The NAFTA (USMCA) loyalty oath?

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As has been widely reported, the new NAFTA agreement (USMCA) contains what has been branded a “loyalty oath” among the US, Canada and Mexico.

What is this “loyalty oath”?
In short, the oath says that in the event any USMCA member enters into a free trade agreement (FTA) with a non-market country, the other two remaining countries can leave the agreement and form their own bilateral trade pact.

Why is this clause in the USMCA?
This clause is likely an effort by the US Administration to isolate China economically since neither Canada or Mexico would want to leave the USMCA. This clause is also aimed at limiting the imports from China to Mexico/Canada for shipment into the US duty free.

Is a “loyalty oath” found in other trade agreements?
Currently, no, however this inclusion in the USMCA may be an indication of what will occur in future trade agreements to further isolate China from their trading partners.

Is the “loyalty oath” set in stone?
Right now, no, the disclaimer on the current USMCA text states: “Subject to Legal Review for Accuracy, Clarity, and Consistency Subject to Language Authentication“. Only upon ratification by all countries can we know for sure whether this is in the agreement.

What is a market or non-market economy?
This loyalty oath against non-market economies is likely aimed at China while not specifically named in the agreement. Beijing has asked for recognition as a “market economy” within the World Trade Organization (WTO) since their accession agreement expired in December 2016. If China is branded a “market economy”, this would limit trade remedies such as anti-dumping/countervailing duties to be used against Chinese imports.

What are the non-market economies around the world?
According to the European Union, besides China, the other non-market economies include Vietnam, Kazakhstan, Albania, Armenia, Azerbaijan, Belarus, Georgia, the Democratic People’s Republic of Korea, Kyrgyzstan, Moldova, Mongolia, Tajikistan, Turkmenistan, and Uzbekistan.

Where can I read the full text of the “loyalty oath”
I could not find any news sources that cited the USMCA section.

The exact text of the oath is copied below:

4. Entry by any Party into a free trade agreement with a non-market country, shall allow the other Parties to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement).

The official PDF on the US Trade Representative website can be accessed here: (last accessed October 9, 2018).

https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/32%20Exceptions%20and%20General%20Provisions.pdf

See Article 32.10 (4)

If you have any questions about NAFTA or the USMCA and how this may impact your business, call experienced trade attorney, David Hsu at 832-896-6288 or by email at dhsu@givensjohnston.com.

Brief Summary of the United States-Mexico-Canada Agreement (USMCA).

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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:

Dairy:
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.

Grain:
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.

Textiles:
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.

Automotive Developments:
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.

Section 232:
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.

Anti-Corruption:
USMCA criminalizes supply and demand sides of bribery transactions and facilitation payments.

What’s next?
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 dhsu@givensjohnston.com.

US and Canada working towards NAFTA agreement.

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According to Bloomberg, the US and Canada are working on keeping Nafta an agreement between the US/Mexico and Canada.

Bloomberg quotes Mexican Economy Minister Ildefonso Guajardo as saying the US and Mexico are postponing publishing the text of their two-way trade deal in the event the US and Canada reach an agreement.

 

United States-Mexico Trade Agreement

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The US and Mexico reached a tentative agreement that overhauls the North American Free Trade Agreement.

Part of the agreements reached between the parties include:

  1. Stricter rules for Mexican car exports to the US – including a requirement that 75% of the content be made in North America and 40-45% of the content made with workers earning at least $16/hour (three times more than Mexico’s minimum wage). This has the goal of discouraging companies to relocate to lower wage Mexico.
  2. Mexico has agreed to pass a law giving workers the right to union representation, and to adopt labor laws that meet UN standards.
  3. Certain steel and aluminum must be sourced in North America
  4. New rules to country of origin for textiles, chemicals, industrial goods.
  5. Intellectual property, copyright holders will have copy right protection in markets of all member countries.
  6. Digital trade, tariffs will be prohibited for digital products that are distributed electronically.
  7. Agriculture, the US and Mexico agreed not to impose tariffs on each other’s agricultural goods and not to use export subsidies.

Call David Hsu if you have any further questions on the new U.S.-Mexico Trade Agreement at 832.896.6288 or by email at dhsu@givensjohnston.com.

US/Mexico to reach NAFTA deal on Monday August 27th?

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According to Bloomberg News, sources close to the talks between the US and Mexico on North America Free Trade Agreement differences will reach an agreement as soon as Monday, August 27th.

During the campaign, President Trump said he would renegotiate the 24-year old trade deal to better benefit US jobs. The U.S. Trade Representative Robert Lighthizer and his Mexican counterpart, Mexican Economy Minister Ildefonso Guajardo are currently in talks and any deal would need to approval of President Trump.

Does the NAFTA certificate of origin have to be in English?

NAFTA Cert

I am frequently asked if the NAFTA Certificate of Origin has to be in English.

The short answer is no –

The rule (in bold) states:

Section A – Certification of Origin

Article 501: Certificate of Origin

  1. The Parties shall establish by January 1, 1994 a Certificate of Origin (CO) for the purpose of certifying that a good being exported from the territory of a Party into the territory of another Party qualifies as an originating good, and may thereafter revise the Certificate by agreement.
  2. Each Party may require that a Certificate of Origin for a good imported into its territory be completed in a language required under its law.

For importations into the US, the NAFTA CO can be in English, Spanish or French, however, Customs does have the right to request any non-English certificate to be translated into English.

Let me know if you have any other NAFTA questions. If enough people ask I’ll post the reply on this blog.