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The Revised CUSMA- An Overview of the Upcoming Changes

looking down from a distance at railroad transport cars
looking down from a distance at railroad transport cars

The Canada-US-Mexico Agreement (“CUSMA”) was signed on November 30, 2018 to replace the North American Free Trade Agreement (“NAFTA”). On December 10, 2019, the three countries signed a Protocol of Amendment (the “Protocol”) to CUSMA. This bulletin summarizes key amendments and next steps for each country to bring this amended CUSMA (“revised CUSMA”) into law.

 

The Protocol’s Key Additions

1. Environment

The Protocol introduces new compliance obligations under existing multilateral environmental agreements (“MEAs”) and rules of evidence to prove that a Party is not complying with any other environmental obligation set out in the CUSMA.

First, a Party that has ratified any of the Protocol’s seven listed MEAs must implement the MEAs’ obligations into domestic law.  Canada is a Party to and has laws implementing five MEAs:

  • 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.

Second, Parties may take measures to comply with these MEAs that may be inconsistent with obligations under the revised CUSMA.  Parties cannot take an inconsistent measure if it is a disguised restriction on trade.

Third, the Protocol imposes rules of evidence regarding CUSMA Environment chapter violation complaints (including illegal wildlife trade and illegal logging). Violations must be “in a manner affecting trade or investment”. A Complaining Party need not prove that an environmental obligation was violated “in a manner affecting trade or investment”. Instead, the Protocol requires the Respondent Party to show this is not the case.  This test will likely require further legal clarity.

2. Labour

Mexico: New Labour Dispute Panel

The Protocol introduces a so-called “facility-specific rapid response” labour dispute settlement mechanism to address complaints by the US or Canada that a specific Mexican facility’s workers are being denied certain CUSMA-specified labour rights including free association and collective bargaining that Mexico has agreed to implement into Mexican law (“Denial of Rights”).  This panel is established through the Party’s petition to the Secretariat. It is empowered to conduct an on-site assessment to verify the complaint, provided Mexico agrees to the verification request. If Mexico refuses, the panel may take this into account when deciding on the facility’s Denial of Rights.  Both Mexico and the Complaining Party may send observers to accompany the panel if both Parties agree to the observers' attendance.  The Protocol does not specify the panel’s verification powers or the observers’ role. 

Trilateral Labour Violations

The Protocol amends the CUSMA to impose fewer conditions on a Party complaining that another country is violating their obligations under the CUSMA Labour chapter.  For example, a complaint that a Party is not addressing violence against its workers does not now have to show that the violence is occurring through a “sustained or recurring course of action or inaction”.

The CUSMA previously required the Complaining Party to demonstrate that the violation was done “in a manner affecting trade or investment” between the Parties. This is now presumed unless the Responding Party shows otherwise.  This test will likely require further legal clarity.

3. State-to-State Dispute Settlement

The Protocol introduces rules to facilitate “state-to-state” dispute settlement:

  • Parties no longer need to have the CUSMA Free Trade Commission convene prior to providing written notice to the Secretariat to establish a panel;
  • Parties cannot block the establishment of a roster from which panelists are to be chosen.  Previously, NAFTA required consensus to establish the roster, giving Parties the ability to block the functioning of the dispute process; and
  • Explicit rules ofevidence to guide the panel’s work.  

4. Biologics

The Protocol removes the CUSMA’s ten year data market protection on biologics because the US Congress wants flexibility regarding years of protection in the US.  Regimes existing prior to the CUSMA now prevail. Canada maintains data market protection for biologics for eight years.  The US currently provides 12 years.

5. Automotive Rules of Origin: Steel and Aluminium

CUSMA requires 70% of steel and aluminum for North American vehicles to originate in North America.  For steel the manufacturing processes, including melting and mixing through to coating (the so-called “melting and pouring”), must be done in one or more of the CUSMA Parties.  This does not apply to the refinement of steel additives and only applies seven years after the revised CUSMA enters into force.

Aluminum requirements will be reconsidered in ten years after the revised CUSMA enters into force.

What Has Not Changed?

Other than these key changes, the revised CUSMA remains as signed on November 30, 2018.  Other CUSMA rules on automobiles, agriculture supply management, customs, investment and procurement are highlighted in our previous CUSMA bulletin.

What’s Next?

Canada and the US must ratify the revised CUSMA.  Mexico did so on December 12, 2019.

Canada could likely ratify the CUSMA at the earliest in the first quarter of 2020.  However, Canada may choose for political reasons to delay implementation until the US has successfully ratified the CUSMA.

In the US, ratification is likely to occur sometime in 2020 although the impeachment hearings and compliance with Trade Promotion Authority requirements make it difficult to predict when ratification may occur.

Conclusion

The US and Canada have said they want to ratify the CUSMA in 2020.  Consequently, businesses should re-examine the CUSMA’s opportunities and challenges and its differences with the NAFTA.  As with the NAFTA, a key to successfully integrating into the North American market is a solid understanding of the new “rules of the road” created by the CUSMA.