NAFTA negotiations were first launched under President George H. W. Bush. President William J. Clinton signed into law the NAFTA Implementation Act on December 8, 1993 (P.L. 103-182). NAFTA entered into force on January 1, 1994. It is significant because it was the first FTA among two wealthy countries and a lower-income country and because it established trade liberalization commitments that led the way in setting new rules for future trade agreements on issues important to the United States. These include provisions on intellectual property rights (IPR) protection, services trade, agriculture, dispute settlement procedures, investment, labor, and the environment. NAFTA addressed policy issues that were new to FTAs and was influential in concluding major multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). The United States now has 14 FTAs with 20 countries.

NAFTA's market-opening provisions gradually eliminated nearly all tariff and most nontariff barriers on goods and services produced and traded within North America. At the start of NAFTA, average applied U.S. duties on imports from Mexico were 2.07% and over 50% of U.S. imports from Mexico entered duty free.¹⁰ In contrast, the United States faced higher tariff, nontariff, and investment barriers in Mexico.¹¹ Trade among NAFTA partners has more than tripled since the agreement entered into force, forming integrated production chains among all three countries. Many trade policy experts and economists give credit to NAFTA for expanding trade and economic linkages among the parties, creating more efficient production processes, increasing the availability of lower-priced and greater choice of consumer goods, and improving living standards and working conditions.¹² Others blame NAFTA and subsequent U.S. FTAs for disappointing employment trends, a decline in average U.S. wages, and for not having done enough to improve labor standards and environmental conditions abroad.¹³

(1994 and 2017)

In the USMCA negotiations on agriculture, a principal U.S. demand was for additional market access to Canada's supply-management-restricted dairy, poultry, and egg markets. This system places a tariff-rate quota on imports of those products into Canada. While most of the in-quota tariff levied is 0%, out of quota tariffs (TRQ) can reach 313.5% for dairy products. Canada was not willing to abolish supply management, but did allow a yearly expansion of the TRQ for dairy products; an expansion of duty-free quota for poultry from 47,000 tons to 57,000 tons in year six, and a subsequent 1% annual increase for 10 years. The TRQ for eggs would increase to 10 million dozen annually. In return, the United States is providing more access to Canadian dairy, sugar, peanuts and cotton. U.S. tariffs for peanuts and cotton are to be phased-out over five years, and TRQs for dairy and sugar products are to be increased. The United States also negotiated changes to Canadian wheat grading system and providing national treatment for beer, wine, and spirits labeling and sales. A U.S. proposal to allow trade remedies to be used for seasonal produce was not adopted.

USMCA partners agreed to several other non-market access provision in the agriculture and sanitary and phytosanitary standards chapter. These include

• regulatory alignment among the parties;
• protection for proprietary formulas for pre-packaged foods and food additives (limited to furthering "legitimate objective[s]," which is not defined); and
• SPS rules based on "relevant scientific principles;" greater transparency in SPS rules.

Biotechnology provisions affecting agriculture include

• transparent and timely application and approval process for crops using biotechnology;
• procedures for import shipments containing a low-level presence of an unapproved crop produced with biotechnology; and
• establishment of a working group on agricultural biotechnology.

Customs and trade facilitation relates to the efficient flow of legally traded goods in and out of the United States. Enforcement of U.S. trade laws and import security are other important components of customs operations at the border. NAFTA's chapter on customs procedures includes provisions on certificates of origin, administration and enforcement, and customs regulation and cooperation. More recent agreements have modernized provisions in regard to customs procedures and trade facilitation. The World Trade Organization (WTO) Trade Facilitation Agreement (TFA), the newest international trade agreement in the WTO, entered into force on February 22, 2017. Two-thirds of WTO members, including the United States, Canada, and Mexico, ratified the multilateral agreement.⁷² Trade facilitation measures aim to simplify and streamline customs procedures to allow the easier flow of trade across borders and thereby reduce the costs of trade. There is no precise definition of trade facilitation, even in the WTO agreements. Trade facilitation can be defined narrowly as improving administrative procedures at the border or more broadly to also encompass behind-the-border measures and regulations. The TFA aims to address trade barriers, such as lack of customs procedural transparency and overly burdensome documentation requirements.⁷³

In the proposed USMCA, parties affirmed their rights and obligations under the TFA of the WTO. USMCA provisions also include commitments to administer customs procedures in such ways as to facilitate trade or the transit of a good while supporting compliance with domestic laws and regulations. Parties commit to create a Trade Facilitation Committee to cooperate on trade facilitation and adopt additional measures if necessary. Other provisions include measures for online publication of information and resources related to trade facilitation, communications mechanisms, establishment of enquiry points to respond to enquiries by interested persons, rules for issuing written advance customs rulings, procedures for efficient release of goods in order to facilitate trade between the parties, expedited customs procedures for express shipments, automated risk analysis and management procedures, creation of a single-access window system to enable electronic submission through a single entry point for importation into the territory of another party, and transparency procedures. Given the magnitude and frequency of U.S. trade with NAFTA partners, more updated customs provisions in NAFTA could have a significant impact on companies engaged in trilateral trade.⁷⁴

The USMCA would set de minimis customs threshold for duty free treatment at US$800 for the United States, C$150 (about US$117) for Canada, and US$117 for Mexico. Tax-free threshold would be set at C$40 (about US$31) for Canada and US$50 for Mexico. Proponents of the higher de minimis thresholds contend that these changes will facilitate North American trade by allowing low-value parcels to be shipped across international borders tax and tariff free and with simple customs forms.⁷⁵ Some Members and other stakeholders have raised concerns about a footnote that would allow the United States to decrease its threshold to a reciprocal de minimis amount in an amount no greater than the Canadian or Mexican threshold. They contend that lowering the current U.S. threshold could come at a cost to U.S. consumers and express carriers.⁷⁶

NAFTA includes explicit country-specific exceptions and reservations, including the energy sector in Mexico. In NAFTA's energy chapter, the three parties confirmed respect for their constitutions. This was of particular importance for Mexico and its 1917 Constitution, which established Mexican national ownership of all hydrocarbons resources. Under NAFTA, the Mexican government reserved to itself strategic activities, including investment and provisions in such activities, related to the exploration and exploitation of crude oil, natural gas, and basic petrochemicals. Mexico also reserved the right to provide electricity as a public service within the country. Despite these exclusions from NAFTA, energy remains a central component of U.S.-Mexico trade.⁷⁷

The proposed USMCA does not have an energy chapter and moves some of NAFTA's energy provisions to other parts of the agreement. The USMCA adds a new chapter specifically recognizing Mexico's constitutional prohibitions on foreign investment or ownership of Mexico's energy sector. Other provisions in the USMCA, such as the investor-state dispute settlement (ISDS) provisions in regard to Mexico's energy sector, would help protect private U.S. energy projects in Mexico.

In 2013, the Mexican Congress approved the Peña Nieto Administration's constitutional reform proposals for the energy sector. The reforms restructured Mexico's state-owned oil company, PEMEX, as a "state productive company," which means that despite being owned by the state, it competes in the market like any private company.⁷⁸ It has operational autonomy, in addition to its own assets. These reforms opened Mexico's energy sector to production-sharing contracts with private and foreign investors while keeping the ownership of Mexico's hydrocarbons under state control.⁷⁹ Following the reforms, Mexico adopted new procurement rules to increase efficiency and effectiveness in the procurement process. In the NAFTA renegotiations, U.S. industry groups called for the United States to use NAFTA's so-called ratchet mechanism in regard to Mexico's energy reforms, which would prevent the reforms from being reversed and grant protection to U.S. investors.⁸⁰

In regard to Canada, negotiators addressed a so-called "proportionality" provision contained in the energy chapters of both CUSFTA and NAFTA, which would be dropped under the proposed USMCA. This provision provides that Canadian restrictions on energy exports cannot reduce the proportion of exports delivered to the United States. The chapter also prohibits pricing discrimination between domestic consumption and exports to the United States. Some Canadians maintain that this provision restricts the ability of Canada to make energy policy decisions and may seek to change this provision.

The NAFTA government procurement chapter sets standards and parameters for government purchases of goods and services. Government procurement chapters typically extend national and nondiscriminatory treatment among parties and promote transparency in the tendering process. The schedule of commitments, set out in an annex to the chapter, provides opportunities for firms of each nation to bid on certain contracts for specified government agencies over a set monetary threshold on a reciprocal basis. The United States and Canada also have made certain government procurement opportunities available through similar obligations in the plurilateral WTO Government Procurement Agreement (GPA). Mexico is currently not a member of the GPA.

Supporters of expanded procurement opportunities in FTAs argue that the reciprocal nature of the government procurement provisions in FTAs allows U.S. firms access to major government procurement market opportunities overseas. In addition, supporters claim open government procurement markets at home allow government entities to accept bids from partner country suppliers, potentially making more efficient use of public funds.

Other stakeholders contend that public procurement should primarily benefit domestic industries. The Buy American Act of 1933, as amended, limits the ability of foreign companies to bid on government procurements of manufactured and construction products. Buy American provisions periodically are proposed for legislation such as infrastructure projects requiring government purchases of iron, steel, and manufactured products.⁸¹ Such restrictions are waived for products from countries with which the United States has FTAs or to countries belonging to the GPA. The Trump Administration has made it a priority to support strong Buy American and Hire American policies in government procurement and has sought to minimize government procurement commitments with other parties.

The proposed USMCA government procurement chapter only applies to procurement between Mexico and the United States. It is the first U.S. FTA not to include procurement commitments for all parties. Procurement opportunities between the United States and Canada continue to be covered by the plurilateral WTO GPA. The proposed USMCA carries over much of the NAFTA government procurement chapter's coverage for U.S.-Mexico procurement. It covers largely the same entities and maintains the same thresholds as NAFTA, as adjusted annually for inflation. Core provisions

• promote transparency in the tendering process through online tender information and descriptions;
• provide online application and documentation processes without cost to the applicant;
• provide for publication of post-award explanations of procurement decisions;
• exclude government procurement from the financial services chapter;
• exclude textile and apparel procured by the Transportation Security Administration (TSA) under the "Kissell Amendment;"
• allow Mexico to set aside annual procurement contracts of $2.328 billion, annually adjusted for inflation, to Mexican suppliers;
• allow for coverage of build-operate-transfer (BOT) contracts (As Mexico has taken an exception to this provision, the United States will extend this coverage to Mexico when Mexico reciprocates.)

The exclusion of Canada is a break from previous government procurement chapters in U.S. FTAs. As noted above, procurement opportunities in each country for U.S. and Canadian firms will continue to be covered by the GPA, which was revised and updated in 2014. The national treatment and transparency provisions are common to both the GPA and the proposed USMCA, as are the provisions modernizing the agreement to provide for online tendering. The differences primarily are with the schedules and the thresholds. In some areas, the GPA provides a more open procurement market. For example, the GPA covers 75 U.S. government entities, including 35 U.S. states, whereas NAFTA covers 56 federal entities and does not cover state procurement. The GPA has a higher monetary threshold than NAFTA for procurement of goods and services ($180,000 v. $80,317), but a lower construction procurement threshold ($6.9 million v. $10.4 million).⁸² In addition, while the proposed USMCA uses a negative list approach for services (all services included unless specifically excluded), Canada—though not the United States—maintains a positive list (only services specifically enumerated are covered) for services in the GPA. Government procurement between Canada and Mexico will continue to be covered by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11).

Some industry groups have criticized the exclusion of Canada and financial services from the agreement. The Automotive and Capital Goods Advisory Committee (ITAC-2) maintained that excluding countries sets a bad precedent for future FTAs, that there was a "not inconceivable" chance that the United States could withdraw from the GPA, leaving no reciprocal access to the Canadian procurement market, and that other countries with FTAs with Canada, such as the EU and the TPP-11, would have greater access to the Canadian procurement market than that provided by the GPA.⁸³ The Services ITAC (ITAC-10) expressed concern that continued access to government procurement for financial services under USMCA has been called into doubt by the exclusion of that sector from the agreement. ITAC-10 noted that, under NAFTA coverage, U.S. insurance providers cover two-thirds of Mexican government employees.⁸⁴

NAFTA removed significant investment barriers, ensured basic protections for NAFTA investors, and provided a mechanism for the settlement of disputes between investors and a NAFTA country. U.S. FTAs, including NAFTA and bilateral investment treaties (BITs) maintain core investor protections reflecting U.S. law, such as obligations for governments to provide investors with nondiscriminatory treatment, a minimum standard of treatment, and protections against uncompensated expropriation, among other provisions.⁸⁵ Since NAFTA, investment chapters in FTAs and the U.S. model BIT clarified certain provisions, including commitments to affirm more clearly a government's right to regulate for environmental, health, and other public policy objectives.

The proposed USMCA provisions, in general, largely track those of NAFTA, with the exception of the elimination of some investor-state dispute settlement (ISDS) provisions in NAFTA's investment chapter (See "Investor-State Dispute Settlement (ISDS)"). During the negotiations of the proposed USMCA, the U.S. business community strongly opposed reported U.S. proposals to scale back or eliminate NAFTA ISDS provisions. The American Petroleum Institute (API), for example, stated that strong ISDS provisions protect U.S. business interests and that weakening or eliminating NAFTA's ISDS would "undermine U.S. energy security, investment protections and our global energy leadership."⁸⁶ On the other hand, U.S. labor and civil society groups welcomed the Administration's more skeptical approach to ISDS. The 2015 TPA called for "providing meaningful procedures for resolving investment disputes," which may affect congressional consideration of an agreement.⁸⁷

The proposed USMCA clarifies language related to national treatment and most-favored-nation treatment. In determining whether an investment is afforded national treatment in the context of expropriation, a "like circumstances" analysis can be used. Under the article, "like circumstances" depends on the totality of the circumstances including whether the relevant treatment distinguishes between investors or investments on the basis of legitimate public welfare objectives."⁸⁸

The proposed USMCA, like NAFTA, requires parties to provide MST to investments in accordance with applicable customary international law, including fair and equitable treatment and full protection and security. It defines the applicable standard of treatment for a covered investment as the customary international law MST of aliens, and that "fair and equitable treatment" and "full protection and security" do not create additional substantive rights. However, the proposed USMCA clarifies that a party's action (or inaction) that may be inconsistent with investor expectations is not, on its own, a breach of MST, even if loss or damage to the investment follows.

The proposed USMCA would prohibit parties from imposing specific "performance requirements" in connection with an investment or related to the receipt of an advantage in connection with it. These include prohibitions on performance requirements such as to export a given level or percentage of goods, achieve a given level or percentage of domestic content, or transfer a particular technology. A new feature not in NAFTA includes prohibitions on performance requirements related to the purchase, use, or according of a preference to a technology of the party (or of a person of the party), and related to certain royalties and license contracts.

The proposed USMCA's denial of benefits article, among other things, permits a party to deny the investment chapter's benefits to an investor that is an enterprise of another party (and to the investments of that investor) if that enterprise is owned or controlled by a person of a non-party or of the denying party or does not have "substantial business activities" in the territory of any party other than the party denying benefits. This article presumably is intended to address some stakeholder concerns that the chapter could be used to afford shell companies access to its protections.

Unlike NAFTA, the proposed USMCA contains a provision stating that, except in rare circumstances, nondiscriminatory regulatory action by a party to protect legitimate public welfare objectives (e.g., in public health, safety, and the environment) do not constitute indirect expropriation. Debate exists about what exactly are "rare circumstances." The proposed USMCA includes a statement that nothing in the Investment Chapter shall be construed to prevent a government from regulating in a manner sensitive to "health, environmental, and other regulatory objectives," as long as the action taken is otherwise consistent with the chapter. Previous U.S. FTAs, including NAFTA, limited the affirmation of a government's right to regulate to "environmental concerns."

ISDS has been a controversial aspect of the NAFTA investment chapter. It is a form of binding arbitration that allows private investors to pursue claims against sovereign nations for alleged violations of the investment provisions in trade agreements. It is included in NAFTA and nearly all other U.S. trade agreements that have been enacted since then, and is also a core provision in U.S. bilateral investment treaties (BITs). Generally, ISDS tribunals are composed of three lawyer-arbitrators: one chosen by the claimant investor, one by the respondent country, and one by mutual decision between the two parties. Most cases follow the rules of the World Bank's Centre for Settlement for Investor Dispute or the United Nations Commission on International Trade Law. Fifty-nine ISDS actions have been adjudicated under NAFTA, with the majority coming after 2004.⁸⁹

Supporters argue that ISDS is important for protecting investors from discriminatory treatment and are modeled after U.S. law. They also argue that trade agreements do not prevent governments from regulating in the public interest, with clear exceptions for these actions, as well as for national security and for prudential reasons; ISDS remedies are limited to monetary penalties; and ISDS cannot force governments to change their laws or regulations. Critics counter that companies use ISDS to restrict governments' ability to regulate in the public interest (such as for environmental or health reasons), leading to "regulatory chilling" even if an ISDS outcome is not in a company's favor. The United States, to date, has never lost a claim brought against it under ISDS in a U.S. investment agreement.

ISDS provisions in the proposed USMCA would substantially revise longstanding provisions in NAFTA, other U.S. FTAs, and current BITs that were actively sought by past Administrations. Significantly, ISDS between Canada and the United States is ended under the new agreement. U.S. and Mexican investors would not be able to bring arbitration claims under USMCA against Canada, nor would Canadian investors bring such claims against the United States or Mexico. With respect to Mexico and the United States, the proposed USMCA would limit ISDS to claimants regarding government contracts in natural gas, power generation, infrastructure, transportation, and telecommunications sectors; or in other sectors provided the claimant exhausts national remedies first. Canada and Mexico are maintaining ISDS among themselves through CPTPP.

Under the proposed USMCA, ISDS is continued in three circumstances:

• Legacy claims from existing investments are eligible for arbitration under NAFTA ISDS provisions for three years from the date of NAFTA termination;
• Direct expropriation claims, including claims of violation of national treatment, would continue to be eligible for arbitration for United States and Mexican investors, provided that they exhaust domestic remedies first. Indirect expropriation, in which an action or series of actions by a Party has an effect equivalent to direct expropriation without formal transfer of title or outright seizure, is no longer covered; and
• Government contracts in certain covered sectors (oil and gas, power generation, telecommunications, transportation, and infrastructure) would be eligible for arbitration under USMCA ISDS. This use of ISDS is designed to protect investors in heavily regulated industries whose investments may be affected by the presence of state-owned enterprises in the sector.

• nondiscriminatory treatment of services from partner-country providers in like circumstances, including national treatment and MFN treatment;
• no limitations on the number of service suppliers, the total value or volume of services provided, the number of persons employed, or the types of legal entities or joint ventures that a foreign service supplier may employ;
• prohibition on locality requirements that a service provider maintain a commercial presence in the country of the buyer;
• support of mutual recognition of professional qualifications for certification of service providers;
• transparency in the development and application of government regulations; and
• allowance for payments and transfers of capital flows "freely and without delay" that relate to the provision of services, with permissible restrictions in some cases for bankruptcy and criminal offences.

NAFTA did not contain commitments on express delivery; however, the United States made market access of express delivery services a priority in its more recent FTA negotiations. The proposed USMCA addresses express delivery in a chapter annex.⁹¹ The commitments on express delivery focus, in particular, on cases where a government-owned and operated postal system provides express delivery services competing with private sector providers. The proposed USMCA stipulates that the postal system cannot use revenue generated from its monopoly power in providing postal services to cross-subsidize an express delivery service. The proposed USMCA would also require independence between express delivery regulators and providers, prohibit the requirement of providing universal postal service as a prerequisite for express delivery, and prohibit fees on express delivery providers for the purpose of funding other such providers. In addition, the proposed USMCA specified a threshold level for the customs de minimis, a critical commitment for express delivery providers and small businesses as shipments valued below the de minimis receive expedited customs treatment and pay no duties or taxes.

In addition to cross-border trade in services, a person supplying the service may travel to and provide certain services in the location where the service is performed. NAFTA includes commitments on temporary entry for service professionals, such as accountants, architects, legal, and medical providers, and other business personnel, in order to facilitate such trade. As temporary entry has been a controversial issue in the context of previous trade agreements, the proposed USMCA chapter on temporary entry largely replicates NAFTA's provisions. The proposed USMCA does not place new restrictions on the number of entrants or expand the list of eligible professionals, as many businesses and other service providers had hoped.

Financial services, including insurance and insurance-related services, banking and related services, as well as auxiliary services of a financial nature, are addressed in a separate USMCA chapter as in previous U.S. FTAs. The financial services chapter adapts relevant provisions from the foreign investment chapter and the cross-border trade in services chapter. The prudential exception in NAFTA and the proposed USMCA provides that nothing in the FTA would prevent a party to the agreement from imposing measures to ensure the integrity and stability of the financial system. As with NAFTA and other FTAs, the proposed USMCA distinguishes between financial services traded across borders and those sold by a provider with a commercial presence in the home country of the buyer. In the case of providers with a foreign commercial presence, the USMCA applies the negative list approach with commitments applying generally except where noted; in the case of cross-border trade, the proposed language limits coverage to a positive list of specific banking and insurance services as defined by each country.⁹²

Perhaps the provision in the proposed USMCA that has drawn the most attention is the prohibition on data localization requirements. Financial services firms rely on cross-border data flows to ensure data security, create efficiencies and cost savings through economies of scale, and utilize internet cloud services that are often provided by U.S. technology firms. Localization requirements imposed by countries could require companies to have in-country servers and data centers to store data. These types of regulations can create additional costs and may serve as a deterrent for firms seeking to enter new markets or a disguised barrier to trade. Localization supporters, though, claim they increase local control, privacy protection, and data security.

While NAFTA allowed the transfer of data in and out of a party in the ordinary course of business, TPP was the first proposed U.S. FTA to prohibit data localization for e-commerce applications. However, it specifically carved out financial services, based on the apprehension of regulatory authorities that such data may not be available during time of crisis. The proposed USMCA strengthened the language to protect the free flow of data and removes the carve-out provided that a Party's financial regulatory authorities have "for regulatory and supervisory purposes, immediate, direct, complete, and ongoing access" to data located in another party's territory.⁹³ Canada has a one-year transition period to implement the data localization prohibition.

The proposed USMCA also includes commitments on electronic payment card services. It requires that each country in the agreement allow for the supply, by persons of other parties, of electronic payment services for payment card transactions, defined by each country, generally including credit and debit cards. The provisions on card services would, however, allow for certain preconditions of access, including requiring a representative or office within country.

Other new USMCA financial services provisions would

• exclude government procurement from financial services disciplines;
• modify investor-state dispute settlement (ISDS) through a bilateral annex on Mexico-United States Investment Disputes in Financial Services;
• allow a financial institution from one party with a presence in a second party to have access to the latter's payment and clearance system; and
• protect source code and algorithms and a prohibition on forced technology transfer in the digital trade section.

The telecommunication chapter in NAFTA requires regulatory transparency; interconnection among providers; reasonable and nondiscriminatory access to network infrastructure and government-controlled resources like spectrum bandwidth for reasonable rates; and protection of the supplier's options for employing technology. The proposed USMCA telecommunications chapter adopts these provisions and would be the first U.S. FTA to cover mobile service providers. The chapter would promote cooperation on charges for international roaming services and allow regulation for mobile roaming service rates. Other provisions aim to ensure that suppliers can resell and unbundle services, and that suppliers can furnish value-added services. The telecommunications chapter does not cover television or radio broadcast or cable suppliers. It also promotes the independence of regulators. It does not contain the provision in NAFTA recognizing the importance of international standards for global compatibility and interoperability.

The chapter has the effect of binding Mexico to its 2013 Constitutional reforms in telecommunications, by guaranteeing the independence of the regulatory commission, nondiscriminatory repurchase rates, and interconnection obligations. The proposed USMCA chapter does not affect Canadian restrictions on foreign ownership of telecommunications common carriers.

NAFTA was negotiated and came into effect at the dawn of the consumer Internet age, and it did not contain provisions to address barriers and rules and disciplines on digital trade. Congress established principal negotiating objectives in TPA-2015 on digital trade in goods and services, as well as on cross-border data flows. The objectives include equal treatment of electronically delivered goods and services, as compared to physical products, protection of cross-border data flows, and prevention of data localization regulations, as well as prohibitions on duties on electronic transmissions.

The proposed USMCA digital trade chapter broadly covers all industries, but explicitly excludes government procurement or provisions on data held or processed by governments of the parties. It also does not include financial services, which has separate obligations in the financial services chapter. Overall, the chapter aims to promote digital trade and the free flow of information, and to ensure an open Internet. While the majority of the obligations related to digital trade are found in the digital trade chapter, there are relevant provisions in other chapters, including financial services, IPR, and telecommunications.

Key provisions of the proposed USMCA digital trade chapter

• ensure nondiscriminatory treatment of digital products;
• prohibit cross-border data flows restrictions and data localization requirements;
• prohibit requirements for source code or algorithm disclosure or transfer as a condition for market access, with exceptions;
• prohibit customs duties or other charges for electronically transmitted products;
• require parties to have online consumer protection and anti-spam laws, and a legal framework on privacy;
• promote cooperation on cybersecurity, and risk-based strategies and consensus-based standards over prescriptive regulation in combating cybersecurity risks and events;
• prohibit imposition of liability for harms against Internet services providers or users related to information stored, processed, transmitted, distributed, or made available by the service, with the exclusion of ISP liability for intellectual property rights (IPR) infringement; and
• promote publication of open government data in machine readable format for public usage.

Patents protect new innovations, such as pharmaceutical products, chemical processes, business technologies, and computer software. These provisions largely track provisions in more recent U.S. FTAs, including TPP:

• Patent and Regulatory term extension. Provides an extension for "unreasonable" delays in the patent examination or regulatory approval processes. NAFTA allowed countries to provide such an extension but did not define unreasonable. The proposed USMCA defines unreasonable as five years after the filing of the application, or three years after a request for examination has been made.

IPR Highlights in USMCA Biologics. Requires a 10-year period of data exclusivity for biologics. Digital enforcement. Extends IPR enforcement, including for copyrights, to the digital environment. Trade secrets. Requires criminal procedures and penalties for trade secret theft, including cybertheft; also clarifies that SOEs are subject to trade secret protection requirements. Internet Service Providers (ISPs). Requires "notice and takedown" to address ISP liability while allowing an alternative system to remain for Canada (e.g., "notice and notice"). Trademarks. Extends trademark protection to sounds and to "collective marks" and removes administrative requirements to enable easier protection and enforcement of trademarks. Geographical indications (GIs). Requires administrative procedures for recognizing and opposing GIs, including guidelines for determining when a name is common. Also, for GIs that a Party protects through international agreements, includes requirements on transparency and opportunity to comment or oppose GI recognition.

• Patent Linkage. Mandates notification to the patent holder when a generic manufacturer seeks to rely on an originator's test data for marketing approval, and obligates the marketing authority to prevent a generic manufacturer from seeking market approval without the rights holder's consent. It provides flexibility on the notification system and the procedures (e.g., judicial or administrative proceedings, and remedies, such as preliminary injunctions) for a patent holder to assert his rights, as well as for a party to challenge the patent's validity. This provision was not in NAFTA, but has been in more recent U.S. FTAs.
• Protection of test data. Protects test data that patent holders submit for regulatory approval for pharmaceuticals on which generics may later rely. These provisions were not in NAFTA. USMCA provides test data protection for:
• Chemical-based (small-molecule) drugs: Five years of data exclusivity for new drugs, and three years for new formulations of existing drugs; and
• Biologics: Ten-year period of data exclusivity for biologic drugs. The United States sought 12 years of data exclusivity for biologics, the length of exclusivity in U.S. law. Canada now provides a total of eight years of biologics data exclusivity while Mexico provides a regulatory five-year period for both chemical and biologics.⁹⁵

Copyrights provide creators of artistic and literary works with the exclusive right to authorize or prohibit others from reproducing, communicating, or distributing their works. Debate exists over balancing copyright protections while protecting the free flow of information, with digital trade raising new issues:

Trademarks protect distinctive commercial names, marks, and symbols. The proposed USMCA includes provisions on trademark protection and enforcement and provides for the following:

• Sound and Scent Marks. Extends trademark protection to sounds and requires "best efforts" to register scents. (Under NAFTA, a party could require that marks be "visually perceptible" in order to be registered.)
• Certification and Collective Marks. Provides trademark protections to "certification marks" (e.g., such as the Underwriters' Laboratory or Good Housekeeping Seal) and adds protection for "collective marks." Certification marks are usually given for "compliance with defined standards," while collective marks are usually defined as "signs which distinguish the geographical origin, material, mode of manufacture or other common characteristics of goods or services of different enterprises using the collective mark."⁹⁶ 
• Well-known Trademarks. Extends specific protections for "well-known marks" to dissimilar goods and services, whether or not registered, so long as the use of the mark would indicate a connection between the goods or services and the owner of the well-known mark and the trademark owner's interests are likely to be damaged by the use.
• Domain Names. Requires each party to have a system for managing its country-code top level domains (ccTLDs) and to make available online public access to a database of contact information for domain-name registrants. The proposed USMCA requires parties to make available appropriate remedies when a person registers or holds, with "bad faith intent to profit," a domain name that is identical or confusingly similar to a trademark. This provision is intended to protect against what is often referred to as "cybersquatting."

Trade secrets are confidential business information (e.g., formula, customer list) that are commercially valuable. The proposed USMCA parties agreed to require criminal and civil procedures and penalties for trade secret theft, prohibition on impeding licensing of trade secrets, protections for trade secrets during the litigation process, and penalties for government officials who wrongfully disclose trade secrets, including through cyber theft and by state-owned enterprises (SOEs).

GIs are geographical names that protect the quality and reputation of a distinctive product from a region (e.g., Ontario ice wine, Florida oranges). In FTA negotiations, the United States has sought to limit GI protections that can improperly constrain U.S. agricultural market access in other countries by protecting terms viewed as "common." This goal may be complicated by the recent Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, which provides additional protections for GIs in Canada. The proposed USMCA

• protects GIs for food products that Canada and Mexico have already accepted as a consequence of trade agreements with the European Union;
• provides transparency and notification requirements, and objection procedures, for new GIs; and
• sets forth guidelines to determine whether a term is customary in the common language.

Like previous U.S. FTAs, the proposed USMCA commits parties to provide civil, criminal, and other national enforcement for IPR violations, such as copyright enforcement in the digital environment, criminal penalties for trade secret theft and camcording, and ex-officio authority to seize counterfeit trademark and pirated copyright goods at the border. The provisions of the chapter, in turn, are enforceable through the state-to-state dispute settlement chapter.

Since the U.S.-Canada FTA, Canada has taken an exclusion on cultural industries from national treatment and MFN treatment. This exclusion reflects the Canadian government's attempts to promote a distinctly Canadian culture and the fear that, without its support, American culture would come to dominate Canada. Thus, the government imposes Canadian content ("Cancon") requirements on radio and television broadcasts, cable and satellite diffusion, the production of audio-visual material, film or video recording, and on various print media. The U.S. entertainment industry, in particular, has long sought to have this provision eliminated. In the end, Canada prevailed and the exclusion remains, although a provision was inserted allowing the United States and Mexico to take reciprocal action.

NAFTA includes provisions on SOEs, but they are limited in scope.⁹⁷ They allow parties to maintain or establish SOEs, while requiring that any enterprise owned or controlled by a federal, provincial, or state government must act in a manner consistent with that country's NAFTA obligations when exercising regulatory, administrative, or other government authority, such as the granting of licenses. NAFTA committed parties to ensure that any SOEs accord nondiscriminatory treatment in the sale of goods or services to another party's investment in that territory.

The proposed USMCA includes a new chapter on SOEs, requiring SOEs to act in accordance with commercial considerations and to provide nondiscriminatory treatment to other USCMA country firms. The provisions update NAFTA by ensuring that SOEs compete on a commercial basis, and that the advantages SOEs receive from their governments, such as subsidies, do not have an adverse impact on U.S. workers and businesses. The renegotiations addressed potential commercial disadvantages to private sector firms from state-supported competitors receiving preferential treatment.⁹⁸

U.S. government and business stakeholders raised concerns in the TPP negotiations over competition with companies linked to the state through ownership or influence. As a result, they supported new specific FTA disciplines, such as those in the proposed USMCA, to address such competition. Some legal analysts contend that the proposed USMCA limits the definition of expropriation so as to protect against "direct" expropriation only, and that it does not protect interests against indirect expropriation.⁹⁹ Indirect expropriation occurs when a state's regulatory actions could take effective control of—or interfere with—an investment.

NAFTA marked the first time that worker rights provisions were associated with an FTA by including labor provisions in a side agreement, the North American Agreement on Labor Cooperation (NAALC), which required all parties to enforce their own labor laws, as well as provisions to encourage greater cooperation. The side agreement includes a consultation mechanism for addressing labor disputes and a special labor dispute settlement procedure. The enforcement mechanism applies mainly to a party's failure to enforce its own labor laws. Under provisions of the 2002 TPA, seven subsequent FTAs included a similar provision within the main text of the agreement.

The rationale for including labor provisions in U.S. FTAs is to help ensure that countries not derogate from labor laws to attract trade and investment and that liberalized trade does not give a competitive advantage to developing countries due to a lack of adequate standards. Worker rights provisions in U.S. trade agreements have evolved significantly since NAFTA.¹⁰⁰ More recent agreements, including FTAs with Colombia, Panama, Peru, and South Korea, incorporated internationally recognized labor principles requiring parties to adopt and maintain in their statutes and regulations core labor principles of the International Labor Organization (ILO) (ILO Declaration). They also required countries to enforce their labor laws and not to waive or derogate from those laws to attract trade and investment. These provisions are enforceable under the same dispute settlement procedures that apply to other provisions of the FTA, and violations are subject to the same potential trade sanctions.

In the NAFTA renegotiations, the United States sought to strengthen NAFTA provisions related to the protection of worker rights. The proposed USMCA revises these provisions and provides the same dispute mechanism as other parts of the agreement. USMCA's provisions on labor would require parties to not only enforce their own laws, but also to adopt and maintain specific laws related to the ILO Declaration. It would require parties to

• adopt and maintain in statutes and regulation, and practices, worker rights as stated in the ILO Declaration of Rights at Work, in addition to acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health;
• not waive or otherwise derogate from its statues or regulations;
• not fail to effectively enforce labor laws through a sustained or recurring course of action or inaction in a manner affecting trade or investment between parties;
• promote compliance with labor laws through appropriate government action such as appointing and training inspectors or monitoring compliance and investigating suspected violations.

The provisions include language stating that each party retains the right to exercise reasonable enforcement discretion and to make bona fide decisions with regard to the allocation of enforcement resources provided that the exercise of that discretion is not inconsistent with the labor obligations. The agreement also states that nothing in the labor chapter shall be construed to empower a party's authorities to undertake labor law enforcement activities in the territory of another party.

Additionally, the USMCA would commit Mexico to

• enact specific legislative action to establish effective recognition of the right to collective bargaining;
• establish and maintain independent and impartial bodies to register union activities and collective bargaining agreements;
• establish independent Labor Courts for the adjudication of labor disputes; and
• enact other legislation to protect worker rights.¹⁰¹

Concerns over NAFTA labor provisions are often discussed in the context of Mexico's record on worker rights. While Mexico has enacted labor laws and undertaken constitutional reforms, the challenge has been to enforce those laws. Mexican labor reform is a priority for Mexico's new President Andrés Manuel López Obrador. In the proposed TPP, the United States signed separate labor consistency plans with Vietnam, Malaysia, and Brunei, which included commitments for specific legal reforms and other measures. Some stakeholders advocated for a similar plan for Mexico in conjunction with a revised NAFTA, although the United States was unable to negotiate one with Mexico in TPP. However, in the USMCA, Mexico agreed to develop and implement reforms to strengthen its labor laws to protect collective bargaining and to reform its system for administering labor justice.¹⁰² Labor reform measures to increase protection of worker rights have been introduced in the Mexican Senate. Mexican Trade Undersecretary Maria Luz de la Mora stated that legislation enacting Mexican labor reforms is expected to be passed by the Mexican Senate before the end of the legislative session, in April 2019.¹⁰³

NAFTA was the first U.S. FTA to include a side agreement related to the environment. As with the chapter on worker rights, environment provisions in U.S. FTAs have evolved significantly over time. The NAFTA side agreement—the North American Agreement on Environmental Cooperation (NAAEC)—requires all parties to enforce their own environmental laws, and contains an enforcement mechanism applicable to a party's failure to enforce these laws. NAAEC includes a consultation mechanism for addressing disputes with a special dispute settlement procedure. Seven subsequent FTAs, negotiated under the 2002 TPA, included a similar environmental chapter within the main text of the agreement, including a country's obligations to enforce their own laws.¹⁰⁴

More recent U.S. FTAs added an affirmative obligation for FTA partner countries to adhere to multilateral environmental agreements (MEAs) and allowed for environmental disputes under the FTAs to access the main dispute settlement provisions of the agreement. These obligations generally were reflected in the TPA-2015 negotiating objectives. The proposed USMCA environment chapter obligates each party to

• not to fail to effectively enforce its environmental laws through a sustained or recurring course of action or inaction to attract trade and investment;
• not to waive or derogate from such laws in a manner that weakens or reduces the protections afforded in those law to encourage trade or investment; and
• ensure that its environmental laws and policies provide for and encourage high levels of protection; and
• strive to improve its levels of environmental protection.

The agreement also would

• require parties to adopt and maintain statutes and regulations consistent with multilateral environmental agreements to which each is a party;
• recognize the sovereign right of each party to establish its own levels of domestic environmental protection, its own regulatory priorities, and to adopt or modify its priorities accordingly;
• acknowledge a party's right to exercise discretion with regard to enforcement resources;
• provide for the resolution of disputes; and
• provide for a mechanism on implementation of the agreement.

The proposed USMCA directly or implicitly addresses obligations under major Multilateral Environmental Agreements (MEAs). It also includes obligations and encouragements to protect the ozone layer, protect the marine environment from ship pollution, encourage conservation and sustainable use of biodiversity, and encourage sustainable fisheries management.

• initial consultations between the parties;
• good offices, conciliation, or mediation; and (if no resolution);
• establishment of a dispute settlement panel.

Panels are composed of five members, of whom each side appoints two. A chair is appointed by mutual consent of the parties. Failing that, the disputing party selected by lot makes the decision. After the panel renders its decision, the unsuccessful party is expected to remedy the measure or practice under dispute. If it does not, the aggrieved party may seek compensation, suspension of benefits, or fines. In cases in which a dispute is common to both WTO and FTA rules, a party can choose the forum in which to bring the dispute (i.e., at the WTO or before a NAFTA panel), but cannot bring the dispute to multiple fora.

Three state-to-state dispute resolution panels under NAFTA were completed between 1994 and 2001 A fourth case (Restrictions on Sugar from Mexico) was never considered because the United States was able to block a panel chair—and, consequently, a panel—from forming. This action exposed an issue in the panel selection process, which has not been used since.

Under the panel selection process, the parties shall select and maintain a roster of 30 panelists, chosen by consensus for a three-year term with the possibility of reappointment. The issue arises when the roster is not constituted or maintained. If a roster has lapsed, as may have been the case in the sugar dispute, a party can challenge any proposed panelist and potentially block any panel from being established.¹⁰⁵ As noted above, a party seeking redress of an issue common to the USMCA and WTO can use either venue. However, the proposed USMCA contains several provisions that are not in the WTO agreements at all, or are treated less extensively. In this case, a functioning USMCA dispute settlement system could be the only arbiter of such disputes. This issue was not resolved in the USMCA. In addition, some chapters or sections are not subject to dispute settlement including

• The Good Regulatory Practices chapter;
• The Competition Policy chapter;
• The Competitiveness chapter;
• The Small and Medium-Sized Enterprise chapter;
• The Transparency and Procedural Fairness for Pharmaceutical Products and Medical Devices section of the Publications and Administration chapters;
• The Macroeconomic Policies and Exchange Rate Matters Chapter other than transparency and reporting obligations that have not been resolved through consultations.

Unlike other U.S. FTAs, NAFTA (and the proposed USMCA) contains a binational dispute settlement mechanism (NAFTA Chapter 19, USMCA Chapter 10). It provides disciplines for settling disputes arising from a NAFTA party's statutory amendment of its antidumping (AD) or countervailing duty (CVD) laws, or from a NAFTA party's AD or CVD final determination¹⁰⁶ on the goods of an exporting NAFTA party. The dispute settlement system in NAFTA Chapter 19 originated during the Canada-United States Free Trade Agreement (CUSFTA) negotiations that culminated in 1988, and it was retained under NAFTA. It was a priority negotiating issue for the Canadian government.

The binational panel mechanism provides for a review of NAFTA parties' final administrative determinations in AD/CVD investigations in lieu of judicial review in domestic courts. In cases in which an aggrieved NAFTA country maintains that a NAFTA partner did not preserve "fair and predictable disciplines on unfair trade practices," or asserts that a NAFTA partner's amendment to its AD or CVD law is inconsistent with the WTO Antidumping or Subsidies Agreements,¹⁰⁷ the aggrieved NAFTA partner may request a judgment from a binational panel rather than through the legal system of the defending party.¹⁰⁸

Chapter 19 Panels Involving the United States

As of February 2019, Chapter 19 panels have reviewed 155 cases. The United States and its industries have been a party to 91% of all Chapter 19 panel reviews (141 panels), as either the importing or exporting country. In 77% of these panels (109 panels), the United States was the importing country and investigating authority. In these 109 cases, panels reviewed 55 U.S. decisions regarding U.S. imports from Canada and 54 U.S. decisions regarding U.S. imports from Mexico. Panels issued a ruling in one-third of these cases. Nearly two-thirds of the cases were terminated by one or both of the parties before the panel made a determination.

As the exporting country, U.S. industries requested 40 panel reviews of another party's investigatory decisions. These panels included 20 reviews of Canadian decisions and 20 of Mexican decisions. Nearly two-thirds (26) of these panels completed their review and issued a ruling. The remaining one-third (14) were terminated by one or both of the involved parties before the panel ruled.

The Trump Administration sought to eliminate the Chapter 19 dispute settlement mechanism during the USMCA negotiations.¹⁰⁹ By contrast, Canada and Mexico expressed support for retaining the mechanism, with Canada drawing a "red line" firmly opposing its elimination.¹¹⁰ At the end of the negotiations, the three countries decided to retain the system. NAFTA Chapter 19 is effectively replicated in the Trade Remedies Chapter of the USMCA.

NAFTA does not have provisions related to currency manipulation. For the first time in a U.S. trade agreement, the proposed USMCA includes obligations to guard against currency manipulation. The parties agreed to "achieve and maintain a market-determined exchange rate regime," and to "refrain from competitive devaluation, including through intervention in the foreign exchange market." However, only transparency and reporting requirements are subject to dispute settlement procedures.

The June 2015 TPA included, for the first time, a principal trade negotiating objective addressing currency manipulation. While neither Canada nor Mexico have been accused of currency manipulation in the past, the inclusion of a currency manipulation chapter could serve as a precedent for including such provisions in future FTAs. Over the past decade, some Members of Congress and policy experts have been concerned that foreign countries may use exchange rate policies to gain an unfair trade advantage against the United States, or are "manipulating" their currencies. Specifically, the concern is that other countries may purposefully undervalue their currencies to boost exports, making it harder for other countries to compete in global markets. They argue that U.S. companies and jobs have been adversely affected by the exchange rate policies adopted by China, Japan, and other countries "manipulating" their currencies.¹¹¹ Some economists are skeptical about currency manipulation and whether it is a significant problem. They raise questions about whether government policies have long-term effects on exchange rates, whether it is possible to differentiate between "manipulation" and legitimate central bank activities, and the net effect of alleged currency manipulation on the U.S. economy.¹¹²

Nontariff barriers, including discriminatory and unpredictable regulatory processes, can be an impediment to market access for U.S. goods and services exports. NAFTA includes broad provisions on regulatory practices in several chapters, including the Customs Procedures, Financial Services, and Energy chapters, but does not have a specific chapter on regulatory practices. NAFTA may have influenced the United States, Canada, and Mexico to increase cooperation on economic and security issues through various endeavors such as the North American Leaders' Summits, the North American Trusted Traveler Program, the U.S.-Canada Beyond the Border Action Plan, and the U.S.-Mexico High Level Regulatory Cooperation Council.¹¹³

The proposed USMCA has a new, separate chapter on regulatory practices in which the parties agreed upon commitments to promote regulatory quality through greater transparency, objective analysis, accountability, and predictability to facilitate international trade, investment, and economic growth. The chapter states that the application of good regulatory practices can support the development of compatible regulatory approaches among the parties, and reduce or eliminate unnecessarily burdensome, duplicative, or divergent regulatory requirements. Such commitments could complement ongoing efforts and include increased transparency in the development and implementation of proposed regulations, opportunities for public comment in the development of regulations, and/or the use of impact assessments and other methods to ensure regulations are evidence-based and current.¹¹⁴

The implementation of NAFTA trucking provisions was a major trade issue between the United States and Mexico for many years because the United States delayed its trucking commitments under NAFTA. NAFTA provided Mexican commercial trucks full access to four U.S.-border states by 1995 and full access throughout the United States by 2000. The two countries cooperated to resolve the issue over time and engaged in numerous talks regarding safety and operational issues. By 2015, the trucking issue had been resolved.

Under NAFTA, Mexican commercial trucks have authority under the agreement to operate in the United States, but they cannot operate between two points within the country. This means that they can haul cross-border loads but cannot haul loads that originate and end in the United States. The proposed USMCA would cap the number of Mexican-domiciled carriers that can receive U.S. operating authority and would continue the prohibition on Mexican-based carriers hauling freight between two points within the United States. Mexican carriers that already have authority under NAFTA to operate in the United States would continue to be allowed to operate in the United States.

The United States has been influential in including commitments to combat corruption in international trade into its FTAs by incorporating chapters on transparency and anticorruption into the agreements. Although it has been part of U.S. policy for many years, the use of these types of provisions has evolved over time with anticorruption commitments becoming progressively stronger.¹¹⁵ NAFTA does not include a separate chapter related to transparency or anticorruption, but it does include several provisions that were considered groundbreaking at the time, including binding rules and disciplines on and removal of barriers to foreign investment. It was not until the proposed TPP that anticorruption provisions were specifically included as a U.S. FTA chapter. Earlier agreements such as the U.S.-Chile FTA included anticorruption provisions related to government procurement, but none in the transparency chapter. The Dominican Republic-Central America FTA (CAFTA-DR) was negotiated several years later and contains anticorruption provisions in the transparency chapters that apply to the whole agreement.

In the NAFTA renegotiations, both the United States and Mexico included anticorruption provisions in their negotiating objectives. The proposed USMCA has a new chapter on anti-corruption, similar to that of the proposed TPP, in which the parties affirm their resolve to prevent and combat bribery and corruption in international trade and investment. The scope of the chapter is limited to measures to prevent and combat bribery and corruption in regard to any matter covered by the agreement.

In the Final Provisions chapter of the proposed USMCA, parties commit to a review of the agreement on the sixth anniversary of the agreement's entry into force. If all parties agree to continue the agreement after six years, it shall remain in force for another 16 years. If a party does not confirm its wish to extend the term of the agreement for another 16-year period, parties shall conduct a joint review of the agreement every year. The agreement only specifies that a "party" would review the agreement; it does not state whether it would be the President or Congress that reviews the agreement. This may be of interest to Congress as it considers the USMCA implementing legislation and what its role would be in reviewing the USMCA. Some industry observers contend that the sunset provision may have a detrimental effect on investor confidence and affect long-term investments. Others believe that the provision will not have an effect as parties can choose to review an agreement at any time.

There are a number of significant issues for Congress in the consideration of the proposed USMCA. Key issues Congress may examine include modernized provisions of the agreement, the role of the Congress and the President in the NAFTA renegotiation and approval process, whether the agreement meets TPA objectives, the possible economic impact, especially in the auto industry, and how the agreement may impact U.S. relations with Canada and Mexico, two of the United States' largest trading partners. Some lawmakers believe that the renegotiations resulted in a positive outcome that would enhance relations with NAFTA partners through a modernized agreement. Other lawmakers have expressed concerns about specific aspects of the agreement, including labor, with a goal of revision. What follows are a few selected areas of potential congressional interest.

A possible issue for Congress relates to the roles of Congress and the President in the modernization of the agreement or possible withdrawal. Implementing legislation for the USMCA agreement may be considered under Trade Promotion Authority (TPA). Under TPA, if the President "makes progress in meeting" TPA's principal trade negotiating objectives and meets various consultative, notifications, and reporting requirements before, during, and after the conclusion of negotiations, Congress shall provide expedited procedures for automatic introduction of the implementing bill submitted by the President, a timetable for guaranteed committee consideration and discharge, floor consideration, prohibition of amendments, and limitation on debate. The process from introduction must be completed within 90 days, but it has often been completed much more quickly. As TPA was in effect when the USMCA was signed on November 30, 2018, it is eligible for TPA consideration. There is no deadline for presidential submission or congressional consideration of implementing legislation.

TPA's requirement that the President fulfill consultation, notification and reporting obligations helps preserve the congressional role in trade agreements by giving Congress the opportunity to influence the agreement before it is finalized. Congress may be interested in the extent to which the President advances U.S. negotiating objectives in TPA as approved by Congress in 2015, given several notable breaks in USMCA with the contents of previous U.S. FTAs. Should Congress determine that the President has failed to meet these and other requirements, it may decide that the implementing bill is not eligible for consideration under TPA rules. It would implement this decision by adopting a joint "procedural disapproval" resolution in both houses of Congress or a Consultation and Compliance Resolution in either house. In addition, expedited procedures under TPA are considered rules of Congress and can be changed at any time. Given that, either House can deny expedited treatment to implementing legislation. In the House, the Speaker may direct the Rules Committee to enact a rule stripping expedited treatment from the implementing legislation. In the Senate, changing a rule would require unanimous consent, or a supermajority to waive it.¹¹⁶

President Trump has indicated that he would consider withdrawing from NAFTA as a means of pressuring Congress to support timely action on implementing legislation. It is not clear, though, whether the President has the legal authority for withdrawing from an agreement without the consent of Congress. If President Trump attempts to withdraw from the agreement, it is possible that Congress would attempt to challenge or delay the effort. The question of who has the authority to terminate NAFTA, a congressional-executive agreement, has been debated by lawmakers, legal experts, and others.¹¹⁷

Congress may examine the economic effects of a USMCA and the broader strategic implications of possible withdrawal from NAFTA absent action on legislation to implement the USCMA. President Trump has repeatedly threatened to withdraw from NAFTA. Some analysts maintain that these statements are not to be taken lightly because the potential cost of such actions could be very significant for the U.S. economy.¹¹⁸ The United States shares strong economic ties with Mexico and Canada. Any disruption to the economic relationship could have adverse effects on investment, employment, productivity, and North American competitiveness. In addition, Mexico and Canada could consider imposing retaliatory tariffs on U.S. exports if the United States were to withdraw, while at the same time maintaining existing and pursuing new FTAs without the United States.

(billions of dollars)

Source: Compiled by CRS using data from the U.S. International Trade Commission (USITC) trade dataweb.

Some analysts believe that the updated auto rules of origin requirements contained in the USMCA could raise compliance and production costs and could lead to higher prices, which could possibly negatively affect U.S. vehicle sales. The net impact, however, may be more limited depending on the capacity of U.S. automakers and parts manufacturers to shift suppliers and production locations and the ability to absorb higher costs, according to some observers.¹²² Some observers contend that manufacturers with a stronger presence in Mexico, such as General Motors and Fiat Chrysler Automobiles, may be more impacted.¹²³

Other observers and stakeholders are continuing to review the provisions in the new agreement and what effect, if any, these changes would have on U.S. economic relations with Canada and Mexico. To some analysts, provisions in areas such as customs regulation, digital trade, sanitary and phytosanitary measures, and enforcement on labor and the environment are considered an improvement over similar provisions in NAFTA. Other proposed changes in the agreement, such as largely heightened IPR protections and generally less extensive investment provisions, have both supporters and detractors. For example, there is some concern that the ISDS provisions in the USMCA effectively may only apply to certain U.S. contracts in Mexico's energy sector and possibly leave out other sectors such as services. Under USMCA, investors in many sectors would be limited to filing ISDS claims for breaches of national treatment, most-favored nation treatment, or expropriation, but not indirect expropriation.

On July 1, 2018, Mexico held presidential and legislative elections in which Andrés Manuel López Obrador and his leftist MORENA party won by wide margins. President López Obrador entered into office on December 1, 2018. He won the presidency with 53.2% of the vote, more than 30 percentage points ahead of his nearest rival. MORENA's coalition also won majorities in both chambers of Mexico's Congress.¹²⁴

Although President López Obrador voiced skepticism about NAFTA in the past, he has stated on several occasions that he supports the agreement, arguing that it should be improved to benefit Mexico rather than being terminated. Mexico's chief NAFTA negotiator under López Obrador's Administration, Jesús Seade, stated that the proposed USMCA is a "satisfactory result" for Mexico and that it will create an incentive for increased investment linkages and deeper economic integration.¹²⁵

An issue for congressional consideration is Mexico and Canada's ongoing trade initiatives and how they may affect the United States. In addition to numerous FTAs with other countries, Canada and Mexico are signatories to the TPP, now known as CPTPP or TPP-11. Following the withdrawal of the Trump Administration from the then-proposed TPP in January 2017, the 11 parties agreed on a final deal for the CPTPP on January 23, 2018; it was signed on March 8, 2018. Canada and Mexico have ratified the agreement. With six of the 11 countries having ratified it, the CPTPP came into effect on December 30, 2018. It provides Canada and Mexico preferential market access in numerous industries to several lucrative Asian markets, especially Japan, and may affect current trade and investment trends with the United States.¹²⁶

According to a June 2017 study, Canada and Mexico could have potential gains from CPTPP, mainly because they would have increased access to other markets, especially Japan, without having to compete with U.S. exports.¹²⁷ The study projects that Canada's exports to CPTPP countries, without the United States, would increase by 4.7% by 2035 and that Mexico's would increase by 3.1%. The study states that Canada's agricultural exports, particularly beef, would benefit from access to the Japanese market.¹²⁸

Some observers contend that Mexico's trade policy is the most open in the world.¹³⁰ It has a total of 11 free trade agreements involving 46 countries, including it the 11-member CPTPP. These also include agreements with most countries in the Western Hemisphere, as well as agreements with Israel, Japan, and the EU. Mexico and the EU renegotiated a new FTA that is expected to open up the Mexican market to more EU exporters and investors. The two parties announced an agreement in principle on April 21, 2018. The new agreement, which must be ratified by both parties before entering into force, includes commitments to cooperate on issues such as climate change, human rights, combating poverty, or researching new medicines.¹³¹ Mexico is also a party to the Pacific Alliance, a regional trade integration initiative formed by Chile, Colombia, Mexico, and Peru. The trade bloc's main purpose is for members to forge stronger economic ties and integration with the Asia-Pacific region. In addition to reducing trade barriers, the Alliance has sought to integrate in areas including financial markets and the free movement of people.¹³² In 2018, the Pacific Alliance admitted Singapore, Australia, New Zealand, and Canada as associate members as a first step to deepening the relationship.¹³³

President Trump stated to reporters on December 1, 2018, that he intended to notify Canada and Mexico of his intention to withdraw from NAFTA in six months.¹³⁴ Article 2205 of NAFTA states that a party may withdraw from the agreement six months after it provides written notice of withdrawal to the other parties. If a party withdraws, the agreement shall remain in force for the remaining parties. Private sector groups are urging the President to remain within NAFTA until the proposed USMCA enters into force. They claim that withdrawing from NAFTA would have "devastating" negative consequences.¹³⁵ Congress may consider the ramifications of withdrawing from NAFTA and how it may affect the U.S. economy and foreign relations with Mexico. It may monitor and consider the congressional role in a possible withdrawal.¹³⁶

Numerous think tanks and economists have written about the possible economic consequences of U.S. withdrawal from NAFTA. For example

• An analysis by the Peterson Institute for International Economics (PIIE) finds that a withdrawal from NAFTA would cost the United States 187,000 jobs that rely on exports to Mexico and Canada. These job losses would occur over a period of one to three years. By comparison, according to the study, between 2013 and 2015, 7.4 million U.S. workers were displaced or lost their jobs involuntarily due to companies shutting down or moving elsewhere globally. The study notes that the most affected states would be Arkansas, Kentucky, Mississippi, and Indiana. The most affected sectors would be autos, agriculture, and non-auto manufacturing.¹³⁷
• A 2017 study by ImpactEcon, an economic analysis consulting company, estimates that if NAFTA were to terminate, real GDP, trade, investment, and employment in all three NAFTA countries would decline.¹³⁸ The study estimates U.S. job losses of between 256,000 and 1.2 million in three to five years, with about 95,000 forced to relocate to other sectors. Canadian and Mexican employment of low skilled workers would decline by 125,000 and 951,000, respectively.¹³⁹ The authors of the study estimate a decline in U.S. GDP of 0.64% (over $100 billion).
• The Coalition of Services Industries (CSI) argues that NAFTA continues to be a remarkable success for U.S. services providers, creating a vast market for U.S. services providers, such as telecommunications and financial services. CSI estimates that if NAFTA is terminated, the United States risks losing $88 billion in annual U.S. services exports to Canada and Mexico, which support 587,000 high-paying U.S. jobs.¹⁴⁰

Some trade policy experts contend that NAFTA has been a bad deal for U.S. workers and cost the United States nearly 700,000 jobs as of 2010.¹⁴¹ They contend that renegotiating NAFTA offers new opportunities to update the agreement with a new labor template and updated provisions to raise labor standards and help protect U.S. workers. The Economic Policy Institute (EPI) recommends that the United States seek stronger labor standards and enforcement in the NAFTA renegotiations. USMCA's modernized labor provisions may reflect some of the EPI recommended changes of including ILO conventions concerning the freedom of association, collective bargaining, discrimination, forced labor, child labor, and workplace safety and health.¹⁴²

Canada and Mexico likely would maintain NAFTA between themselves if the United States were to withdraw. U.S.-Canada trade could be governed either by CUSFTA, which entered into force in 1989 (suspended since the advent of NAFTA), or by the baseline commitments common to both countries as members of the World Trade Organization. If CUSFTA remains in effect, the United States and Canada would continue to exchange goods duty free and would continue to adhere to many provisions of the agreement common to both CUSFTA and NAFTA. Some commitments not included in the CUSFTA, such as intellectual property rights, would continue as baseline obligations in the WTO.¹⁴³ However, it is unclear whether CUSFTA would remain in effect, as its continuance would require the assent of both parties.¹⁴⁴

In the unlikely event of a U.S. withdrawal from NAFTA, the United States would presumably would return WTO most-favored-nation tariffs, the rate it applies to all countries with which the United State does not have an FTA. The United States and Canada maintain relatively low simple average MFN rates, at 3.5% and 4.1%, respectively. Mexico has a higher 7.0% simple average rate. However, all countries have higher "peak" tariffs on labor intensive goods, such as apparel and footwear, and some agriculture products.

(By percentage, trade weighted reflects 2015 trade)