Summary of revised outcomes
On December 10, 2019, Canada, the United States and Mexico agreed to update certain elements of the new North America Free Trade Agreement (NAFTA) to improve the final outcome and clear the path toward ratification and implementation of the Canada-United States-Mexico Agreement (CUSMA) in all three countries. Changes were made in the areas of state-to-state dispute settlement, labour, environment, intellectual property and rules of origin. The implementation of the new NAFTA will reinforce the strong economic ties between the three countries and enhance North American competitiveness globally. Importantly, the new Agreement preserves and enhances the integrated and virtually tariff-free market in North America by reducing red tape and lessening the administrative burden on importers and exporters.
State-to-state dispute settlement
The state-to-state dispute settlement chapter has been changed in a manner that strengthens enforcement, including in the areas of labour and the environment. Specifically, the Free Trade Commission (of Ministers) will no longer be involved in the dispute settlement process, meaning that a panel will be automatically established upon request. Changes have also been made to ensure that a roster of potential panelists is created and to provide for additional clarity and transparency in the rules of procedure that provide guidance on the operation of panel hearings. Overall, this outcome provides important assurance for Canadians that the Agreement’s operation will be supported by an efficient and effective state-to-state dispute resolution mechanism.
Facility-specific rapid-response labour mechanism
Canada has established a new bilateral mechanism with Mexico under the dispute settlement chapter with respect to specific labour obligations on freedom of association and collective bargaining. This facility-specific rapid-response mechanism will provide Canada with an enhanced process to ensure the effective implementation of specific labour obligations in covered facilities. If a signatory has concerns as it relates to freedom of association and collective bargaining, it can request an investigation by an independent panel of labour experts and, subject to a positive finding, it can take measures to impose penalties on exports from those facilitates. The United States has also established an equivalent mechanism with Mexico. The Canada-Mexico bilateral mechanism will complement Canada’s ongoing efforts to support the implementation of Mexico’s historic labour reforms. The Government of Canada is committed to its long-standing partnership with Mexico and is considering how to support the effective implementation of the agreement in Mexico.
The labour chapter has been further strengthened so that the parties have increased flexibility to pursue violations of the Agreement under the dispute settlement mechanism. This is made possible through the removal of the requirement that violations be committed “through a sustained and recurring course of action or inaction” when it relates to violence against workers. Additionally, the burden of proof has been reversed, in that failure to comply with an obligation in the chapter is now presumed to be “in a manner affecting trade or investment between the parties,” unless the defending party can demonstrate otherwise.
The changes in the environment chapter will strengthen environmental obligations under the Agreement. Similar to the labour chapter, the burden of proof has been reversed in that failure to comply with an obligation in the chapter is now presumed to be “in a manner affecting trade or investment between the parties,” unless the defending party can demonstrate otherwise.
A new article has been added to recognize the three parties’ existing commitments to implement certain multilateral environmental agreements (MEAs) to which they are a party. Specifically, parties commit to implementing their respective obligations under those MEAs that they have ratified domestically. For Canada, this means that Canada is required to implement its obligations under the following MEAs, including any relevant reservations, exceptions and amendments:
- The Convention on International Trade in Endangered Species of Wild Fauna and Flora;
- The Montreal Protocol on Substances that Deplete the Ozone Layer;
- The Protocol of 1978 Relating to the International Convention for the Prevention of Pollution from Ships;
- The Convention on Wetlands of International Importance Especially as Waterfowl Habitat; and,
- The Convention for the Establishment of an Inter-American Tropical Tuna Commission.
Canada would not be required to sign or ratify, and would not have any new obligations related to, the other two MEAs to which it is not a party, specifically the Convention on the Conservation of Antarctic Marine Living Resources and the International Convention for the Regulation of Whaling.
Intellectual property chapter
The changes in the intellectual property (IP) chapter will affect certain patent and pharmaceutical provisions. Importantly, the parties have agreed to remove the obligation on data protection for biologics, meaning that Canada will no longer need to amend its domestic regime to provide 10 years of data protection in this area. Additionally, parties have agreed to:
- remove a provision on the availability of patents for new uses, new methods or new processes of using a known product, as well as a provision on data protection for “new indications” of existing drugs, and
- include additional language on an exception related to regulatory reviews, and new language on how parties may meet obligations dealing with patent-term restoration, patent linkage and data protection for small molecule drugs.
These amendments clarify that all three parties maintain flexibility under the new NAFTA to pursue domestic policy priorities in these areas. Notably, Canada will not be required to make changes to its domestic patent or pharmaceutical IP regimes in order to implement the amended provisions.
Rules of origin
Rules of origin are the criteria used to determine whether a good has undergone sufficient production in a free trade area to be eligible for preferential tariff treatment, ensuring that the benefits of an agreement accrue primarily to producers located in the member countries. The CUSMA automotive rules of origin contain a requirement that 70% of the steel purchased by vehicle assemblers qualify as originating in the CUSMA region. This requirement has been changed to clarify that all steel manufacturing processes must occur in one or more of the parties, except for metallurgical processes involving the refinement of steel additives, for purposes of meeting the 70% requirement. This provision will come into effect 7 years after the entry into force of the new Agreement. During the first 7 years, the applicable product-specific rules of origin included in the CUSMA will be used to determine if the steel used by automakers is originating. The parties have also committed to reviewing the rules of origin applicable to the 70% originating aluminium requirement. This review will take place 10 years after the CUSMA enters into force.
Each party will follow its domestic process toward ratification and implementation of the new agreement. For Canada, this includes the consideration of implementing legislation by Parliament in line with normal parliamentary procedures. Canada remains strongly committed to working closely with its North American partners toward the timely ratification and implementation of the new agreement.
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