Summary of outcomes
On November 30, 2018, Canada, the United States, and Mexico signed an agreement to replace the North American Free Trade Agreement (NAFTA) with the Canada-United States-Mexico Agreement (CUSMA). This new agreement will reinforce the strong economic ties between the three countries and support well-paying middle-class jobs for Canadians. Subsequently, on December 10, 2019, Canada, the United States and Mexico agreed to update certain elements of CUSMA to improve the final outcome and clear the path toward ratification and implementation of the agreement in all three countries.
CUSMA will maintain the tariff-free market access from NAFTA, and includes updates and new chapters to address modern-day trade challenges and opportunities. Since negotiations began in August 2017, Canada engaged constructively and pragmatically with our NAFTA partners to achieve a good deal for Canadians.
The agreement provides key outcomes for Canadian businesses, workers and communities in areas such as labour, environment, automotive trade, dispute resolution, culture, energy, and agriculture and agri-food. Importantly, CUSMA also includes language on gender and Indigenous peoples’ rights.
Facilitating trade in goods
NAFTA eliminated virtually all tariffs between Canada, the U.S. and Mexico, with very few exceptions. CUSMA maintains these benefits and ensures that the vast majority of North American trade will continue to be duty-free. Additionally, a new chapter on customs administration and trade facilitation standardizes and modernizes customs procedures throughout North America to facilitate the free-flow of goods. There are also important improvements to disciplines on technical barriers to trade that will make it easier for Canadian businesses to export goods within the CUSMA region.
As a result of this agreement, Canada agreed to have de minimis thresholds for express courier import shipments of C$150 for duties and C$40 for taxes at the point or time of importation.
CUSMA will preserve existing agriculture commitments between Canada, the U.S. and Mexico, and help bring together an already highly integrated North American industry. Canada secured a number of beneficial outcomes for agriculture including:
- New market access in the form of tariff rate quotas for refined sugar and sugar-containing products, as well as certain dairy products;
- A modernized Committee on Agriculture Trade, which will provide a forum for Parties to address issues and trade barriers; and,
- Obligations for agricultural biotechnology that will increase innovation, transparency and predictability.
The Government defended the supply management system from strong U.S. attempts to see it dismantled. As part of the overall balance of the Agreement, Canada will:
- Provide new market access for the U.S. in the form of tariff rate quotas for dairy, poultry and egg products;
- Eliminate current milk classes 6 and 7, and calculate component prices for skim milk powder, milk protein concentrates and infant formula based on a U.S. reference price; and
- Establish a mechanism to monitor exports of skim milk powder, milk protein concentrates and infant formula. These products will be subject to surcharges if exports exceed an agreed threshold.
The revised automotive rules of origin require higher levels of North American content in order to incentivize production and sourcing in North America. The final outcome builds on the ideas that Canada put forward in early 2018 related to strengthening the North American production platform, reducing red tape and increasing the use of North American parts, steel and aluminum.
More robust rules of origin for the auto sector will help keep the benefits of the agreement in North America and diminish incentives to make investment and sourcing decisions based on the availability of low-cost labour. Specifically, the new agreement includes:
- An increase in the CUSMA regional value contentFootnote 1 threshold for cars from 62.5% to 75%;
- Stronger regional value content requirements for core car parts, such as engines and transmissions;
- 70% North American steel and aluminum requirements; and
- A new labour value content provision requiring that 40% of value of a passenger car (45% for a light truck) be made of materials, parts and labour (including final assembly) produced or carried out by workers in a plant where the average hourly wage is at least US$16.
The new agreement has the potential to generate increased automotive production in North America, including in Canada, as well as additional sourcing opportunities for Canadian parts producers. The Canadian advantage in the automotive sector has always been the strength of our highly skilled workforce, and our workers’ ability to produce high quality and reliable cars and trucks.
U.S. national security measures (Section 232 of the U.S. Trade Expansion Act of 1962)
The agreement provides a more secure and stable trade environment for Canadian workers and businesses. This is particularly important in light of the investigation under Section 232 of the U.S. Trade Expansion Act of 1962 to determine whether imports of automobiles and auto parts pose a threat to U.S. national security.
Given the integrated nature of the North American auto sector, any national security measures imposed against Canada would have threatened Canadian automobile and parts producers, and Canadians working in the sector. Canada secured an exemption from potential Section 232 measures in a side letter to the agreement.
In the event that U.S. national security measures are imposed, the side letter guarantees an exemption from Section 232 measures for 2.6 million Canadian automobiles annually. Light trucks do not count towards this amount and are fully exempt from U.S. Section 232 measures. The side letter also guarantees an exemption from Section 232 measures for US$32.4 billion worth of Canadian auto parts annually. These levels are significantly higher than Canada’s exports of automobiles and parts to the U.S. In securing the exemption for Canada, Canadian auto assemblers and parts producers can continue to sell into the U.S. market and will have opportunities to expand their operations beyond current levels of exports.
Canada also secured a commitment from the U.S. to provide a minimum 60-day exemption from any future Section 232 measures. This would allow time for Canada and the U.S. to agree on an appropriate outcome based on industry needs and historical trading patterns.
When it comes to disagreements, CUSMA builds on and improves the original NAFTA outcome by:
- preserving the use of binational panels to resolve disputes on anti-dumping and countervailing duty matters, which is critically important to preserving market access outcomes and defending Canada’s interests in trade remedy cases; and
- improving the state-to-state dispute settlement process of NAFTA to ensure that arbitral panels are formed to hear disputes and that the process is carried out in a transparent and expedient manner.
CUSMA includes a comprehensive chapter on labour, which is subject to dispute settlement. This chapter aims to level the playing field on labour standards and working conditions in the CUSMA region by ensuring parties do not lower their levels of protection to attract trade or investment. CUSMA also contains commitments to ensure national laws and policies provide protection for fundamental principles and rights at work. These include the right to freedom of association and collective bargaining, a prohibition on importing goods made from forced labour and binding obligations on the rights of migrant workers. The chapter also includes an enforceable obligation to address violence against workers, including single instances of violence, or threats thereof.
To address labour violations related to collective bargaining and freedom of association in a timely manner, the agreement also includes innovative mechanisms for rapid response between Canada and Mexico and between the United States and Mexico. These enforcement mechanisms allow for the rapid deployment of a three-member panel of labour experts to a facility to ensure that national labour law is being respected.
CUSMA includes a comprehensive environment chapter, which is subject to dispute settlement and aims to level the playing field by ensuring parties do not lower their levels of environmental protection to attract trade or investment. It also introduces new commitments to address global environmental challenges, such as illegal wildlife trade, illegal fishing and depletion of fish stocks, species at risk, conservation of biological diversity, ozone-depleting substances and marine pollution. It includes a new article that identifies 7 multilateral environmental agreements (MEAs) and commits the three parties to implementing their respective obligations under those MEAs to which they are party.
For the first time in an environment chapter, CUSMA includes innovative environmental commitments to improve air quality and combat marine litter. The Parties recognize the importance of these issues and commit to working together to address them.
The parallel Environmental Cooperation Agreement, which complements the environment chapter, ensures that the unique institutions established under the North American Agreement on Environmental Cooperation will continue the legacy of effective trilateral cooperation to protect and enhance the North American environment in the context of increasing economic, trade and social links.
Canadians have a strong national identity based on our diversity and strength in our differences. Indigenous peoples, Francophone communities and Canadians of every faith, background and culture shape the Canada we call home. As countries become more economically integrated, it is increasingly important that nations are able to preserve a strong sense of national identity and belonging.
The modernized agreement preserves Canada’s cultural exception, which gives Canada flexibility to adopt and maintain programs and policies that support the creation, distribution and development of Canadian artistic expression or content, including in the digital environment.
This was a key element in NAFTA. It helps protect Canada’s unique identity and provides greater security for over 660,000 CanadiansFootnote 2 who work in industries such as publications, broadcasting, and the distribution or sale of books, magazines, film, video and music.
Throughout the negotiations, one of Canada’s objectives for CUSMA was to better reflect the interests of Indigenous peoples. To this end, Canada was able to secure important clarity in the form of a general exception related to the rights of Indigenous peoples. Canada also retained policy flexibility for Indigenous peoples and Indigenous-owned businesses, including in the areas of services, investment, government procurement, environment and state-owned enterprises. Additionally, outcomes on environment reflect the important role of Indigenous peoples, including in the conservation of biodiversity.
Trade and gender
Canada has made gender equality and women’s economic empowerment a key priority in its recent trade negotiations. Canada is further demonstrating its leadership on the issue by integrating gender-related provisions in CUSMA. This includes new labour provisions which require Parties to implement policies that protect against employment discrimination based on gender. Gender is also addressed in other chapters, including provisions related to corporate social responsibility, and small and medium-sized enterprises.
Provisions governing trade in energy can be found across the modernized agreement. This includes disciplines and provisions in the areas of national treatment and market access, rules of origin, customs and trade facilitation, and cross-border trade in services and investment.
Importantly, the agreement no longer includes what was referred to as the energy “proportionality clause” – which had placed certain limitations on the ability of Parties to constrain the export of energy products. The lack of a proportionality clause in the new agreement is a reflection of the overall high level of energy security present in the North American market today.
Canada and the U.S. will retain access to each other’s procurement markets, including at the sub-federal level, through their obligations under the World Trade Organization’s Agreement on Government Procurement (GPA). The government procurement obligations between Mexico and Canada will be provided under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Parties agreed to an updated, comprehensive chapter on intellectual property (IP), with obligations on copyright and related rights, trademarks, geographical indications, industrial designs, patents, data protection for pharmaceutical and agricultural chemical products, trade secrets and IP rights enforcement.
- The modernized agreement will require changes to Canada’s current IP legal and policy framework in certain areas, such as requiring parties to provide a general term of copyright protection of “life plus 70 years” for works of authorship (Canada currently has a term of “life plus 50 years”)
- The agreement also requires parties to provide patent term adjustment to compensate patent applicants for “unreasonable” delays in the processing of patent applications.
Canada has transition periods of 2.5 years and 4.5 years, respectively, following the entry into force of the agreement to implement these obligations.
The new agreement includes provisions on Internet service provider liability to address online infringement, which enable Canada to maintain its current “notice-and-notice” regime. Under the December 2019 Protocol amending the CUSMA, parties agreed to amend or delete certain provisions dealing with patents and pharmaceutical IP. Notably, parties agreed to remove the obligation to provide 10 years of data protection for biologics, meaning CUSMA will not require Canada to make changes to its domestic regime in this area.
Review process & ongoing modernization
CUSMA includes a requirement for a formal review of the agreement at least every six years after entry into force. This new review process will help ensure the agreement remains relevant, effective and beneficial for North American workers. It will also help address issues before they become major challenges, and provide predictability and stability for Canadian consumers and businesses. While establishing that the agreement will terminate 16 years after entry into force, the Parties can agree to extend the agreement for a further 16 years after each regular review.