After 13 months of negotiations, the United States, Mexico and Canada have concluded the United States-Mexico-Canada Agreement (USMCA) to replace the 25 year-old NAFTA agreement. This new agreement was reached on September 30th and will not come into force until ratified (estimated to be sometime in early 2019). Below is a brief summary of some of the changes:
Canada to increase US access to Canada’s diary market through an increase in the Tariff Rate Quotas (TRQs) for US milk ,cream and cheese. Outside quota imports to Canada were previously subject to a 300% tariff. Canada will also take steps to eliminate their “Class 6 and 7” milk pricing structure that had the impact of making domestically produced milk more competitive in price than foreign milk.
Poultry, eggs and sugar:
Canada allowed greater access to the US exporters for poultry, eggs and sugar while the US increased their quotas of Canadian sugar and sugar-containing products.
Notice Requirement for Tariff Changes for Certain Goods:
Canada needs to notify the US of any proposed change to Canada’s tariff schedule.
The US and Canada will avoid using discriminatory grain grading standards.
Wine, Spirits and Beer:
The new agreement allows the recognition and protection of geographic indications for goods, such as “Tennessee Whiskey” can only be used by US manufacturers and “Canadian Whiskey” can only be used by Canadian whiskey producers. “Tequila” will also only be allowed to be used by Mexican manufacturers.
The USMCA changed the origin rules, providing for a 10% (by weight) de minimis threshold to tolerate the presence of content from outside the region, subject to limits on elastomeric content.
Rules of Origin:
The Rules of Origin increases the de minimis threshold from 7% to 10% of FOB adjusted value.
Revised rules of origin for automotive goods require the following (and most provisions phase-in before 2023):
-The USMCA requires a regional (North American) value content of not less than 75%. Automotive parts will also be subject to regional value content requirements of between 65% and 75%.
-At least 70% of an auto producer’s steel and aluminum purchases must be “North America-originating” for that producer’s vehicles to qualify for USMCA duty-free treatment. Auto producers must keep records of steel and aluminum purchases and certify on an annual basis that it is keeping the required records.
=Auto producers must also comply with a new “Labour Value Content” (LVC) provision for their vehicles to qualify for USMCA treatment. The LVC provision requires that workers who earn at least US$16 per hour must carry out 40 to 45% of an auto producer’s activities (i.e., manufacturing, technology, assembly). Auto producers will need to keep records and certify that they meet these requirements.
The USMCA requires the US to give a 60-day notice to Mexico or Canada if the US proposes future section 232 measures. Any new measures would not apply for 60 days and Canada and Mexico can “seek to negotiate an appropriate outcome”.
Intellectual Property (Chapter 20):
Main change requires a minimum of ten years of government-granted marketing exclusivity for biologics. Canada currently provides a term of eight years, whereas the U.S. provides twelve years under the Biologics Price Competition and Innovation Act (BPCIA) of 2009.
For copyright protection, the USMCA requires that copyright terms last 70 years following the life of the creator for works, and 75 years for performances and sound recordings. Canada’s current copyright terms are “life of the author plus 50 years” and 70 years, respectively.
Another notable provision is on the exclusion of “fair use” exceptions to copyright law. However, Canada is not required to adopt the U.S.-style notice-and-takedown regime for internet service providers.
USMCA criminalizes supply and demand sides of bribery transactions and facilitation payments.
The USMCA will need to be signed first and then have to be ratified by the respective countries.
If you have any questions how the new USMCA will impact your business or have questions regarding the new country of origin, IP or any other issues in the USMCA, contact David Hsu at 832-896-6288 or by email at email@example.com.