Summary Backgrounder: Canada-United States-Mexico Agreement (CUSMA)
Canada, the United States, and Mexico have reached an agreement on a new and modern trade agreement called the Canada-United States-Mexico Agreement (CUSMA). This outcome will reinforce the strong economic ties between the three countries and support well-paying middle-class jobs for Canadians.
This modernized agreement maintains the tariff-free market access from the original NAFTA, and includes updates and new chapters to address modern-day trade challenges and opportunities. Since negotiations began in August 2017, Canada has engaged constructively and pragmatically with our CUSMA partners – always intent on achieving a good deal for Canadians, not just any deal.
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, the CUSMA includes language on gender and Indigenous peoples’ rights.
Facilitating trade in goods
The original NAFTA eliminated virtually all tariffs between Canada, the U.S. and Mexico, with very a few exceptions. The CUSMA maintains these benefits and ensures that the vast majority of CUSMA trade will continue to be duty-free. Additionally, a new Customs Administration and Trade Facilitation Chapter 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 has agreed to maintain a de minimis threshold for express courier shipments of at least CA$150 for duties and CA$40 for taxes at the point or time of importation. New provisions further streamlining administrative procedures for courier companies should lead to lower service fees charged to Canadians by these companies.
The CUSMA will preserve existing agriculture commitments between Canada, the U.S. and Mexico, and help bring together an already highly integrated 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 new agreement will have impacts on Canada’s dairy, poultry and egg sectors as Canada agreed to the following:
- 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 export 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 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 content requirements for core car parts, such as engines and transmissions;
- A 70% North American steel and aluminum requirement; and
- A new labour value content provision requiring that 40-45% of a car producer’s activities – i.e., costs of manufacturing, assembly, R&D and information technology – be carried out by workers who earn at least US$16 an hour.
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)
The agreement provides a more secure and stable trade environment for Canadian workers and businesses, which is particularly important in light of the recent national security investigations launched by the U.S. on its automotive imports.
Given the integrated nature of the North American auto sector, any measures imposed against Canada would have threatened Canadian automobile and parts producers, and Canadians working in the sector. Under the modernized agreement, Canada has secured an exemption from potential 232 measures in a side letter to the agreement.
In the event of measures imposed by the U.S., it guarantees annual duty-free access to the U.S. for 2.6 million Canadian automobiles. For light trucks, they do not count towards this amount and are fully exempt from 232 duties. The side letter also guarantees annual duty-free access to the U.S. for US$32.4 billion worth of Canadian auto parts. In securing the exemption for Canada, Canadian auto assemblers and parts producers can continue to export duty-free into the U.S. market and will have opportunities to expand their operations beyond current levels of exports.
Canada has also secured a commitment from the U.S. to provide a minimum 60-day exemption from any future measures under applied under Section 232 of the U.S. Trade Expansion Act for national security reasons. 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, the CUSMA continues to offer Canada legal avenues for recourse that are the same as NAFTA. This includes:
- Preserving the use of binational panels to resolve disputes on countervailing and anti-dumping duty matters, which is critically important to preserving market access outcomes and defending Canada’s interests in trade remedy cases.
- Preserving the state-to-state dispute settlement process of the original agreement, and to improve elements of this process including with respect transparency and expediency.
The CUSMA also includes a robust chapter on labour, which will be subject to dispute settlement. This chapter aims to level the playing field on labour standards and working conditions in the CUSMA region, and 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, prohibiting importation of goods made from forced labour and binding obligations for rights of migrant workers. The chapter also includes unprecedented protections against gender-based discrimination, specifically with regard to sexual orientation, sexual harassment, gender identity, caregiving responsibilities and wage discrimination.
A comprehensive environment chapter, subject to dispute settlement, aims to level the playing field by ensuring parties do not lower their levels of protection to attract trade or investment. It also introduces new commitments to address global environmental challenges such as illegal wildlife trade, illegal fishing and the depletion of fish stocks, species at risk, conservation of biological diversity, ozone-depleting substances and marine pollution.
For the first time in an environment chapter, the 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 the original NAFTA, and helps protect Canada’s unique identity and provides greater security for the 650,000 Canadians 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 the 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 and has also retained policy flexibility to provide preferential treatment to Indigenous peoples and Indigenous-owned businesses, including in the areas of services, investment, government procurement, environment and state-owned enterprises. Additionally, on environment, there are also outcomes that reflect the important role of Indigenous peoples, including in the conservation of biodiversity.
Canada has made gender equality and women’s economic empowerment a key priority in recent trade negotiations, including playing a leadership role to integrate gender-related provisions in the CUSMA. This includes labour obligations regarding the elimination of 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 will 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 removal of the proportionality clause from the CUSMA 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 WTO 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, with obligations on copyright and related rights, trademarks, geographical indications, industrial designs, patents, data protection for pharmaceutical and agricultural chemical products, trade secrets, and intellectual property rights enforcement.
The modernized agreement would require changes to Canada’s current intellectual property legal and policy framework in certain areas, such as:
- For new biologic drugs, a term of data protection of 10 years (Canada currently provides a term of 8 years) and
- 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”).
- Canada has a transition period of 5 years on data protection for biologic drugs, and 2.5 years on term of protection for copyright, following the entry into force of the Agreement to implement these obligations.
The new agreement also includes provisions on Internet service provider (ISP) liability to address online infringement, which enable Canada to maintain its current “notice-and-notice” regime.
Review process & ongoing modernization
The new agreement also includes a requirement for a formal review at least every 6 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 helps 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.
Each Party will follow their domestic procedures towards implementation of the CUSMA. For Canada this includes tabling the treaty in Parliament for 21 sitting days before initiating legislative action to implement the agreement. In the United States, the agreement will likely be considered under the trade promotion authority (TPA), which provides for expedited consideration in Congress with a simple majority ‘up or down’ vote. In Mexico, the agreement would be submitted to the Senate for review and would similarly be considered on an ‘up or down’ basis. Until the new agreement is implemented, the current NAFTA remains in force.
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