs (Article 7.8). But USTR hinted it might ask Congress to lower the US de minimis threshold to a level comparable to that applied by Canada and Mexico. As Gary Clyde Hufbauer explains, changing US law in this area would be a bad idea, costing US consumers and businesses alike, so USMCA implementing legislation should maintain current US de minimis thresholds.

In sum, the USTR notification suggests that implementing legislation for the USMCA should be relatively simple and straightforward. But trade deals always seem to provoke a frenzy of legislative action, and the rewrite of NAFTA will likely be no exception. Members of Congress, particularly House Democrats, already are compiling a long list of desired changes to the trade pact and its implementing legislation covering USMCA chapters on labor, environment, and currency among others. The bill that eventually emerges from Congress is likely to be longer and more contentious than the version anticipated by USTR lawyers.