The United States-Mexico-Canada Agreement (USMCA)

The United States-Mexico-Canada Agreement
July 27, 2020December 28, 2021 (USMCA) M. Angeles Villarreal The United States-Mexico-Canada Agreement (USMCA) entered into force on July 1, Specialist in International 2020, replacing the North American Free Trade Agreement (NAFTA), which had been in Trade and Finance effect since January 1, 1994. Congress, in both its legislative and oversight capacities, was active in numerous trade policy issues related to renegotiation of NAFTA and continues to be active in the implementation of USMCA. The renegotiation of NAFTA began 90 days after the May 2017 notice that the Trump Administration sent
(USMCA)
M. Angeles Villarreal
The 116th Congress, in both its legislative and oversight capacities, has been active in numerous
Specialist in International
trade policy issues related to renegotiation of the North American Free Trade Agreement
Trade and Finance
(NAFTA) and its replacement, the United States-Mexico-Canada Agreement (USMCA). In May

2017, the Trump Administration sent a 90-day notification to Congress of its intent to begin to Congress of its intent to begin talks talks
Ian F. Fergusson
with Canada and Mexico to renegotiate and modernize NAFTA, as with Canada and Mexico to renegotiate and modernize NAFTA, as was required by the 2015 Trade required by the 2015 Trade
Specialist in International
Promotion Authority (TPA). Negotiations officially began on August 16, 2017, and were Promotion Authority (TPA). Negotiations officially began on August 16, 2017, and were
Trade and Finance
concluded on September 30, 2018. The USMCA was signed on November 30, 2018. The concluded on September 30, 2018. The USMCA was signed on November 30, 2018. The

agreement was approved by the House of Representatives (H.R. 5430) on December 19, 2019, by agreement was approved by the House of Representatives (H.R. 5430) on December 19, 2019, by
a vote of 385-41, and by the Senate on January 16, 2020, by a vote of 89-10. a vote of 385-41, and by the Senate on January 16, 2020, by a vote of 89-10. President Trump

signed the USMCA implementing legislationThe agreement was signed into law on January 29, 2020 (P.L. 116-113) on January 29, 2020 (P.L. 116-113). USMCA
and entered into force five months later. NAFTA wasentered into force on July 1, 2020.
The first NAFTA negotiations were launched in 1992. Implementing legislation was signed on December 8, 1991 (P.L. 103-
182) and NAFTA entered into force on January 1, 1994. It is particularly significant because it was the most comprehensive particularly significant because it was the most comprehensive
free trade agreement (FTA) negotiated at the time, contained several groundbreaking provisions, and was the first of a new free trade agreement (FTA) negotiated at the time, contained several groundbreaking provisions, and was the first of a new
generation of U.S. FTAs later negotiated. NAFTA established trade liberalization commitments and set new rules and generation of U.S. FTAs later negotiated. NAFTA established trade liberalization commitments and set new rules and
disciplines for future FTAs on issues important to the United States, including intellectual property rights protection, services disciplines for future FTAs on issues important to the United States, including intellectual property rights protection, services
trade, dispute settlement procedures, investment, labor, and the environment. NAFTA’s market-opening provisions gradually trade, dispute settlement procedures, investment, labor, and the environment. NAFTA’s market-opening provisions gradually
eliminated nearly all tariff and most nontariff barriers on merchandise tradeeliminated nearly all tariff and most nontariff barriers on merchandise trade among the three trading partners. At the time of NAFTA negotiations, average . At the time of NAFTA negotiations, average
applied U.S. duties on imports from Mexico were 2.07%, while U.S. businesses faced average tariffs of 10%, in addition to applied U.S. duties on imports from Mexico were 2.07%, while U.S. businesses faced average tariffs of 10%, in addition to
nontariff and investment barriers, in Mexico. The U.S.-Canada FTA, which had been in effect since 1989, was suspended nontariff and investment barriers, in Mexico. The U.S.-Canada FTA, which had been in effect since 1989, was suspended
under NAFTA. under NAFTA.
USMCA, comprised of 34 chapters and 12 side letters, retains most of NAFTA’s market opening measures and other USMCA, comprised of 34 chapters and 12 side letters, retains most of NAFTA’s market opening measures and other
measures, while making notable changes to measures, while making notable changes to automotor vehicle rules of origin, dispute settlement provisions, government procurement, rules of origin, dispute settlement provisions, government procurement,
investment, and intellectual property rights (IPR) protection. It also modernizes provisions on services, labor, and the investment, and intellectual property rights (IPR) protection. It also modernizes provisions on services, labor, and the
environment. New trade issues, such as digital trade, state-owned enterprises, anticorruption, and currency misalignment, environment. New trade issues, such as digital trade, state-owned enterprises, anticorruption, and currency misalignment, are
also addressedalso have specific commitments. Key issues for Congress in the debate surrounding USMCA included worker rights protection in Mexico, IPR . Key issues for Congress in the debate surrounding USMCA included worker rights protection in Mexico, IPR
provisions and rules of origin changes, the enforceability of labor and environmental provisions, as well the constitutional provisions and rules of origin changes, the enforceability of labor and environmental provisions, as well the constitutional
authority of Congress over international trade and its role in revising, approving, or withdrawing from the agreement. authority of Congress over international trade and its role in revising, approving, or withdrawing from the agreement.
Congress was also active in considering U.S. negotiating objectives and the extent to which USMCA made progress in Congress was also active in considering U.S. negotiating objectives and the extent to which USMCA made progress in
meeting them, as required under TPA.
On April 24, 2020, United States Trade Representative, Ambassador Lighthizer, notified Congress that Canada and Mexico
had taken the measures necessary to comply with their USMCA commitments and that the agreement would enter into force
on July 1, 2020. The United States was the third country to notify the other parties that it had completed its domestic
procedure to implement the agreement. The President’s notification stated that the other parties had taken the necessary legal
and regulatory measures to comply with their commitments under the agreement. For USMCA, such measures included laws
or regulations regarding rules of origin, tariffs, panel rosters related to dispute resolution, establishing committees such as the
one called for in the chapter on small and medium-sized enterprises, and labor law implementation in Mexico, among others.
As USMCA enters into the implementation phase, key issues for Congress include: how the new importing requirements
under USMCA are being phased in and whether there has been sufficient time for importers to adjust to the new
requirements; whether extending the implementing of the new rules of origin for the motor vehicle industry until January
2021 provides vehicle producers, exporters and importers sufficient time to provide certification that products meet the rules
of origin meeting them, as required under TPA. Key issues for Congress in the implementation phase of USMCA include: how the new importing requirements under USMCA are being phased in; whether the new rules of origin for the motor vehicle industry are being implemented as planned; how the North American motor vehicle industry is being affected by the more stringent requirements; how well Mexico is implementing labor law reforms to provide more worker rights protection; requirements; how well Mexico is implementing labor law reforms to provide more worker rights protection;
how well the whether the Trump Administration is adequately using funding provided by USMCA legislation funding provided by USMCA legislation to ensureis ensuring effective effective
implementation of Mexico’s labor reforms; implementation of Mexico’s labor reforms; the effectiveness ofhow well the new the new labor enforcement measures, including the rapid response enforcement measures, including the rapid response
mechanismmechanism, are working; and, among other issues, the extent to which USMCA’s updated dispute resolution procedures are improving the ; and, among other issues, the extent to which USMCA’s updated dispute resolution procedures are improving the
enforcement of the agreement’s provisions. enforcement of the agreement’s provisions.
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Contents
Introduction ..................................................................................................................................... 1
NAFTA Overview ........................................................................................................................... 2
Review of Key NAFTA Provisions ............................................................................................................ 4
Trade Trends .............................................................................................................................. 6
Trade in Oil and Gas ........................................................................................................... 8
Merchandise Trade in Selected Industries .......................................................................... 97
U.S. Investment with Canada and Mexico ................................................................................ 8 10
USMCA Negotiation Process and TPA .......................................................................................... 11
Trade Deficit Reduction ................................................................................................................ 12. 9
USMCA ......................................................................................................................................... 1310
Rules of Origin ......................................................................................................................... 11 13
Motor Vehicle Industry ............................................................................................................ 14. 11
Agriculture .............................................................................................................................. 1613
Customs and Trade Facilitation ............................................................................................... 1715
Energy ..................................................................................................................................... 1816
Government Procurement ....................................................................................................... 1917
Investment ............................................................................................................................... 2118
Minimum Standard of Treatment (MST) .......................................................................... 2219
Performance Requirements ............................................................................................... 2219
Denial of Benefits ............................................................................................................. 2219
Government Right to Regulate ......................................................................................... 2220
Investor-State Dispute Settlement (ISDS) ........................................................................ 2220
Services ................................................................................................................................... 2421
Express Delivery ............................................................................................................... 2421
Temporary Entry for Business Purposes ........................................................................... 2522
Financial Services ................................................................................................................... 2522
Telecommunications................................................................................................................ 2623
Digital Trade. ........................................................................................................................... 2723
Intellectual Property Rights (IPR) ........................................................................................... 2724
Patents ............................................................................................................................... 2825
Copyrights ......................................................................................................................... 2926
Trademarks ....................................................................................................................... 3026
Trade Secrets ..................................................................................................................... 3027
Geographical Indications (GIs) ......................................................................................... 3027
IPR Enforcement ............................................................................................................... 3128
Cultural Exemption ........................................................................................................... 3128
State-Owned Enterprises (SOEs) ............................................................................................ 3128
Labor ....................................................................................................................................... 3229
Environment ............................................................................................................................ 3431
Dispute Settlement .................................................................................................................. 3532
Binational Review Panels for Trade Remedies ................................................................. 3633
Currency Manipulation ........................................................................................................... 3734
Regulatory Practices ................................................................................................................ 3834
Trucking .................................................................................................................................. 38
35 Anticorruption ......................................................................................................................... 3935
“Sunset” Provision in Review and Term Extension ................................................................ 3936 Implementation of USMCA .......................................................................................................... 36 Labor Issues ............................................................................................................................ 36
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Issues for Congress ..Mexican Female Migrant Laborers Dispute U.S. Visa Process .......................................... 37 Tridonex Mexico Facility and Workers’ Right to Organize Freely ................................... 37 USTR Complaint against a General Motors Mexican Facility ......................................... 39
Congressional Oversight Role and Key Changes to USMCA ................................................ 40
Roles of Congress and the President in NAFTA Renegotiations ............................................ 40
Economic and Broader Considerations 38 Motor Vehicle Rules of Origin ................................................................................................ 40 Mexico’s Energy Policies ........................................................................................................ 40 Selected Trade Issues Regarding North American Trade ........................................................ 41 USMCA Competitiveness Committee .............................................................................. 41 Proposed U.S. Electric Vehicle Tax Credits ...................................................................... 42 Canadian Softwood Lumber ...................................................................................... 41
Outlook....... 42 Issues for Congress .......................................................................................................................................... 42 43 Congressional Oversight Role and USMCA Implementation ................................................. 43 Economic and Broader Considerations ................................................................................... 44

Figures
Figure 1. U.S. Merchandise Trade with NAFTA Partners: 1993-20192020 ............................................ 7
Figure 2. U.S. Services and Merchandise Trade Balance with USMCA Partners ........................... 8
Figure 3. U.S. Merchandise and Oil and Gas Trade with NAFTA Partners .......................................... 97
Figure 43. U.S. Trade with NAFTA Partners in Selected Industries ............................................... 10.. 8
Figure 54. Foreign Direct Investment Positions Among NAFTA Partners: 1993-20192020 ................... 11. 9

Tables
Table 1. Selected Economic Indicators for Mexico, Canada, and the United States ....................... 4
Table 2. Select Technical Assistance Projects in Mexico .............................................................. 39
Contacts
Author Information ........................................................................................................................ 4445


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NAFTA and the United States-Mexico-Canada Agreement (USMCA)

Introduction
The The 116th Congress, in both its legislative and oversight capacities, has been active in numerous
trade policy issues related to renegotiation of the North American Free Trade Agreement
(NAFTA) and its replacement, the United States-Mexico-Canada Agreement (USMCA), as of
July 1, 2020.1 In May 2017, the Trump Administration sent a 90-day notification to Congress of
its intent to begin talks with Canada and Mexico to renegotiate and modernize NAFTA, as
required by the 2015 Trade Promotion Authority (TPA).2 Talks officially began on August 16,
2017, and concluded on September 30, 2018. On November 30, 2018, the USMCA was signed by
President Donald J. Trump, then-President Enrique Peña Nieto of Mexico, and Canadian Prime
Minister Justin Trudeau. The Trump Administration submitted the USMCA implementing
legislation to Congress on December 13, 2019. On the same day, the USMCA Implementation
Act (H.R. 5430) was introduced in the House of Representatives. On December 16, the
companion bill was introduced in the Senate (S. 3052). The legislation United States-Mexico-Canada Agreement (USMCA) is a free trade agreement among the United States, Mexico, and Canada that entered into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA) that had been in effect since January 1, 1994.1 Congress, in both its legislative and oversight capacities, was active in numerous trade policy issues related to renegotiation of NAFTA and continues to be active in the implementation of USMCA. Implementing legislation for USMCA was passed by the House was passed by the House
on December 19, 2019, by a vote of 385-41, and by the Senate on January 16, 2020, by a vote of on December 19, 2019, by a vote of 385-41, and by the Senate on January 16, 2020, by a vote of
89-10. President Trump signed the legislation89-10. The legislation was signed into law on January 29, 2020 (P.L. 116-113). on January 29, 2020 (P.L. 116-113).
Key issues for Congress in regard to Key issues for Congress in regard to
Joint Statement on ReachingRegarding First Meeting renegotiation of NAFTA and passage of of USMCA Free Trade Commission (FTC) USMCA included protection of worker “Today the United States, Canada, and Mexico held the rights, the enforceability of labor and first-ever USMCA FTC meeting. While this renewed environmental provisions, intellectual Agreement is less than a year old, our countries are property rights (IPR), changes to rules of neighbors and friends, and have a longstanding shared history built on mutual respect and cooperation. The origin changes in the motor vehicle USMCA commits us to a robust and inclusive North industry, the economic effects of the American economy that serves as a model globally for agreement, as well as the constitutional competitiveness, while prioritizing the interests of workers authority of Congress over international and underserved communities. The Parties recognize that trade and its role in revising, approving, or trade policies should foster broad-based and equitable growth, spur innovation, protect our shared environment, withdrawing from the agreement. Also of and have a positive impact on people from all walks of life. interest to Congress were U.S. negotiating To accomplish this, the United States, Mexico, and Canada objectives and the extent to which the recommit to fully implementing, enforcing, and fulfilling the proposed agreement made progress in Agreement’s terms and high standards throughout the life advancing them, as required under TPA. of the USMCA.” Joint Statement from United States Trade Representative While the United States Trade Katherine Tai, Canadian Minister of Small Business, Export Representative’s (USTR) negotiating Promotion, and International Trade Mary Ng, and Mexican objectives included many goals consistent Secretary for Economy Tatiana Clouthier, May 18, 2021. with TPA, USTR also sought, for the first
renegotiation of NAFTA and passage of
Agreement on USMCA
USMCA included protection of worker rights,
“Today, Canada and the United States reached an
the enforceability of labor and environmental
agreement, alongside Mexico, on a new, modernized
provisions, intellectual property rights and
trade agreement for the 21st Century: the United
rules of origin changes, the economic effects
States-Mexico-Canada Agreement (USMCA). USMCA
wil give our workers, farmers, ranchers and businesses
of the agreement, as well as the constitutional
a high-standard trade agreement that wil result in freer
authority of Congress over international trade
markets, fairer trade and robust economic growth in
and its role in revising, approving, or
our region. It wil strengthen the middle class, and
withdrawing from the agreement. Also of
create good, well-paying jobs and new opportunities
interest to Congress were U.S. negotiating
for the nearly half bil ion people who call North
America home.
objectives and the extent to which the
“We look forward to further deepening our close
proposed agreement made progress in meeting
economic ties when this new agreement enters into
them, as required under TPA.
force.
USMCA revises key NAFTA provisions, such
“We would like to thank Mexican Economy Secretary
as auto rules of origin, which, some argue, roll
Ildefonso Guajardo for his close col aboration over the
past 13 months.”
back longstanding U.S. FTA provisions. On
Joint Statement from United States Trade Representative
the other hand, it establishes new updated
Robert Lighthizer and Canadian Foreign Affairs Minister
provisions in areas, such as digital trade and
Chrystia Freeland, September 30, 2018.
state-owned enterprise disciplines. Key issues
Source: USTR, at https://ustr.gov/about-us/policy-
for Congress include oversight of the effective
Source: USTR, at https://ustr.gov/about-us/policy-offices/offices/press-office/press-releases. press-office/press-releases.
implementation of the new and revised
commitments under USMCA; whether new provisions on labor and environmental enforcement
meet congressional concerns; and how USMCA revisions affect the future of U.S. trade policy
given its reduced commitments in some areas and expanded commitments in others.

1 For more information, see CRS In Focus IF10047, North American Free Trade Agreement (NAFTA), by M. Angeles
Villarreal, and CRS In Focus IF10997, U.S.-Mexico-Canada (USMCA) Trade Agreement, by M. Angeles Villarreal and
Ian F. Fergusson.
2 See CRS In Focus IF10038, Trade Promotion Authority (TPA), by Ian F. Fergusson.
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NAFTA and the United States-Mexico-Canada Agreement (USMCA)

While the USTR’s negotiating objectives included many goals consistent with TPA, USTR also
sought, for the first time in U.S. trade negotiations, to reduce the U.S. trade deficit with NAFTA time in U.S. trade negotiations, to reduce the U.S. trade deficit with NAFTA
countries, among other specific objectives. U.S. objectives appeared to seek to “rebalance the countries, among other specific objectives. U.S. objectives appeared to seek to “rebalance the
benefits” of the agreement, echoing President Trump’s statements that NAFTA was a “disaster” benefits” of the agreement, echoing President Trump’s statements that NAFTA was a “disaster”
and the “worst agreement ever negotiated.”and the “worst agreement ever negotiated.”32 Some U.S. negotiating positions could be seen to Some U.S. negotiating positions could be seen to
have the explicit or implicit goal of promoting U.S. economic sovereignty and/or rolling back have the explicit or implicit goal of promoting U.S. economic sovereignty and/or rolling back
previous liberalization commitments in specific areas, such as periodically reviewing and previous liberalization commitments in specific areas, such as periodically reviewing and
potentially “sunsetting” the agreement, questioning the validity of binational dispute settlement, potentially “sunsetting” the agreement, questioning the validity of binational dispute settlement,
enhancing government procurement restrictions, and increasing U.S. and North American content enhancing government procurement restrictions, and increasing U.S. and North American content
in the auto rules of originin the auto rules of origin.4, among other positions.3 Trump Administration officials also spoke of Trump Administration officials also spoke of unraveling the North
1 For more information, see CRS In Focus IF10047, North American Free Trade Agreement (NAFTA), by M. Angeles Villarreal, and CRS In Focus IF10997, U.S.-Mexico-Canada (USMCA) Trade Agreement, by M. Angeles Villarreal and Ian F. Fergusson. 2 CBS News, Trump Calls NAFTA a Disaster, September 25, 2016, https://www.cbsnews.com/news/trump-calls-nafta-a-disaster/; Politico, “The Real Game Trump is Playing on NAFTA,” February 26, 2018, https://www.politico.com/magazine/story/2018/02/26/donald-trump-nafta-negotiations-217085. 3 Simon Lester and Inu Manak, “The Rise of Populist Nationalism and the Renegotiation of NAFTA, Journal of Congressional Research Service 1 NAFTA and the United States-Mexico-Canada Agreement (USMCA) unraveling North American and global supply chains as a way of attempting to divert trade and investment from American and global supply chains as a way of attempting to divert trade and investment from
Canada and Mexico to the United States.Canada and Mexico to the United States.54 Mexican and Canadian negotiators viewed such Mexican and Canadian negotiators viewed such
proposals as counterproductive to the spirit and mutual economic benefits of NAFTA and proposals as counterproductive to the spirit and mutual economic benefits of NAFTA and
repeated their positions to modernize NAFTA. The differences between views on modernizing the repeated their positions to modernize NAFTA. The differences between views on modernizing the
agreement and U.S. proposals led to perceived tensions in the negotiations. agreement and U.S. proposals led to perceived tensions in the negotiations.
USMCA has been viewed by manyMany policymakers and industry representatives viewed the renegotiation of NAFTA as an opportunity to as an opportunity to incorporateform a new agreement that incorporated elements of more recent U.S. elements of more recent U.S.
FTAs that have entered into force or were negotiated, such as the U.S.-Korea FTA (KORUS) and FTAs that have entered into force or were negotiated, such as the U.S.-Korea FTA (KORUS) and
the proposed the proposed TPP.Trans-Pacific Partnership.5 The U.S. and global economies The U.S. and global economies havehad changed significantly since NAFTA changed significantly since NAFTA
entered’s entry into force into force 25 years agoin 1994, especially due to technology advances. The widespread use of the , especially due to technology advances. The widespread use of the
commercial internet, for example, dramatically affected consumer habits and commercial commercial internet, for example, dramatically affected consumer habits and commercial
activities, such as e-commerceactivities, such as e-commerce, data flows, and supply chain management. Negotiators also sought updated and supply chain management. Negotiators also sought updated
provisions in other areas, including provisions in other areas, including intellectual property rights (IPR)IPR, labor, and the environment. , labor, and the environment.
The increased role of state-led or The increased role of state-led or state-supported firms in trade competition supported firms in trade competition globally, particularly involving China, with private sector firms with private sector firms
was also was also a newan issue of debate and focus of new rules-setting. issue of debate and focus of new rules-setting.
This report provides a brief overview of NAFTA This report provides a brief overview of NAFTA and, the role of Congress in the renegotiation the role of Congress in the renegotiation
process, process, and discusses key provisions in USMCA, as well as issues related to key provisions in USMCA, as well as issues related to the negotiations. It
also provides a discussion of policy implications for Congress. It does not examine existing
NAFTA provisions and economic relations in depth. implementation of the agreement. For more information on For more information on these issuesNAFTA, please , please
see CRS Report R42965, see CRS Report R42965, The North American Free Trade Agreement (NAFTA), by M. Angeles , by M. Angeles
Villarreal and Ian F. Fergusson. Villarreal and Ian F. Fergusson.
NAFTA Overview
NAFTA negotiations were first launched under President George H. W. Bush. President William 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). 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 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 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 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, to the United States. These include provisions on intellectual property rights (IPR) protection,
services trade, agriculture, dispute settlement procedures, investment, labor, and the environment. services trade, agriculture, dispute settlement procedures, investment, labor, and the environment.

3 CBS News, Trump Calls NAFTA a Disaster, September 25, 2016, https://www.cbsnews.com/news/trump-calls-nafta-
a-disaster/; Politico, “The Real Game Trump is Playing on NAFTA,” February 26, 2018, https://www.politico.com/
magazine/story/2018/02/26/donald-trump-nafta-negotiations-217085.
4 Simon Lester and Inu Manak, “The Rise of Populist Nationalism and the Renegotiation of NAFTA, Journal of
International Economic Law, 2018, March 2018.
5NAFTA 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%; over 50% of U.S. imports from Mexico entered duty free.6 In contrast, the U.S. goods and services faced higher tariff, nontariff, and investment barriers in Mexico.7 Trade among NAFTA partners has more than tripled since the International Economic Law, 2018, March 2018. 4 James Pethokoukis, “Does Trump want to somehow get rid of global supply chains?, James Pethokoukis, “Does Trump want to somehow get rid of global supply chains?, AEI Ideas, January 31, 2017, , January 31, 2017,
http://www.aei.org/publication/does-trump-want-to-somehow-get-rid-of-global-supply-chains/. http://www.aei.org/publication/does-trump-want-to-somehow-get-rid-of-global-supply-chains/.
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link to page 8 NAFTA and the United States-Mexico-Canada Agreement (USMCA)

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.6 In contrast, the United States faced higher tariff, nontariff, and
investment barriers in Mexico.7 Trade among NAFTA partners has more than tripled since the
5 For more information on the Trans-Pacific Partnership (TPP), see CRS In Focus IF10000, TPP: Overview and Current Status, by Brock R. Williams and Ian F. Fergusson. 6 Executive Office of the President, Study on the Operation and Effects of the North American Free Trade Agreement, July 1997, pp. 6-7. 7 Most of the market-opening measures resulting from NAFTA were between the United States and Mexico, and Congressional Research Service 2 link to page 8 NAFTA and the United States-Mexico-Canada Agreement (USMCA) agreement entered into force, forming integrated production chains among all three countries. 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 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 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 availability of lower-priced and greater choice of consumer goods, and improving living
standards and working conditions.8 Others blame NAFTA and subsequent U.S. FTAs for standards and working conditions.8 Others blame NAFTA and subsequent U.S. FTAs for
disappointing employment trends, a decline in average U.S. wages, and for not having done disappointing employment trends, a decline in average U.S. wages, and for not having done
enough to improve labor standards and environmental conditions abroad.9 enough to improve labor standards and environmental conditions abroad.9
Another important element of NAFTA is that it helped “lock in” trade and investment Another important element of NAFTA is that it helped “lock in” trade and investment
liberalization efforts taking place at the time, especially in Mexico. NAFTA was instrumental in liberalization efforts taking place at the time, especially in Mexico. NAFTA was instrumental in
developing closer U.S. relations with both Mexico and Canada and it developing closer U.S. relations with both Mexico and Canada and it may have accelerated accelerated
ongoing trade and investment trends. At the time that NAFTA was implemented, the U.S.-Canada ongoing trade and investment trends. At the time that NAFTA was implemented, the U.S.-Canada
Free Trade Agreement (CUSFTA) was already in effect and U.S. tariffs on most Mexican goods Free Trade Agreement (CUSFTA) was already in effect and U.S. tariffs on most Mexican goods
were low. Mexico had the highest level of trade barriers among the three countries. From the were low. Mexico had the highest level of trade barriers among the three countries. From the
1930s through part of the 1980s, Mexico maintained a strong protectionist trade policy in an 1930s through part of the 1980s, Mexico maintained a strong protectionist trade policy in an
effort to be independent of any foreign power and as a means to promote domestic-led effort to be independent of any foreign power and as a means to promote domestic-led
industrialization.10 In 1991, for example, U.S. businesses were very restricted in investing in industrialization.10 In 1991, for example, U.S. businesses were very restricted in investing in
Mexico. Under Mexico’s restrictive Mexico. Under Mexico’s restrictive Law to Promote Mexican Investment and Regulate Foreign
Investment, about a third of Mexican economic activity was not open to majority foreign about a third of Mexican economic activity was not open to majority foreign
ownership.11 Mexico’s failed protectionist policies did not result in increased income levels or ownership.11 Mexico’s failed protectionist policies did not result in increased income levels or
economic growth, and the income disparity with the United States remains large, even after economic growth, and the income disparity with the United States remains large, even after
NAFTA (NAFTA (seesee Table 1).
NAFTA coincided with Mexico’s unilateral trade liberalization efforts. After NAFTA, the United NAFTA coincided with Mexico’s unilateral trade liberalization efforts. After NAFTA, the United
States and Canada gained greater access to the Mexican market, which was the fastest-growing States and Canada gained greater access to the Mexican market, which was the fastest-growing

6 Executive Office of the President, Study on the Operation and Effects of the North American Free Trade Agreement,
July 1997, pp. 6-7.
7 Most of the market-opening measures resulting from NAFTA were between the United States and Mexico, and
export market for U.S. goods and services at the time.12 NAFTA also opened up the U.S. market to increased imports from Mexico and Canada, creating one of the largest free trade areas in the world. Since NAFTA, the three countries have made efforts to cooperate on issues of mutual interest, including trade and investment, and also in other, broader aspects of the relationship, such as regulatory cooperation, industrial competitiveness, trade facilitation, border environmental cooperation, and security. Canada and Mexico, because the United States and Canada had a free trade agreement at the time that had been in Canada and Mexico, because the United States and Canada had a free trade agreement at the time that had been in
effect since 1989. effect since 1989.
8 For example, see Gary Clyde Hufbauer, Cathleen Cimino, and Tyler Moran, 8 For example, see Gary Clyde Hufbauer, Cathleen Cimino, and Tyler Moran, NAFTA at 20: Misleading Charges and
Positive Achievements, Peterson Institute for International Economics, Number PB14-13, May 2014; and U.S. Chamber , Peterson Institute for International Economics, Number PB14-13, May 2014; and U.S. Chamber
of Commerce, of Commerce, NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth, and Jobs, October 2015., October 2015.
9 For example, see AFL-CIO, 9 For example, see AFL-CIO, NAFTA at 20, March 2014; and Robert E. Scott, Carlos Salas, Bruce Campbell et al., , March 2014; and Robert E. Scott, Carlos Salas, Bruce Campbell et al.,
Revisiting NAFTA: Still Not Working for North America’s Workers, Economic Policy Institute, Briefing Paper #173, , Economic Policy Institute, Briefing Paper #173,
September 28, 2006. September 28, 2006.
10 For more information on Mexico’s trade policies, see CRS Report R40784, 10 For more information on Mexico’s trade policies, see CRS Report R40784, Mexico’s Free Trade Agreements, by M. , by M.
Angeles Villarreal. Angeles Villarreal.
11 CRS Report R42965, 11 CRS Report R42965, The North American Free Trade Agreement (NAFTA), by M. Angeles Villarreal and Ian F. , by M. Angeles Villarreal and Ian F.
Fergusson. Fergusson.
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major export market for U.S. goods and services at the time.12 NAFTA also opened up the U.S.
market to increased imports from Mexico and Canada, creating one of the largest free trade areas
in the world. Since NAFTA, the three countries have made efforts to cooperate on issues of
mutual interest, including trade and investment, and also in other, broader aspects of the
relationship, such as regulatory cooperation, industrial competitiveness, trade facilitation, border
environmental cooperation, and security.

12 United States International Trade Commission (USITC), Potential Impact on the U.S. Economy and Selected Industries of the North American Free-Trade Agreement, USITC Publication 2596, January 1993. Congressional Research Service 3 link to page 8 link to page 8 link to page 8 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Table 1. Selected Economic Indicators for Mexico, Canada, and the United States
(1994 and (1994 and 20182020) )
Mexico
Canada
United States

1994
2019
2020 1994
20192020
1994
20192020
Population ( Population (mil ionsmillions) )
90 90
126129
29 29
3738
262 262
329331
Nominal GDP (US$ Nominal GDP (US$ bil ionsbillions)a
528 528
1, 1,221073
580 580
1, 1,736644
7,287 7,287 21,42820,894
Nominal GDP, PPP Basis (US$ Nominal GDP, PPP Basis (US$ bil ionsbillions)b
813 813
2, 2,632420
656 656
1, 1,916828
7,287309 7,287309 21,42820,894
Per Capita GDP (US$) Per Capita GDP (US$)
5,856 5,856
9,6788,319
20,090 20,090 46,41343,553
27,788 27,788 65,11763,123
Per Capita GDP in $PPP Per Capita GDP in $PPP
9,017 9,017 20,40718,771
22,735 22,735 51,20848,425
27,788 27,788 65,11763,123
Exports of goods and services (% of GDP) Exports of goods and services (% of GDP)
13% 13%
3940% %
33% 33%
3229% %
10% 10%
1210% %
Imports of goods and services (% of GDP) Imports of goods and services (% of GDP)
17% 17%
4138% %
32% 32%
3331% %
11% 11%
1513% %
Source: Compiled by CRS based on data from Economist Intelligence unit (EIU) online database. Compiled by CRS based on data from Economist Intelligence unit (EIU) online database.
a. Nominal GDP is calculated by EIU based on figures from World Bank and World Development Indicators. a. Nominal GDP is calculated by EIU based on figures from World Bank and World Development Indicators.
b. PPP refers to purchasing power parity, which reflects the purchasing power of foreign currencies in U.S. b. PPP refers to purchasing power parity, which reflects the purchasing power of foreign currencies in U.S.
dol ars.
dollars. Review of Key NAFTA Provisions
Key NAFTA provisions included tariff and nontariff trade liberalization, rules of origin, Key NAFTA provisions included tariff and nontariff trade liberalization, rules of origin,
commitments on services trade and foreign investment, IPR protection, government procurement commitments on services trade and foreign investment, IPR protection, government procurement
rules, and dispute resolution. Labor and environmental provisions were in separate NAFTA side rules, and dispute resolution. Labor and environmental provisions were in separate NAFTA side
agreements. NAFTA provisions and rules governing trade were groundbreaking in a number of agreements. NAFTA provisions and rules governing trade were groundbreaking in a number of
areas, particularly in regard to enforceable rules and disciplines that were included in a trade areas, particularly in regard to enforceable rules and disciplines that were included in a trade
agreement for the first time. There were almost no FTAs in place worldwide at the time, and agreement for the first time. There were almost no FTAs in place worldwide at the time, and
NAFTA influenced subsequent agreements negotiated by the United States and other countries, NAFTA influenced subsequent agreements negotiated by the United States and other countries,
especially at the multilateral level, in light of the then-pending Uruguay Round of major especially at the multilateral level, in light of the then-pending Uruguay Round of major
multilateral trade liberalization negotiations. multilateral trade liberalization negotiations.
The market opening that occurred after NAFTA The market opening that occurred after NAFTA is likely a factor inexpanded the significance of trade for the significance of trade for
Mexico’s economy. In 1994, Mexico’s exports and imports equaled 14% and 18%, respectively, Mexico’s economy. In 1994, Mexico’s exports and imports equaled 14% and 18%, respectively,
of GDP, while in 2019, these percentages increased to of GDP, while in 2019, these percentages increased to 3940% and % and 4138%. For the United States, trade %. For the United States, trade
is less significant for the economy, with the value of imports and exports equaling is less significant for the economy, with the value of imports and exports equaling 1210% and % and 1513%, %,
respectively, of GDP in respectively, of GDP in 2018 (see2020 (see Table 1).
. Key NAFTA provisions included: Key NAFTA provisions included:

12 United States International Trade Commission (USITC), Potential Impact on the U.S. Economy and Selected
Industries of the North American Free-Trade Agreement, USITC Publication 2596, January 1993.
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  Market Opening. NAFTA eliminated nearly all tariffs and most nontariff NAFTA eliminated nearly all tariffs and most nontariff
barriers on goods produced within North America. It removed Mexico’s barriers on goods produced within North America. It removed Mexico’s
restrictive tariffs, quotas, and import licenses on products from the United States restrictive tariffs, quotas, and import licenses on products from the United States
and Canada.13 NAFTA helped “lock in” Mexico’s trade and investment and Canada.13 NAFTA helped “lock in” Mexico’s trade and investment
liberalization and ensured basic protections for U.S. and Canadian investors in liberalization and ensured basic protections for U.S. and Canadian investors in
Mexico.14 Mexico.14
13 Mexico’s average tariff on all imports from the United States in 1993 was 10%, compared to the U.S. tariff of 2.07%. 14 Prior to NAFTA U.S. businesses were very restricted in investing in Mexico under Mexico’s former restrictive Law to Promote Mexican Investment and Regulate Foreign Investment. Congressional Research Service 4 NAFTA and the United States-Mexico-Canada Agreement (USMCA)   Agriculture. NAFTA eliminated tariffs and tariff-rate quotas (TRQs) on most NAFTA eliminated tariffs and tariff-rate quotas (TRQs) on most
agricultural products. It maintained TRQs with high over-quota tariffs for U.S. agricultural products. It maintained TRQs with high over-quota tariffs for U.S.
exports of dairy, poultry, and egg products to Canada. NAFTA addressed sanitary exports of dairy, poultry, and egg products to Canada. NAFTA addressed sanitary
and phytosanitary (SPS) measures and other types of agricultural non-tariff and phytosanitary (SPS) measures and other types of agricultural non-tariff
barriers. SPS regulations are often regarded by agricultural exporters as one of barriers. SPS regulations are often regarded by agricultural exporters as one of
the greatest challenges in trade, often resulting in increased costs and product the greatest challenges in trade, often resulting in increased costs and product
loss and disrupting integrated supply chains.15 loss and disrupting integrated supply chains.15
  Investment. NAFTA removed significant investment barriers in Mexico, ensured . NAFTA removed significant investment barriers in Mexico, ensured
basic protections for NAFTA investors, and provided a mechanism for the basic protections for NAFTA investors, and provided a mechanism for the
settlement of disputes between investors and a NAFTA country. NAFTA settlement of disputes between investors and a NAFTA country. NAFTA
provided for national and “nondiscriminatory treatment” for foreign investment provided for national and “nondiscriminatory treatment” for foreign investment
by NAFTA parties in certain sectors of other NAFTA countries. The agreement by NAFTA parties in certain sectors of other NAFTA countries. The agreement
included country-specific liberalization commitments and exceptions to national included country-specific liberalization commitments and exceptions to national
treatment. Exemptions from NAFTA included the energy sector in Mexico, in treatment. Exemptions from NAFTA included the energy sector in Mexico, in
which the Mexican government reserved the right to prohibit private investment which the Mexican government reserved the right to prohibit private investment
or foreign participation. or foreign participation.
  Services Trade. NAFTA services provisions established a set of basic rules and . NAFTA services provisions established a set of basic rules and
obligations in services trade among partner countries. The agreement granted obligations in services trade among partner countries. The agreement granted
services providers certain rights concerning nondiscriminatory treatment, cross-services providers certain rights concerning nondiscriminatory treatment, cross-
border sales and entry, investment, and access to information. However, there border sales and entry, investment, and access to information. However, there
were certain exclusions and reservations by each country. These included were certain exclusions and reservations by each country. These included
maritime shipping (United States), film and publishing (Canada), and oil and gas maritime shipping (United States), film and publishing (Canada), and oil and gas
drilling (Mexico).16 NAFTA liberalized certain service sectors in Mexico, drilling (Mexico).16 NAFTA liberalized certain service sectors in Mexico,
particularly financial services, which significantly opened its banking sector.17 particularly financial services, which significantly opened its banking sector.17
  Financial Services. Under NAFTA, Canada extended an exemption granted . Under NAFTA, Canada extended an exemption granted
to the United States, under the CUSFTA, to Mexico in which Mexican banks to the United States, under the CUSFTA, to Mexico in which Mexican banks
would not be subject to Canadian investment restrictions. In turn, Mexico would not be subject to Canadian investment restrictions. In turn, Mexico
agreed to permit financial firms from another NAFTA country to establish agreed to permit financial firms from another NAFTA country to establish
financial institutions in Mexico, subject to certain market-share limits applied financial institutions in Mexico, subject to certain market-share limits applied
during a transition period ending by the year 2000. during a transition period ending by the year 2000.
  Telecommunications Services. NAFTA partners agreed to exclude provision NAFTA partners agreed to exclude provision
of, but not the use of, basic telecommunications services in the agreement. of, but not the use of, basic telecommunications services in the agreement.
NAFTA granted a “bill of rights” for the providers and users of NAFTA granted a “bill of rights” for the providers and users of

13 Mexico’s average tariff on all imports from the United States in 1993 was 10%, compared to the U.S. tariff of 2.07%.
14 Prior to NAFTA U.S. businesses were very restricted in investing in Mexico under Mexico’s former restrictive Law
to Promote Mexican Investment and Regulate Foreign Investment.
15 See CRS Report R44875, The North American Free Trade Agreement (NAFTA) and U.S. Agriculture, by Renée
Johnson.
16 United States General Accounting Office (GAO, now called Government Accountability Office), “North American
Free Trade Agreement: Assessment of Major Issues, Volume 2,” Report to the Congress, September 1993, pp. 35-36.
17 Hufbauer and Schott, NAFTA Revisited, pp. 28.
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telecommunications services, including access to public telecommunications
services; connection to private lines that reflect economic costs and available
on a flat-rate pricing basis; and the right to choose, purchase, or lease
terminal equipment best suited to their needs.18 NAFTA did not require
parties to authorize a person of another NAFTA country to provide or operate
telecommunications transport networks or services. Nor did it bar a party
from maintaining a monopoly provider of public networks or services.19telecommunications services, including access to public telecommunications services; connection to private lines that reflect economic costs and available on a flat-rate pricing basis; and the right to choose, purchase, or lease terminal equipment best suited to their needs.18 NAFTA did not require parties to authorize a person of another NAFTA country to provide or operate telecommunications transport networks or services. Nor did it bar a party from maintaining a monopoly provider of public networks or services.19 15 See CRS Report R44875, The North American Free Trade Agreement (NAFTA) and U.S. Agriculture, by Renée Johnson. 16 United States General Accounting Office (GAO, now called Government Accountability Office), “North American Free Trade Agreement: Assessment of Major Issues, Volume 2,” Report to the Congress, September 1993, pp. 35-36. 17 Hufbauer and Schott, NAFTA Revisited, pp. 28. 18 GAO, Report to Congress, September 1993, pp. 38-39. 19 Office of the united States Trade Representative (USTR), Description of the Proposed North American Free Trade Agreement, August 12, 1992, p. 29. Congressional Research Service 5 link to page 11 link to page 11 NAFTA and the United States-Mexico-Canada Agreement (USMCA)
  Intellectual Property Rights (IPR) Protection. NAFTA was the first U.S. FTA . NAFTA was the first U.S. FTA
to include a chapter on IPR protection provisions. It built upon the then-ongoing to include a chapter on IPR protection provisions. It built upon the then-ongoing
Uruguay Round negotiations that would create the Trade Related Aspects of Uruguay Round negotiations that would create the Trade Related Aspects of
Intellectual Property Rights (TRIPS) agreement in the WTO and on various Intellectual Property Rights (TRIPS) agreement in the WTO and on various
existing international intellectual property treaties. The agreement set specific existing international intellectual property treaties. The agreement set specific
enforceable commitments by NAFTA parties regarding the protection of enforceable commitments by NAFTA parties regarding the protection of
copyrights, patents, trademarks, and trade secrets, among other provisions. copyrights, patents, trademarks, and trade secrets, among other provisions.
  Dispute Resolution. NAFTA’s provisions for preventing and settling disputes . NAFTA’s provisions for preventing and settling disputes
regarding enforcement of commitments under the agreement were built upon regarding enforcement of commitments under the agreement were built upon
provisions in the CUSFTA. NAFTA created a system of arbitration for resolving provisions in the CUSFTA. NAFTA created a system of arbitration for resolving
disputes that included initial consultations, taking the issue to the NAFTA Trade disputes that included initial consultations, taking the issue to the NAFTA Trade
Commission, or going through arbitral panel proceedings.20 NAFTA included Commission, or going through arbitral panel proceedings.20 NAFTA included
separate dispute settlement provisions for addressing disputes related to separate dispute settlement provisions for addressing disputes related to
investment and over antidumping and countervailing duty determinations. investment and over antidumping and countervailing duty determinations.
  Government Procurement. NAFTA opened up a significant portion of federal . NAFTA opened up a significant portion of federal
government procurement in each country on a nondiscriminatory basis to government procurement in each country on a nondiscriminatory basis to
suppliers from other NAFTA countries for goods and services. It contained some suppliers from other NAFTA countries for goods and services. It contained some
limitations for procurement by state-owned enterprises. limitations for procurement by state-owned enterprises.
  Labor and Environment. NAFTA marked the first time that labor and . NAFTA marked the first time that labor and
environmental provisions were associated with an FTA. Some stakeholders environmental provisions were associated with an FTA. Some stakeholders
viewed it as an opportunity for establishing a new type of relationship among viewed it as an opportunity for establishing a new type of relationship among
NAFTA partners.21 Labor and environmental provisions, which were in separate NAFTA partners.21 Labor and environmental provisions, which were in separate
side agreements, included language to promote cooperation on labor and side agreements, included language to promote cooperation on labor and
environmental matters as well as provisions to address a party’s failure to enforce environmental matters as well as provisions to address a party’s failure to enforce
its own labor and environmental laws. Perhaps most notable, at the time, were the its own labor and environmental laws. Perhaps most notable, at the time, were the
side agreements’ dispute settlement processes that, as a last resort, could impose side agreements’ dispute settlement processes that, as a last resort, could impose
monetary assessments and sanctions to address a party’s failure to enforce its monetary assessments and sanctions to address a party’s failure to enforce its
laws. laws.
Trade Trends
U.S. trade with NAFTA partners increased U.S. trade with NAFTA partners increased rapidly after the agreement after the agreement took effectentered into force, increasing , increasing
more rapidly than trade with most other countries. more rapidly than trade with most other countries. The U.S. trade deficit with Canada and Mexico has fluctuated since NAFTA’s entry into force given other economic factors, such as economic growth and exchange rates, which are key variables affecting trade and trade balances. U.S. total merchandise imports from NAFTA U.S. total merchandise imports from NAFTA
partners increased from $150.9 billion in 1993 to partners increased from $150.9 billion in 1993 to $677.9$687.3 billion in 2019 ( billion in 2019 (349355%), while merchandise exports increased from $141.8 billion to $550.3 billion (288%) during the same time period (see Figure 1). In 2020, these figures decreased substantially, reflecting the economic downturn due to the Coronavirus Disease 2019 (COVID 19) pandemic. U.S. goods and services imports from USMCA partners decreased from $941.9 billion in 2019 to $780.0 billion in 2020, while U.S. exports decreased from $652.5 billion to $544.8 billion. The United States had a services trade surplus with Canada and Mexico of $30.6 billion in 2020 (see Figure 2). %), while

18 GAO, Report to Congress, September 1993, pp. 38-39.
19 Office of the united States Trade Representative (USTR), Description of the Proposed North American Free Trade
Agreement, August 12, 1992, p. 29.
20 If the parties are unable to resolve the issue through consultations, they may take the dispute to the NAFTA Trade 20 If the parties are unable to resolve the issue through consultations, they may take the dispute to the NAFTA Trade
Commission, which is composed of Ministers or cabinet-level officers designated by each country. A party may also Commission, which is composed of Ministers or cabinet-level officers designated by each country. A party may also
request the establishment of an arbitral panel, which may make recommendations for the resolution of the dispute. request the establishment of an arbitral panel, which may make recommendations for the resolution of the dispute.
21 Woodrow Wilson International Center for Scholars, 21 Woodrow Wilson International Center for Scholars, NAFTA at 10: Progress, Potential, and Precedents, pp. 20-30. , pp. 20-30.
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12 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Figure 1. U.S. Merchandise Trade with NAFTA Partners: 1993-2020NAFTA and the United States-Mexico-Canada Agreement (USMCA)

merchandise exports increased from $141.8 billion to $548.8 billion (287%) during the same time
period (see Figure 1). The U.S. trade deficit with Canada and Mexico has fluctuated since
NAFTA’s entry into force given the other economic factors, such as economic growth and
exchange rates, which affect trade. In 2019, the U.S. trade deficit increased to $129.1 billion, up
from $74.3 billion in 2016. Services trade with NAFTA partners has also increased. The United
States had a services trade surplus with Canada and Mexico of $36.2 billion in 2018 (see Figure
2).
Figure 1. U.S. Merchandise Trade with NAFTA Partners: 1993-2019
(billions of nominal dollars) (billions of nominal dollars)

Source: Compiled by CRS using trade data from the U.S. International Trade Commission’s Interactive Tariff Compiled by CRS using trade data from the U.S. International Trade Commission’s Interactive Tariff
and Trade Data Web, at http://dataweb.usitc.gov. and Trade Data Web, at http://dataweb.usitc.gov.

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NAFTA and the United States-Mexico-Canada Agreement (USMCA)

Figure 2. U.S. Services and Merchandise Figure 2. U.S. Trade Balance with USMCA Partners

Source: Compiled by CRS using Compiled by CRS using trade data from the U.S. Bureau of Economic Analysisdata from the U.S. Bureau of Economic Analysis at http://www.bea.gov
and the U.S. International Trade Commission’s (USITC’s) Interactive Tariff and Trade Data Web, at
http://dataweb.usitc.gov.
Trade in Oil and Gas
Trade in oil and gas, a key component of trilateral trade, affects the overall trade balance with
Canada and Mexico. Numerous policymakers associate the U.S. trade deficit with NAFTA
partners with merchandise trade and jobs. When the value of trade in oil and gas is taken out of
the equation, the trade deficit has been much lower and, in some years, has been a surplus, as
shown in Figure 3. The value of U.S. oil and gas exports to Canada and Mexico increased from
$0.9 billion in 1997 to $18.7 billion in 2019, while imports increased from $22.3 billion to $82.4
billion. The U.S. merchandise trade deficit with Canada and Mexico in goods other than oil and
gas was $65.3 billion in 2019, compared to an overall deficit with NAFTA countries of $129.1
billion in the same year.
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link to page 14. Merchandise Trade in Selected Industries NAFTA and the elimination of Mexican trade barriers were instrumental in the initial integration of the North American motor vehicle industry. The sector experienced some of the most significant changes in trade following the agreement and ranks first among leading exports to and imports from NAFTA countries as shown in Figure 3. Agriculture trade also expanded after Congressional Research Service 7 link to page 13 link to page 13 NAFTA and the United States-Mexico-Canada Agreement (USMCA)
NAFTA and the United States-Mexico-Canada Agreement (USMCA)

Figure 3. U.S. Merchandise and Oil and Gas Trade with NAFTA Partners
(1997-2019)

Source: Compiled by CRS using trade data from the U.S. International Trade Commission’s Interactive Tariff
and Trade Data Web, at http://dataweb.usitc.gov.
Notes: Oil and gas trade data are at the NAIC 3-digit level, code 211, which include activities related to
exploration for crude petroleum and natural gas; dril ing, completing, and equipping wells; operating separators,
emulsion breakers, desilting equipment, and field gathering lines for crude petroleum and natural gas; and other
activities.
Merchandise Trade in Selected Industries
NAFTA removed Mexico’s protectionist policies in the motor vehicle sector and was instrumental
in the integration of the motor vehicle industry in all three countries. The sector experienced some
of the most significant changes in trade following the agreement and ranks first among leading
exports to and imports from NAFTA countries as shown in Figure 4. Agriculture trade also
expanded after NAFTA, but to a lesser degree than the motor vehicle industry. The trade balance NAFTA, but to a lesser degree than the motor vehicle industry. The trade balance
in agriculture also has a far lower trade deficit. in agriculture also has a far lower trade deficit. In contrast, theThe U.S. textiles and apparel sectors U.S. textiles and apparel sectors
appear to have experienced adjustment costs since NAFTA, with experienced adjustment costs since NAFTA, with ana significant expansion in U.S. imports expansion in U.S. imports in the the
first ten years after the agreement entered into forcefirst ten years after the agreement entered into force and a decrease since 2003. In 2019. In 2020, the , the
United States had a trade surplus in of $3.United States had a trade surplus in of $3.75 billion in textiles and apparel trade with Canada and billion in textiles and apparel trade with Canada and
Mexico. These trade trends indicate that NAFTA achieved many of the trade and economic Mexico. These trade trends indicate that NAFTA achieved many of the trade and economic
benefits that proponents claimed it would bring, although there have been adjustment costs. benefits that proponents claimed it would bring, although there have been adjustment costs.
However, it is difficult to isolate the effects of NAFTA on trade in specific industries because However, it is difficult to isolate the effects of NAFTA on trade in specific industries because
other factors, such as economic growth and currency fluctuations, also affect trade. other factors, such as economic growth and currency fluctuations, also affect trade.
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Figure 4Figure 3. U.S. Trade with NAFTA Partners in Selected Industries
(billions of nominal dollars) (billions of nominal dollars)

Source: Compiled by CRS using data from the U.S. International Trade Commission, U.S. Department of Compiled by CRS using data from the U.S. International Trade Commission, U.S. Department of
AgricultureAgriculture (USDA), International Trade Administration’s Office of Textiles and Apparel., International Trade Administration’s Office of Textiles and Apparel.
Notes: For motor vehicles and parts, data from 1997 to 2020 for motor vehicles and parts includes North American Industry Classification System (NAICS) codes 3361, 3362, and 3363. For agriculture, data includes “agricultural products” as defined by USDA. U.S. Investment with Canada and Mexico
Foreign direct investment (FDI) has been an integral part of the economic relationship between Foreign direct investment (FDI) has been an integral part of the economic relationship between
the United States and NAFTA partners for many years. Two-way investment between Canada and the United States and NAFTA partners for many years. Two-way investment between Canada and
the United States has increased markedly since NAFTA, both in terms of the stock and flow of the United States has increased markedly since NAFTA, both in terms of the stock and flow of
investment. The United States is the largest single investor in Canada with a stock of FDI into investment. The United States is the largest single investor in Canada with a stock of FDI into
Canada reaching $Canada reaching $402.3422.2 billion in billion in 20192020, up from a stock of $96.6 billion in 1997 (, up from a stock of $96.6 billion in 1997 (seesee Figure 5)4). .
U.S. investment represents about half of the total stock of FDI in Canada from global investors. U.S. investment represents about half of the total stock of FDI in Canada from global investors.
The United States was the largest destination for Canadian FDI in The United States was the largest destination for Canadian FDI in 20192020, with a stock of $ with a stock of $580569.8 .8
billion, a significant increase from $78.6 billion in 1997 (by ultimate beneficial owner). These billion, a significant increase from $78.6 billion in 1997 (by ultimate beneficial owner). These
trends highlight the changing view of FDI among Canadians, from one that could be considered trends highlight the changing view of FDI among Canadians, from one that could be considered
fearful or hostile to FDI as vehicles of foreign control over the Canadian economy, to one that is fearful or hostile to FDI as vehicles of foreign control over the Canadian economy, to one that is
more welcoming of new jobs and technologies that result from FDI. more welcoming of new jobs and technologies that result from FDI.
In Mexico, the United States is the largest source of FDI. The stock of U.S. FDI in Mexico In Mexico, the United States is the largest source of FDI. The stock of U.S. FDI in Mexico
increased from $24.1 billion in 1997 to $increased from $24.1 billion in 1997 to $100.9101.1 billion in billion in 20192020 (see (see Figure 5)4). Some . Some economists
economists Congressional Research Service 8 NAFTA and the United States-Mexico-Canada Agreement (USMCA) contend that Mexico’s economic and energy sector reforms have added resilience to the Mexican contend that Mexico’s economic and energy sector reforms have added resilience to the Mexican
economy in recent years. However, investor unease economy in recent years. However, investor unease aboutpersists due to domestic policy uncertainty domestic policy uncertainty andover the the
international economy international economy persist. Ratification of USMCAand the López Obrador Administration’s efforts to expand the state’s role in the energy sector. USMCA’s investment provisions may remove some of this may remove some of this uncertainty as there could be legal challenges and commercial retaliations from the United States if Mexico breaches USMCA provisionsuncertainty and
longer-term prospects for export-oriented manufacturing, as well as oil production, appear
positive.22 Mexican FDI in the United States, while substantially lower than U.S. investment in .22 Mexican FDI in the United States, while substantially lower than U.S. investment in
Mexico, has also increased rapidly, from $4.1 billion in 1997 to $42.Mexico, has also increased rapidly, from $4.1 billion in 1997 to $42.91 billion in billion in 20192020 (by ultimate (by ultimate
beneficial owner).23

22 Economist Intelligence Unit, Mexico, Country Report, February 18, 2020.
23 Foreign direct investment data in this section is derived from data from the Bureau of Economic Analysis online
database at http://www.bea.gov.
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Figure 5beneficial owner).23 Figure 4. Foreign Direct Investment Positions Among NAFTA Partners: 1993-20192020
(historical-cost basis, by ultimate beneficial owner) (historical-cost basis, by ultimate beneficial owner)

Source: CRS based on data from U.S. Department of Commerce, Bureau of Economic Analysis. CRS based on data from U.S. Department of Commerce, Bureau of Economic Analysis.
USMCA Negotiation Process and TPA
Under Article II of the Constitution, the President has the authority, with the advice and consent Under Article II of the Constitution, the President has the authority, with the advice and consent
of the Senate, to make treaties. Under Article I, Section 8, Congress has the authority to lay and of the Senate, to make treaties. Under Article I, Section 8, Congress has the authority to lay and
collect duties, and to regulate foreign commerce. The President sought expedited treatment of the collect duties, and to regulate foreign commerce. The President sought expedited treatment of the
implementing legislation for USMCA under the Bipartisan Comprehensive Trade Promotion and implementing legislation for USMCA under the Bipartisan Comprehensive Trade Promotion and
Accountability Act of 2015 (TPAAccountability Act of 2015 (TPA 2015).24 ).24
Under TPA Under TPA, the President must 2015, which was authorized through July 1, 2021, the President was required to consult with Congress before giving the required 90-day notice of consult with Congress before giving the required 90-day notice of
his intention to start negotiations.25 The Trump Administration’s consultations included meetings his intention to start negotiations.25 The Trump Administration’s consultations included meetings
between between then-U.S. Trade Representative Robert Lighthizer and Members of the House Ways and U.S. Trade Representative Robert Lighthizer and Members of the House Ways and
Means Committee and Senate Finance Committee and with Members of the House and Senate Means Committee and Senate Finance Committee and with Members of the House and Senate
Advisory Groups on Advisory Groups on 22 Economist Intelligence Unit, Mexico, Country Report, generated November 12, 2021. 23 Foreign direct investment data in this section is derived from data from the Bureau of Economic Analysis online database at http://www.bea.gov. 24 P.L. 114-26. 25 CRS In Focus IF10297, TPP-Trade Promotion Authority (TPA) Timeline, by Ian F. Fergusson. Congressional Research Service 9 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Negotiations.26 The Office of the United States Trade Representative Negotiations.26 The Office of the United States Trade Representative
(USTR) held public hearings prior to the release of the negotiating objectives and received more (USTR) held public hearings prior to the release of the negotiating objectives and received more
than 12,000 public comments.27 than 12,000 public comments.27
In order to use the expedited procedures of TPA, the President In order to use the expedited procedures of TPA, the President mustwas required to notify and consult with notify and consult with
Congress before initiating and during negotiations, and adhere to several reporting requirements Congress before initiating and during negotiations, and adhere to several reporting requirements
following the conclusion of any negotiations resulting in an agreement. The President following the conclusion of any negotiations resulting in an agreement. The President must
also was required to conduct the negotiations based on the negotiating objectives set forth by Congress in the 2015 conduct the negotiations based on the negotiating objectives set forth by Congress in the 2015
TPA authority. See TPA authority. See the box below for the dates on which these box below for the dates on which these requirements were met. Key Dates for USMCA and TPA  May 17, 2017: Ninety-day Presidential notification to Congressrequirements were met.

24 P.L. 114-26.
25 CRS In Focus IF10297, TPP-Trade Promotion Authority (TPA) Timeline, by Ian F. Fergusson.
26 These groups were created by TPA to provide additional opportunities for consultation with the committees of
jurisdiction, as well as other committees with jurisdiction over potential subject matter in the trade agreement.
27 Office of the United States Trade Representative, Summary of Objectives for the NAFTA Renegotiation, July 17,
2017, p. 2, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/july/ustr-releases-nafta-negotiating.
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Key Dates for USMCA and TPA

May 17, 2017: President sends to Congress required 90-day notification of intent to begin negotiations with of intent to begin negotiations with
Canada and Mexico. Canada and Mexico.
 
July 17, 2017: USTR July 17, 2017: USTR publishedpublication of a summary of a summary of the Trump Administration’s specific objectives with respect to the specific objectives with respect to the
negotiations. negotiations.
 
August 16, 2017: Negotiations with Mexico and Canada August 16, 2017: Negotiations with Mexico and Canada beginbegan. .
 
August 30, 2018: Notification to Congress of intent to sign agreement. August 30, 2018: Notification to Congress of intent to sign agreement.
 
September 30, 2018: USMCA draft text released. Advisory committee reports released. September 30, 2018: USMCA draft text released. Advisory committee reports released.
 
November 30, 2018: USMCA November 30, 2018: USMCA is signed. signed.
 
January 29, 2019: List of required changes to U.S. law delivered to Congress. January 29, 2019: List of required changes to U.S. law delivered to Congress.
 
April 18, 2019: International Trade Commission (ITC) report released. April 18, 2019: International Trade Commission (ITC) report released.
 
May 30, 2019: Draft Statement of Administrative Action (SAA) and text of the agreement submitted to Congress. May 30, 2019: Draft Statement of Administrative Action (SAA) and text of the agreement submitted to Congress.
 
December 13 and 16, 2019: Implementing legislation introduced in House of Representatives (H.R. 5430) and December 13 and 16, 2019: Implementing legislation introduced in House of Representatives (H.R. 5430) and
companion companion bil bill introduced in the Senate (S. 3052). introduced in the Senate (S. 3052).
 
December 19, 2019, and January 7, 2020: Legislation approved by the House of Representatives by a vote of 385- December 19, 2019, and January 7, 2020: Legislation approved by the House of Representatives by a vote of 385-
41 and by the Senate by a vote of 89-10. 41 and by the Senate by a vote of 89-10.
 
January 29, 2020: January 29, 2020: President Trump signs the bil USMCA signed into law (P.L. 116-113).  July 1, 2020: USMCA enters into force. USMCA USMCA, comprised of 34 chapters and 12 side letters, retains most of NAFTA’s market-opening commitments, while making notable changes to market access provisions for autos and agriculture products, and to rules and disciplines, such as on investment, government procurement, and IPR. New issues, such as digital trade, state-owned enterprises, anticorruption, and currency misalignment, are also addressed. On December 10, 2019, USMCA parties agreed to a Protocol of Amendment to USMCA.28 The revisions included modifications to key elements of the original text regarding dispute settlement, labor and environmental provisions, intellectual property rights protection, and steel and aluminum requirements in the motor vehicle industry rules of origin. The following selective topics provide an overview of USMCA provisions. 26 These groups were created by TPA to provide additional opportunities for consultation with the committees of jurisdiction, as well as other committees with jurisdiction over potential subject matter in the trade agreement. 27 Office of the United States Trade Representativeinto law (P.L. 116-113).

July 1, 2020: USMCA enters into force.
Trade Deficit Reduction
The Trump Administration, for the first time in the negotiating objectives of an FTA, indicated its
aim to improve the U.S. trade balance and reduce the trade deficit with Mexico and Canada in the
negotiation of USMCA.28 As mentioned earlier, the trade balance with NAFTA partners has
fluctuated since the agreement entered into force. President Trump and some officials within his
Administration contended trade deficits are detrimental to the U.S. economy.29
Economists generally argue that it is not feasible to use trade agreement provisions as a tool to
decrease the deficit because trade imbalances are determined by underlying macroeconomic
fundamentals, such as a savings-investment imbalance in which the demand for capital in the
U.S. economy outstrips the amount of gross savings supplied by households, firms, and the
government sector.30 According to some economists, a constructive alternative would be to help
strengthen Mexico’s economy and boost Mexico’s imports from the United States.31 Others
contend that FTAs are likely to affect the composition of trade among trade partners, but have
little impact on the overall size of the trade deficit.32 They argue that trade balances are

28 Office of the United States Trade Representative (USTR), , Summary of Objectives for the NAFTA Renegotiation, July , July
17, 17, 2017, p. 2, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/july/ustr-releases-nafta-negotiating. 28 The Protocol of Amendment to the United States-Mexico-Canada Agreement is available at https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/protocol-amendments. Congressional Research Service 10 NAFTA and the United States-Mexico-Canada Agreement (USMCA) 2017, p. 4.
29 Peter Navarro, a Trump Administration trade official stated that trade deficits have a negative effect on GDP and that
trade deficit reduction was one of four key factors needed to achieve GDP growth. In a Wall Street Journal
commentary, he stated that trade deficits transfer wealth to other countries and contended that “tough, smart
negotiations is [sic] a way to increase net exports—and boost the rate of economic growth.” See Peter Navarro, “Why
the White House Worries About Trade Deficits,” The Wall Street Journal, March 5, 2017.
30 C. Fred Bergsten, Trade Balances and the NAFTA Renegotiation, Peterson Institute for International Economics,
Policy Brief, June 2017.
31 Ibid.
32 For more information on the U.S. trade deficit, see CRS In Focus IF10619, The U.S. Trade Deficit: An Overview, by
James K. Jackson.
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incomplete measures of the comprehensive nature of economic relations between the United
States and its trading partners, and maintain that trade imbalances are determined by
macroeconomic fundamentals and not by trade policy.33
From this perspective, it is not clear how the Administration would expect the USMCA to reduce
the trade deficit.
USMCA
USMCA, comprised of 34 chapters and 12 side letters, retains most of NAFTA’s market-opening
commitments, while making notable changes to market access provisions for autos and
agriculture products, and to rules and disciplines, such as on investment, government
procurement, and IPR. New issues, such as digital trade, state-owned enterprises, anticorruption,
and currency misalignment, are also addressed. On December 10, 2019, USMCA parties agreed
to a Protocol of Amendment to USMCA.34 The revisions included modifications to key elements
of the original text regarding dispute settlement, labor and environmental provisions, intellectual
property rights protection, and steel and aluminum requirements in the motor vehicle industry
rules of origin. The following selective topics provide an overview of USMCA provisions.
Rules of Origin
Rules of origin in FTAs help ensure that the benefits of the FTA are granted only to goods Rules of origin in FTAs help ensure that the benefits of the FTA are granted only to goods
produced by the parties that are signatories to the FTAs rather than to goods made wholly or in produced by the parties that are signatories to the FTAs rather than to goods made wholly or in
large part in other countries. Under USMCA, most goods that contain materials from non-large part in other countries. Under USMCA, most goods that contain materials from non-
USMCA countries may only be considered as North American if the materials are sufficiently USMCA countries may only be considered as North American if the materials are sufficiently
transformed in the USMCA region to go through a Harmonized Tariff Schedule (HTS) change in transformed in the USMCA region to go through a Harmonized Tariff Schedule (HTS) change in
tariff classification (called a “tariff shift”). In many cases, goods must have a minimum level of tariff classification (called a “tariff shift”). In many cases, goods must have a minimum level of
North American content in addition to undergoing a tariff shift. USMCA requires that the regional North American content in addition to undergoing a tariff shift. USMCA requires that the regional
value content of most goods is not less than 60% if the “transaction-value” method is used, or not value content of most goods is not less than 60% if the “transaction-value” method is used, or not
less than 50% if the “net-cost” method is used. Regional value content may be calculated using less than 50% if the “net-cost” method is used. Regional value content may be calculated using
either method. The transaction-value method, which is simpler, is based on the price of the good, either method. The transaction-value method, which is simpler, is based on the price of the good,
while the net-cost method is based on the total cost of the good less the costs of royalties, sales while the net-cost method is based on the total cost of the good less the costs of royalties, sales
promotion, and packing and shipping. Producers generally have the option to choose which promotion, and packing and shipping. Producers generally have the option to choose which
method they use, with some exceptions, such as the motor vehicle industry, which must use the method they use, with some exceptions, such as the motor vehicle industry, which must use the
net-cost method.net-cost method.3529 If a U.S. import does not meet the minimum content level under USMCA If a U.S. import does not meet the minimum content level under USMCA
rules-of-origin requirements, it will enter the United States under another import program or at rules-of-origin requirements, it will enter the United States under another import program or at
U.S. MFN tariff rates. U.S. MFN tariff rates.
An Annex to the rules of origin chapter in USMCA has product-specific rules for different An Annex to the rules of origin chapter in USMCA has product-specific rules for different
industries, including for motor vehicles and parts. The U.S. proposal on tightening rules of origin industries, including for motor vehicles and parts. The U.S. proposal on tightening rules of origin
in the motor vehicle industry was viewed as one of the more contentious issues in the USMCA in the motor vehicle industry was viewed as one of the more contentious issues in the USMCA
negotiations. negotiations.

33 Ibid.
34 The Protocol of Amendment to the United States-Mexico-Canada Agreement is available at https://ustr.gov/trade-
agreements/free-trade-agreements/united-states-mexico-canada-agreement/protocol-amendments.
35 CRS Report RL34524, International Trade: Rules of Origin, by Vivian C. Jones.
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Motor Vehicle Industry
NAFTA phased out U.S. tariffs on motor vehicle imports from Mexico and Mexican tariffs on NAFTA phased out U.S. tariffs on motor vehicle imports from Mexico and Mexican tariffs on
U.S. and Canadian products as long as they met the rules of origin requirements of 62.5% North U.S. and Canadian products as long as they met the rules of origin requirements of 62.5% North
American content for autos, light trucks, engines and transmissions; and 60% for automotive American content for autos, light trucks, engines and transmissions; and 60% for automotive
parts. Some tariffs were eliminated immediately, while others were phased out in periods over 5 parts. Some tariffs were eliminated immediately, while others were phased out in periods over 5
to 10 years. The agreement phased out Mexico’s restrictive auto decrees, which for many years to 10 years. The agreement phased out Mexico’s restrictive auto decrees, which for many years
imposed high import tariffs and investment restrictions in Mexico’s auto sector, and opened the imposed high import tariffs and investment restrictions in Mexico’s auto sector, and opened the
Mexican motor vehicle sector to trade with and investment from the United States.Mexican motor vehicle sector to trade with and investment from the United States.3630
USMCA tightens NAFTA auto rules of origin by including: USMCA tightens NAFTA auto rules of origin by including:
 New motor vehicle rules of origin and procedures, including product-specific  New motor vehicle rules of origin and procedures, including product-specific
rules, and requiring 75% North American content. rules, and requiring 75% North American content.
 For the first time in a trade agreement, wage requirements stipulating 40%-45%  For the first time in a trade agreement, wage requirements stipulating 40%-45%
of North American auto content be made by workers earning at least $16 per of North American auto content be made by workers earning at least $16 per
hour. hour.
 A requirement that 70% of a vehicle’s steel and aluminum must originate (melted  A requirement that 70% of a vehicle’s steel and aluminum must originate (melted
and poured) in North America. and poured) in North America.
29 CRS Report RL34524, International Trade: Rules of Origin, by Vivian C. Jones. 30 Beginning in the 1960s, Mexico had a restrictive import substitution policy in which the government sought to supply the entire Mexican market through domestically produced automotive goods. The series of auto decrees established import tariffs as high as 25%, had high restrictions on foreign auto production, prohibited imports of finished vehicles, imposed high domestic content requirements and had export requirements in which a certain amount of exports was required for every dollar of imports. Congressional Research Service 11 NAFTA and the United States-Mexico-Canada Agreement (USMCA)  A provision aiming to streamline the enforcement of manufacturers’ rules of  A provision aiming to streamline the enforcement of manufacturers’ rules of
origin certification requirements. origin certification requirements.
In addition, side letters exempt from potential Section 232 tariffs the following items from In addition, side letters exempt from potential Section 232 tariffs the following items from
Canada and Mexico: Canada and Mexico:
 2.6 million passenger vehicles each from Canada and Mexico on an annual basis.  2.6 million passenger vehicles each from Canada and Mexico on an annual basis.
 Light trucks imported from Canada or Mexico.  Light trucks imported from Canada or Mexico.
 Auto part imports amounting to U.S. $32.4 billion from Canada and U.S. $108  Auto part imports amounting to U.S. $32.4 billion from Canada and U.S. $108
billion from Mexico in declared customs value in any calendar year. billion from Mexico in declared customs value in any calendar year.
USMCA auto rules of origin will be phased in beginning in early 2021 to provide importers and USMCA auto rules of origin will be phased in beginning in early 2021 to provide importers and
producers time to adjust to the more restrictive measures.producers time to adjust to the more restrictive measures.3731
During the negotiations, vehicle and parts manufacturers generally supported retaining the current During the negotiations, vehicle and parts manufacturers generally supported retaining the current
rules of origin under NAFTA, whereas labor groups sought to require a higher percentage of rules of origin under NAFTA, whereas labor groups sought to require a higher percentage of
regional content, which they believed would reduce the share of parts produced in non-NAFTA regional content, which they believed would reduce the share of parts produced in non-NAFTA
countries. Some observers state that “it is unclear” whether the auto rules of origin in the USMCA countries. Some observers state that “it is unclear” whether the auto rules of origin in the USMCA
meet the requirements under the World Trade Organization’s Article XXIV of the General meet the requirements under the World Trade Organization’s Article XXIV of the General
Agreement on Tariffs and Trade.Agreement on Tariffs and Trade.3832 Article XXIV states that duties and other commerce Article XXIV states that duties and other commerce

36 Beginning in the 1960s, Mexico had a restrictive import substitution policy in which the government sought to
supply the entire Mexican market through domestically produced automotive goods. The series of auto decrees
established import tariffs as high as 25%, had high restrictions on foreign auto production, prohibited imports of
finished vehicles, imposed high domestic content requirements and had export requirements in which a certain amount
of exports was required for every dollar of imports.
37 U.S. Customs and Border Protection, United States-Mexico-Canada Agreement (USMCA), Implementing
Instructions, CBP Publication Number 1118-0620, June 30, 2020,
https://www.cbp.gov/sites/default/files/assets/documents/2020-Jun/USMCA Implementing Instructions - 2020 Jun 30
%28Finalv1%29.pdf.
38 See Jana Titievskaia and Marian Dietsch, U.S.-Mexico-Canada Agreement (USMCA): Potential Impact on EU
Companies, European Parliament Research Service, At A Glance, December 2018; and Maria Curi, “EU think tank
questions USMCA’s compliance with WTO obligations,” World Trade Online, January 16, 2019.
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regulations between parties of a customs union “should not on the whole be higher or more regulations between parties of a customs union “should not on the whole be higher or more
restrictive” than the rate of the duties and regulations “applicable in the constituent territories restrictive” than the rate of the duties and regulations “applicable in the constituent territories
prior to the formation of such union.”prior to the formation of such union.”3933
Some economists and other experts believe that the higher North American content requirement Some economists and other experts believe that the higher North American content requirement
in USMCA will likely have unintended consequences. They contend that trade in motor vehicles in USMCA will likely have unintended consequences. They contend that trade in motor vehicles
within North America may not be able to meet the new requirements and may be ineligible for within North America may not be able to meet the new requirements and may be ineligible for
USMCA benefits. The Congressional Budget Office (CBO) estimated that USMCA’s stricter USMCA benefits. The Congressional Budget Office (CBO) estimated that USMCA’s stricter
rules of origin for motor vehicles and new wage requirements will result in a decline in duty-free rules of origin for motor vehicles and new wage requirements will result in a decline in duty-free
imports of motor vehicles and parts into the United States.imports of motor vehicles and parts into the United States.4034 A portion of that decline would be A portion of that decline would be
replaced by domestic production while a portion would be replaced by imports subject to duties. replaced by domestic production while a portion would be replaced by imports subject to duties.
CBO estimates that U.S. importers of autos and parts not meeting the higher rules of origin CBO estimates that U.S. importers of autos and parts not meeting the higher rules of origin
requirements will pay approximately $3 billion in duties over the next decade.requirements will pay approximately $3 billion in duties over the next decade.4135 Other economists Other economists
also contend that it would be more cost efficient for manufacturers of motor vehicles and motor also contend that it would be more cost efficient for manufacturers of motor vehicles and motor
vehicle parts to pay the MFN vehicle parts to pay the MFN tariff42tariff36 of about 2.5%, rather than meet the cumbersome rules-of- of about 2.5%, rather than meet the cumbersome rules-of-
origin requirements. They argue that a change in rules poses a significant risk to North American origin requirements. They argue that a change in rules poses a significant risk to North American
31 U.S. Customs and Border Protection, United States-Mexico-Canada Agreement (USMCA), Implementing Instructions, CBP Publication Number 1118-0620, June 30, 2020, https://www.cbp.gov/sites/default/files/assets/documents/2020-Jun/USMCA Implementing Instructions - 2020 Jun 30 %28Finalv1%29.pdf. 32 See Jana Titievskaia and Marian Dietsch, U.S.-Mexico-Canada Agreement (USMCA): Potential Impact on EU Companies, European Parliament Research Service, At A Glance, December 2018; and Maria Curi, “EU think tank questions USMCA’s compliance with WTO obligations,” World Trade Online, January 16, 2019. 33 See paragraph 5 of Article XXIV of the General Agreement on Tariffs and Trade, at https://www.wto.org/english/tratop_e/region_e/region_art24_e.htm. 34 Congressional Budget Office (CBO), CBO Estimate for H.R. 5430, the United States-Mexico-Canada Agreement Implementation Act, Cost Estimate, December 16, 2019. 35 Ibid. 36 Most-Favored Nation (MFN) Tariffs are what countries promise to impose on imports from other members of the World Trade Organization (WTO), unless the country is part of a preferential trade agreement such as a free trade agreement (FTA). In practice, MFN rates are the highest (most restrictive) that WTO members charge one another. Congressional Research Service 12 NAFTA and the United States-Mexico-Canada Agreement (USMCA) auto production, because it is likely that the new content requirements will raise production costs, auto production, because it is likely that the new content requirements will raise production costs,
resulting in higher auto prices, reduced U.S. demand, lower auto exports, and more rapid resulting in higher auto prices, reduced U.S. demand, lower auto exports, and more rapid
substitution of machines for workers.substitution of machines for workers.4337 Auto manufacturers in Mexico are concerned that they Auto manufacturers in Mexico are concerned that they
may lose market share to Asian manufacturers.may lose market share to Asian manufacturers.4438 For example, because the rules of origin in the For example, because the rules of origin in the
U.S.-South Korea FTA are much lower than those in the USMCA, it is possible that some motor U.S.-South Korea FTA are much lower than those in the USMCA, it is possible that some motor
vehicle producers would shift production to South Korea, especially in light trucks.vehicle producers would shift production to South Korea, especially in light trucks.4539
Even with these concerns, some motor vehicle producers support USMCA and say that Even with these concerns, some motor vehicle producers support USMCA and say that
complying with the new rules of origin may be challenging, but probably manageable.complying with the new rules of origin may be challenging, but probably manageable.4640 Others Others
contend that the new rules will hurt demand for vehicles and parts, reduce U.S. production, and contend that the new rules will hurt demand for vehicles and parts, reduce U.S. production, and
cause significant job losses.cause significant job losses.4741 Some also contend that production in the United States has the Some also contend that production in the United States has the
potential to increase under the agreement, although it is not clear whether this would increase potential to increase under the agreement, although it is not clear whether this would increase
U.S. jobs.U.S. jobs.4842 Auto industry representatives reacted favorably to the conclusion of the negotiations Auto industry representatives reacted favorably to the conclusion of the negotiations

39 See paragraph 5 of Article XXIV of the General Agreement on Tariffs and Trade, at https://www.wto.org/english/
tratop_e/region_e/region_art24_e.htm
40 Congressional Budget Office (CBO), CBO Estimate for H.R. 5430, the United States-Mexico-Canada Agreement
Implementation Act, Cost Estimate, December 16, 2019.
41 Ibid.
42 Most-Favored Nation (MFN) Tariffs are what countries promise to impose on imports from other members of the
World Trade Organization (WTO), unless the country is part of a preferential trade agreement such as a free trade
agreement (FTA). In practice, MFN rates are the highest (most restrictive) that WTO members charge one another.
43and generally agree with changes modernizing the agreement, such as updating border customs procedures (i.e., trade facilitation measures), digital trade provisions, and IPR protection.43 Agriculture44 USMCA partners agreed to maintain NAFTA’s market opening provisions and add several other non-market access provisions in the agriculture and sanitary and phytosanitary standards (SPS) chapter. NAFTA’s agriculture provisions included tariff and quota elimination, SPS measures, rules of origin, and grade and quality standards.45 USMCA agriculture provisions 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);  SPS rules based on “relevant scientific principles;” and  greater transparency in SPS rules. Biotechnology provisions in USMCA affecting agriculture include:  Transparent and timely application and approval process for crops using biotechnology. 37 See for example, Mary E. Lovely and Jeffrey J. Schott, See for example, Mary E. Lovely and Jeffrey J. Schott, The USMCA: New, Modestly Improved, but Still Costly, ,
Peterson Institute for International Economics, December 17, 2019. Peterson Institute for International Economics, December 17, 2019.
4438 Personal communication with motor vehicle representatives and government officials in Mexico City on September Personal communication with motor vehicle representatives and government officials in Mexico City on September
25-29, 2017. 25-29, 2017.
4539 KORUS’s rules of origin in motor vehicles range from 35-55%. See CRS Report RL34330, KORUS’s rules of origin in motor vehicles range from 35-55%. See CRS Report RL34330, The U.S.-South Korea
Free Trade Agreement (KORUS FTA): Provisions and Implementation, coordinated by Brock R. Williams. , coordinated by Brock R. Williams.
4640 Sarah Foster and Andrew Mayeda, "USMCA Content Rules will Raise Production Costs, Automakers Warn," Sarah Foster and Andrew Mayeda, "USMCA Content Rules will Raise Production Costs, Automakers Warn,"
Automotive News Canada, November 16, 2018. , November 16, 2018.
4741 Ibid. Ibid.
4842 Sarah Foster and Andrew Mayeda, “USMCA Will Add to Costs, Could Eliminate Jobs,” Sarah Foster and Andrew Mayeda, “USMCA Will Add to Costs, Could Eliminate Jobs,” Bloomberg News, ,
November 15, 2018. November 15, 2018.
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and generally agree with changes modernizing the agreement, such as updating border customs
procedures (i.e., trade facilitation measures), digital trade provisions, and IPR protection.49
Agriculture50
USMCA partners agreed to maintain NAFTA’s market opening provisions and add several other
non-market access provisions in the agriculture and sanitary and phytosanitary standards (SPS)
chapter. NAFTA’s agriculture provisions included tariff and quota elimination, SPS measures,
rules of origin, and grade and quality standards.51
USMCA agriculture provisions 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);
 SPS rules based on “relevant scientific principles;” and
 greater transparency in SPS rules.
Biotechnology provisions in USMCA affecting agriculture include:
 Transparent and timely application and approval process for crops using
biotechnology.43 Ben Miller, “Automakers React Positively to Announcement of US/Canada/Mexico Trade Deal,” October 1, 2018. 44 For more information on USMCA outcomes, see CRS In Focus IF10996, Agricultural Provisions of the U.S.-Mexico-Canada Agreement, by Jenny Hopkinson. 45 See CRS In Focus IF10682, NAFTA Renegotiation: Issues for U.S. Agriculture, by Renée Johnson, and CRS Report R44875, The North American Free Trade Agreement (NAFTA) and U.S. Agriculture, by Renée Johnson. Congressional Research Service 13 NAFTA and the United States-Mexico-Canada Agreement (USMCA)
 Procedures for import shipments containing a low-level presence of an  Procedures for import shipments containing a low-level presence of an
unapproved crop produced with biotechnology. unapproved crop produced with biotechnology.
 Establishment of a working group on agricultural biotechnology.  Establishment of a working group on agricultural biotechnology.
In the USMCA negotiations on agriculture, a principal U.S. demand was for additional market 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 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 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 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 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, 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 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, 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, 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 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 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 spirits labeling and sales. A U.S. proposal to allow trade remedies to be used for seasonal produce
was not adopted was not adopted
NAFTA set separate bilateral undertakings on cross-border trade in agriculture, one between NAFTA set separate bilateral undertakings on cross-border trade in agriculture, one between
Canada and Mexico, and the other between Mexico and the United States. As a general matter, Canada and Mexico, and the other between Mexico and the United States. As a general matter,
CUSFTA provisions continued to apply on trade with Canada.CUSFTA provisions continued to apply on trade with Canada.5246 Under CUSFTA, Canada Under CUSFTA, Canada

49 Ben Miller, “Automakers React Positively to Announcement of US/Canada/Mexico Trade Deal,” October 1, 2018.
50 For more information on USMCA outcomes, see CRS In Focus IF10996, Agricultural Provisions of the U.S.-
Mexico-Canada Agreement, by Jenny Hopkinson.
51 See CRS In Focus IF10682, NAFTA Renegotiation: Issues for U.S. Agriculture, by Renée Johnson, and CRS Report
R44875, The North American Free Trade Agreement (NAFTA) and U.S. Agriculture, by Renée Johnson.
52 Governments of Canada, the United Mexican States, and the United States of America, Description of the Proposed
North American Free Trade Agreement, August 12, 1992, p. 12.
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excluded dairy, poultry, and eggs for tariff elimination. In return, the United States excluded excluded dairy, poultry, and eggs for tariff elimination. In return, the United States excluded
dairy, sugar, cotton, tobacco, peanuts, and peanut butter. Although NAFTA resulted in tariff dairy, sugar, cotton, tobacco, peanuts, and peanut butter. Although NAFTA resulted in tariff
elimination for most agricultural products and redefined import quotas for some commodities as elimination for most agricultural products and redefined import quotas for some commodities as
tariff-rate quotas (TRQs),tariff-rate quotas (TRQs),5347 some products continued to be subject to high above-quota tariffs, some products continued to be subject to high above-quota tariffs,
such as U.S. dairy and poultry exports to Canada. Canada maintains a supply-management system such as U.S. dairy and poultry exports to Canada. Canada maintains a supply-management system
for these sectors that effectively limits U.S. market access. These products were also exempt from for these sectors that effectively limits U.S. market access. These products were also exempt from
Canada-Mexico trade liberalization. NAFTA also addressed SPS measures and other types of Canada-Mexico trade liberalization. NAFTA also addressed SPS measures and other types of
nontariff barriers that may limit agricultural trade. SPS regulations continue to be regarded by nontariff barriers that may limit agricultural trade. SPS regulations continue to be regarded by
agricultural exporters as challenging to trade and disruptive to integrated supply chains.agricultural exporters as challenging to trade and disruptive to integrated supply chains.5448
In conjunction with agricultural reforms underway in Mexico at the time, NAFTA eliminated In conjunction with agricultural reforms underway in Mexico at the time, NAFTA eliminated
most nontariff barriers in agricultural trade with Mexico, including import licensing requirements, most nontariff barriers in agricultural trade with Mexico, including import licensing requirements,
through their conversion either to through their conversion either to TRQs55TRQs49 or to ordinary tariffs. Tariffs were phased out over 15 or to ordinary tariffs. Tariffs were phased out over 15
years with sensitive products, such as sugar and corn receiving the longest phase-out periods. years with sensitive products, such as sugar and corn receiving the longest phase-out periods.
Approximately one-half of U.S.-Mexico agricultural trade became duty-free when the agreement Approximately one-half of U.S.-Mexico agricultural trade became duty-free when the agreement
went into effect in 1994. Prior to NAFTA, most tariffs in agricultural trade between the United went into effect in 1994. Prior to NAFTA, most tariffs in agricultural trade between the United
States and Mexico, on average, were fairly low, though some U.S. exports to Mexico faced tariffs States and Mexico, on average, were fairly low, though some U.S. exports to Mexico faced tariffs
as high as 12%. However, approximately one-fourth of U.S. agricultural exports to Mexico (by as high as 12%. However, approximately one-fourth of U.S. agricultural exports to Mexico (by
value) were subjected to restrictive import licensing requirements.value) were subjected to restrictive import licensing requirements.56
50 46 Governments of Canada, the United Mexican States, and the United States of America, Description of the Proposed North American Free Trade Agreement, August 12, 1992, p. 12. 47 Tariff-rate quotas (TRQs) allowed NAFTA partners to export specified quantities of a product to other NAFTA countries at a relatively low tariff, but subjected all imports of the product above a pre-determined threshold to a higher tariff. 48 CRS In Focus IF10682, NAFTA Renegotiation: Issues for U.S. Agriculture, by Renée Johnson. 49 Tariff-rate quotas (TRQs) allowed NAFTA partners to export specified quantities of a product to other NAFTA countries at a relatively low tariff, but subjected all imports of the product above a pre-determined threshold to a higher tariff. 50 Business Roundtable, NAFTA: A Decade of Growth, p. 35. Congressional Research Service 14 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Customs and Trade Facilitation
Customs and trade facilitation relates to the efficient flow of legally traded goods in and out of Customs and trade facilitation relates to the efficient flow of legally traded goods in and out of
the United States and other countries. Enforcement of U.S. trade laws and import security are the United States and other countries. Enforcement of U.S. trade laws and import security are
other important components of customs operations at the border. NAFTA’s chapter on customs other important components of customs operations at the border. NAFTA’s chapter on customs
procedures included provisions on certificates of origin, administration and enforcement, and procedures included provisions on certificates of origin, administration and enforcement, and
customs regulation and cooperation. More recent agreements have modernized provisions in customs regulation and cooperation. More recent agreements have modernized provisions in
regard to customs procedures and trade facilitation. The World Trade Organization (WTO) Trade 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 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, force on February 22, 2017. Two-thirds of WTO members, including the United States, Canada,
and Mexico, ratified the multilateral agreement.and Mexico, ratified the multilateral agreement.5751 Trade facilitation measures aim to simplify and Trade facilitation measures aim to simplify and
streamline customs procedures to allow the easier flow of trade across borders and thereby reduce 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 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 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 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 TFA aims to address trade barriers, such as lack of customs procedural transparency and overly
burdensome documentation requirements.burdensome documentation requirements.5852
Under USMCA, parties affirm their rights and obligations under the TFA of the WTO. USMCA Under USMCA, parties affirm their rights and obligations under the TFA of the WTO. USMCA
provisions also include commitments to administer customs procedures in such ways as to provisions also include commitments to administer customs procedures in such ways as to

53 Tariff-rate quotas (TRQs) allowed NAFTA partners to export specified quantities of a product to other NAFTA
countries at a relatively low tariff, but subjected all imports of the product above a pre-determined threshold to a higher
tariff.
54 CRS In Focus IF10682, NAFTA Renegotiation: Issues for U.S. Agriculture, by Renée Johnson.
55 Tariff-rate quotas (TRQs) allowed NAFTA partners to export specified quantities of a product to other NAFTA
countries at a relatively low tariff, but subjected all imports of the product above a pre-determined threshold to a higher
tariff.
56 Business Roundtable, NAFTA: A Decade of Growth, p. 35.
57 CRS Report R44777, WTO Trade Facilitation Agreement, by Rachel F. Fefer and Vivian C. Jones.
58 Ibid.
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facilitate trade or the transit of a good while supporting compliance with domestic laws and 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 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 facilitation and adopt additional measures if necessary. Other provisions include measures for
online publication of information and resources related to trade facilitation, communications online publication of information and resources related to trade facilitation, communications
mechanisms, establishment of enquiry points to respond to enquiries by interested persons, rules 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 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, facilitate trade between the parties, expedited customs procedures for express shipments,
automated risk analysis and management procedures, creation of a single-access window system 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 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 another party, and transparency procedures. Given the magnitude and frequency of U.S. trade
with USMCA partners, the more updated customs provisions in USMCA could have a significant with USMCA partners, the more updated customs provisions in USMCA could have a significant
impact on companies engaged in trilateral trade.impact on companies engaged in trilateral trade.5953
The USMCA sets The USMCA sets de minimis customs threshold for duty-free treatment at US$800 for the United 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. Shipment values up to these States, C$150 (about US$117) for Canada, and US$117 for Mexico. Shipment values up to these
levels would enter with minimal formal entry procedures. The tax-free threshold would be set at levels would enter with minimal formal entry procedures. The tax-free threshold would be set at
C$40 (about US$31) for Canada and US$50 for Mexico. Proponents of the higher 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 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 parcels to be shipped across international borders tax and tariff free and with simple customs
forms.forms.6054 Some Members and other stakeholders raised concerns about a footnote that would Some Members and other stakeholders raised concerns about a footnote that would allow
have allowed the United States to decrease its threshold to a reciprocal the United States to decrease its threshold to a reciprocal de minimis amount in an amount no amount in an amount no
greater than the Canadian or Mexican threshold. They greater than the Canadian or Mexican threshold. They contendcontended that lowering the 51 CRS Report R44777, WTO Trade Facilitation Agreement, by Rachel F. Fefer and Vivian C. Jones. 52 Ibid. 53 The World Trade Organization’s (WTO’s) Trade Facilitation Agreement (TFA), if fully ratified, could also affect trade facilitation among NAFTA parties. Ninety-eight out of a necessary 109 countries have ratified the agreement. 54 Gary Clyde Hufbauer and Euijin Jung, Higher De Minimis Thresholds: A Win in the USMCA, Peterson Institute for International Economics, October 15, 2018. Congressional Research Service 15 NAFTA and the United States-Mexico-Canada Agreement (USMCA) that lowering the current U.S. current U.S.
threshold could come at a cost to U.S. consumers and express carriers.threshold could come at a cost to U.S. consumers and express carriers.6155 In the end, the footnote In the end, the footnote
was dropped in the final text of the agreement. was dropped in the final text of the agreement.
Energy
USMCA does not have an energy chapter and moves some of NAFTA’s energy provisions to 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 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 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 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. regard to Mexico’s energy sector, would help protect private U.S. energy projects in Mexico.
NAFTA included explicit country-specific exceptions and reservations, including the energy NAFTA included explicit country-specific exceptions and reservations, including the energy
sector in Mexico. In NAFTA’s energy chapter, the three parties confirmed respect for their 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 constitutions. This was of particular importance for Mexico and its 1917 Constitution, which
established Mexican national ownership of all hydrocarbons resources. Under NAFTA, the established Mexican national ownership of all hydrocarbons resources. Under NAFTA, the
Mexican government reserved to itself strategic activities, including investment and provisions in 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 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 petrochemicals. Mexico also reserved the right to provide electricity as a public service within the

59 The World Trade Organization’s (WTO’s) Trade Facilitation Agreement (TFA), if fully ratified, could also affect
trade facilitation among NAFTA parties. Ninety-eight out of a necessary 109 countries have ratified the agreement.
60 Gary Clyde Hufbauer and Euijin Jung, Higher De Minimis Thresholds: A Win in the USMCA, Peterson Institute for
International Economics, October 15, 2018.
61 Akin Gump, Struss Hauer & Feld LLP, The New United States-Mexico-Canada Agreement (USMCA) Raises
Canada’s and Mexico’s De Minimis Thresholds, but the Reciprocal Treatment Provision Poses Risks to U.S. Express
Carriers and Consumers, International Trade Alert, October 25, 2018.
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country. Despite these exclusions from NAFTA, energy remains a central component of U.S.-country. Despite these exclusions from NAFTA, energy remains a central component of U.S.-
Mexico trade.Mexico trade.6256
Existing U.S. and Canadian investors in Mexico’s energy sector would remain protected by Existing U.S. and Canadian investors in Mexico’s energy sector would remain protected by
USMCA’s investment provisions. Although there were some concerns during the negotiations USMCA’s investment provisions. Although there were some concerns during the negotiations
about the need to protect U.S. contracts in Mexico’s energy sector, Mexico appears to be legally about the need to protect U.S. contracts in Mexico’s energy sector, Mexico appears to be legally
bound by its 2013 constitutional energy reforms in the energy sector. In 2013, the Mexican bound by its 2013 constitutional energy reforms in the energy sector. In 2013, the Mexican
Congress approved constitutional reforms to restructure Mexico’s state-owned oil company, Congress approved constitutional reforms to restructure Mexico’s state-owned oil company,
PEMEX, as a “state productive company,” which means that despite being owned by the state, it PEMEX, as a “state productive company,” which means that despite being owned by the state, it
competes in the market like any private company.competes in the market like any private company.6357 It has operational autonomy, in addition to its It has operational autonomy, in addition to its
own assets. These reforms opened Mexico’s energy sector to production-sharing contracts with 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 private and foreign investors while keeping the ownership of Mexico’s hydrocarbons under state
control.control.6458 Following the reforms, Mexico adopted new procurement rules to increase efficiency Following the reforms, Mexico adopted new procurement rules to increase efficiency
and effectiveness in the procurement process. and effectiveness in the procurement process.
In regard to Canada, negotiators addressed a so-called “proportionality” provision contained in In regard to Canada, negotiators addressed a so-called “proportionality” provision contained in
the energy chapters of both CUSFTA and NAFTA, which required Canada to export a fixed share the energy chapters of both CUSFTA and NAFTA, which required Canada to export a fixed share
of its energy production to the United States even in times of energy shortages. USMCA of its energy production to the United States even in times of energy shortages. USMCA
eliminated this commitment.eliminated this commitment.6559 55 Akin Gump, Struss Hauer & Feld LLP, The New United States-Mexico-Canada Agreement (USMCA) Raises Canada’s and Mexico’s De Minimis Thresholds, but the Reciprocal Treatment Provision Poses Risks to U.S. Express Carriers and Consumers, International Trade Alert, October 25, 2018. 56 See CRS Report R43313, Mexico’s Oil and Gas Sector: Background, Reform Efforts, and Implications for the United States, coordinated by Clare Ribando Seelke, and CRS Report R44747, Cross-Border Energy Trade in North America: Present and Potential, by Paul W. Parfomak et al. 57 Organisation for Economic Co-operation and Development (OECD), Fighting Bid Rigging in Public Procurement: A Review of the Procurement Rules and Practices of PEMEX in Mexico, 2016, p. 11. 58 Ibid., p. 9. 59 Canadian Labour Congress, “13 Facts You Need to Know About the United States-Mexico-Canada Agreement (USMCA),” October 18, 2018. Congressional Research Service 16 NAFTA and the United States-Mexico-Canada Agreement (USMCA)
Government Procurement
The NAFTA government procurement chapter set standards and parameters for government The NAFTA government procurement chapter set standards and parameters for government
purchases of goods and services. Government procurement chapters typically extend national and purchases of goods and services. Government procurement chapters typically extend national and
nondiscriminatory treatment among parties and promote transparency in the tendering process. 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 The schedule of commitments, set out in an annex to the chapter, provides opportunities for firms
of each nation to bid reciprocally on certain contracts for specified government agencies over a of each nation to bid reciprocally on certain contracts for specified government agencies over a
set monetary threshold. The United States and Canada also have made certain government set monetary threshold. The United States and Canada also have made certain government
procurement opportunities available through similar obligations in the plurilateral WTO procurement opportunities available through similar obligations in the plurilateral WTO
Government Procurement Agreement (GPA). Mexico is currently not a member of the GPA. Government Procurement Agreement (GPA). Mexico is currently not a member of the GPA.
The USMCA government procurement chapter only applies to procurement between Mexico and The 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. 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 Procurement opportunities between the United States and Canada continue to be covered by the
plurilateral WTO GPA, as long as both countries remain members of the agreement. USMCA plurilateral WTO GPA, as long as both countries remain members of the agreement. USMCA
carries over much of the NAFTA government procurement chapter’s coverage for U.S.-Mexico carries over much of the NAFTA government procurement chapter’s coverage for U.S.-Mexico
procurement. Core provisions include: procurement. Core provisions include:
 Promote transparency in the tendering process through online tender information  Promote transparency in the tendering process through online tender information
and descriptions and descriptions;.
 Provide online application and documentation processes without cost to the  Provide online application and documentation processes without cost to the
applicant applicant;
.  Provide for publication of post-award explanations of procurement decisions.  Provide for publication of post-award explanations of procurement decisions;

62 See CRS Report R43313, Mexico’s Oil and Gas Sector: Background, Reform Efforts, and Implications for the United
States, coordinated by Clare Ribando Seelke, and CRS Report R44747, Cross-Border Energy Trade in North America:
Present and Potential, by Paul W. Parfomak et al.
63 Organisation for Economic Co-operation and Development (OECD), Fighting Bid Rigging in Public Procurement: A
Review of the Procurement Rules and Practices of PEMEX in Mexico, 2016, p. 11.
64 Ibid., p. 9.
65 Canadian Labour Congress, “13 Facts You Need to Know About the United States-Mexico-Canada Agreement
(USMCA),” October 18, 2018.
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 Exclude government procurement from the financial services chapter.  Exclude government procurement from the financial services chapter.
 Exclude textile and apparel procured by the Transportation Security  Exclude textile and apparel procured by the Transportation Security
Administration (TSA) under the “Kissell Amendment.” Administration (TSA) under the “Kissell Amendment.”
 Allow Mexico to set aside annual procurement contracts of $2.328 billion,  Allow Mexico to set aside annual procurement contracts of $2.328 billion,
annually adjusted for inflation, to Mexican suppliers. annually adjusted for inflation, to Mexican suppliers.
 Allow for coverage of build-operate-transfer (BOT) contracts. (As Mexico has  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 taken an exception to this provision, the United States will extend this coverage
to Mexico when Mexico reciprocates.) to Mexico when Mexico reciprocates.)
The exclusion of Canada is a break from previous government procurement chapters in U.S. 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 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 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 USMCA, as are the treatment and transparency provisions are common to both the GPA and USMCA, as are the
provisions modernizing the agreement to provide for online tendering. The differences primarily 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 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 procurement market. For example, the GPA covers 75 U.S. government entities, including 35
U.S. states, whereas USMCA covers 52 U.S. federal entities and does not cover state U.S. states, whereas USMCA covers 52 U.S. federal entities and does not cover state
procurement. The GPA has a higher monetary threshold than USMCA for procurement of goods procurement. The GPA has a higher monetary threshold than USMCA for procurement of goods
and services ($180,000 v. $80,317), but a lower construction procurement threshold ($6.9 million and services ($180,000 v. $80,317), but a lower construction procurement threshold ($6.9 million
v. $10.4 million).v. $10.4 million).6660 In addition, while the USMCA uses a negative list approach for services (all In addition, while the USMCA uses a negative list approach for services (all
services included unless specifically excluded), Canada—though not the United States—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 maintains a positive list (only services specifically enumerated are covered) for services in the
60 “Procurement Thresholds for Implementation of the Trade Agreements Act of 1979,” 82 Fed. Reg. 58248, December 11, 2017. Congressional Research Service 17 link to page 24 NAFTA and the United States-Mexico-Canada Agreement (USMCA) GPA. Government procurement between Canada and Mexico will continue to be covered by 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). Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11).
Some industry groups criticized the exclusion of Canada and financial services from the Some industry groups criticized the exclusion of Canada and financial services from the
agreement. The Automotive and Capital Goods Advisory Committee (ITAC-2) maintained that 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” 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 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 CanadaCanadian 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 would have greater access to the Canadian procurement market than that
provided by the GPA.provided by the GPA.6761 The Services ITAC (ITAC-10) expressed concern that continued access to 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 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. 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.insurance providers cover two-thirds of Mexican government employees.6862
Supporters of expanded procurement opportunities in FTAs argue that the reciprocal nature of the 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 government procurement provisions in FTAs allows U.S. firms access to major government
procurement market opportunities overseas. In addition, supporters claim open government procurement market opportunities overseas. In addition, supporters claim open government
procurement markets at home allow government entities to accept bids from partner country procurement markets at home allow government entities to accept bids from partner country
suppliers, potentially making more efficient use of public funds. suppliers, potentially making more efficient use of public funds.

66 “Procurement Thresholds for Implementation of the Trade Agreements Act of 1979,” 82 Fed. Reg. 58248, December
11, 2017.
67 “USMCA Agreement: Addendum to the Earlier (September 28, 2018) Report of the Industry Trade Advisory
Committee on Automotive Equipment and Capital Goods, October 2018,” https://ustr.gov/trade-agreements/free-trade-
agreements/united-states-mexico-canada-agreement/advisory-committee.
68 “A Trade Agreement with Mexico and possibly Canada,” Report of the Industry Trade Advisory Committee on
Services, September 27, 2018, https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-
agreement/advisory-committee.
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Other stakeholders contend that public procurement should primarily benefit domestic industries. 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 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 government procurements of manufactured and construction products. Buy American provisions
periodically are proposed for legislation, such as infrastructure projects requiring government periodically are proposed for legislation, such as infrastructure projects requiring government
purchases of iron, steel, and manufactured products.purchases of iron, steel, and manufactured products.6963 Such restrictions are waived for products Such restrictions are waived for products
from countries with which the United States has FTAs or to countries belonging to the GPA.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.70
Investment
NAFTA removed significant investment barriers, ensured basic protections for NAFTA investors, 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 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 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 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 with nondiscriminatory treatment, a minimum standard of treatment, and protections against
uncompensated expropriation, among other provisions.uncompensated expropriation, among other provisions.7164 Since NAFTA, investment chapters in Since NAFTA, investment chapters in
FTAs and the U.S. model BIT clarified certain provisions, including commitments to affirm more 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 clearly a government’s right to regulate for environmental, health, and other public policy
objectives. objectives.
USMCA provisions, in general, track those of NAFTA, with the exception of the elimination of USMCA provisions, in general, track those of NAFTA, with the exception of the elimination of
some investor-state dispute settlement (ISDS) provisions in NAFTA’s investment chapter (See some investor-state dispute settlement (ISDS) provisions in NAFTA’s investment chapter (See
“Investor-State Dispute Settlement (ISDS)”). . During the negotiations of the USMCA, the U.S. 61 “USMCA Agreement: Addendum to the Earlier (September 28, 2018) Report of the Industry Trade Advisory Committee on Automotive Equipment and Capital Goods, October 2018,” https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/advisory-committee. 62 “A Trade Agreement with Mexico and possibly Canada,” Report of the Industry Trade Advisory Committee on Services, September 27, 2018, https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/advisory-committee. 63 U.S. manufactured products have been defined in regulation as containing at least 50% domestic content. 64 See CRS In Focus IF10052, U.S. International Investment Agreements (IIAs), by Martin A. Weiss and Shayerah Ilias Akhtar. Congressional Research Service 18 NAFTA and the United States-Mexico-Canada Agreement (USMCA) During the negotiations of the USMCA, the U.S.
business community strongly opposed reported U.S. proposals to scale back or eliminate NAFTA 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 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 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 would “undermine U.S. energy security, investment protections and our global energy
leadership.”leadership.”7265 On the other hand, U.S. labor and civil society groups welcomed the 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 Administration’s more skeptical approach to ISDS. The 2015 TPA called for “providing
meaningful procedures for resolving investment disputes,” which may affect congressional meaningful procedures for resolving investment disputes,” which may affect congressional
consideration of an agreement.consideration of an agreement.7366
USMCA clarifies language related to national treatment and most-favored-nation treatment. In 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, 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 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 the totality of the circumstances including whether the relevant treatment distinguishes between
investors or investments on the basis of legitimate public welfare objectives.”investors or investments on the basis of legitimate public welfare objectives.”74

69 U.S. manufactured products have been defined in regulation as containing at least 50% domestic content.
70 See CRS In Focus IF11580, U.S. Government Procurement and International Trade, by Andres B. Schwarzenberg.
71 See CRS In Focus IF10052, U.S. International Investment Agreements (IIAs), by Martin A. Weiss and Shayerah Ilias
Akhtar.
72 American Petroleum Institute (API), API Supports NAFTA Modernization that Retains Strong Protections for U.S.
Investors, February 20, 2017, http://www.api.org/news-policy-and-issues/news/2018/02/20/api-supports-nafta-
modernization-that-protect-us-investors.
73 P.L. 114-26, §102 (b)(4)(f).
74USMCA Article 14.5.4
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67
Minimum Standard of Treatment (MST)
USMCA, like NAFTA, requires parties to provide MST to investments in accordance with 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 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 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 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 USMCA protection and security” do not create additional substantive rights. However, the USMCA
clarifies that a party’s action (or inaction) that may be inconsistent with investor expectations is 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. not, on its own, a breach of MST, even if loss or damage to the investment follows.
Performance Requirements
USMCA prohibits parties from imposing specific “performance requirements” in connection with USMCA prohibits 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 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, 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 achieve a given level or percentage of domestic content, or transfer a particular technology. A
new feature includes prohibitions on performance requirements related to the purchase, use, or new feature 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 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. certain royalties and license contracts.
Denial of Benefits
USMCA’s denial of benefits article, among other things, permits a party to deny the investment 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 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 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 party or does not have “substantial business activities” in the territory of any party other than the than the
party denying benefits. This article presumably is intended to address some stakeholder concerns 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. that the chapter could be used to afford shell companies access to its protections.
65 American Petroleum Institute (API), API Supports NAFTA Modernization that Retains Strong Protections for U.S. Investors, February 20, 2017, http://www.api.org/news-policy-and-issues/news/2018/02/20/api-supports-nafta-modernization-that-protect-us-investors. 66 P.L. 114-26, §102 (b)(4)(f). 67USMCA Article 14.5.4 Congressional Research Service 19 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Government Right to Regulate
Unlike NAFTA, USMCA contains a provision stating that, except in rare circumstances, Unlike NAFTA, USMCA contains a provision stating that, except in rare circumstances,
nondiscriminatory regulatory action by a party to protect legitimate public welfare objectives 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. The (e.g., in public health, safety, and the environment) do not constitute indirect expropriation. The
USMCA includes a statement that nothing in the Investment Chapter shall be construed to prevent 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 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.regulatory objectives,” as long as the action taken is otherwise consistent with the chapter..”
Investor-State Dispute Settlement (ISDS)
ISDS has been a controversial aspect of the NAFTA investment chapter. It is a form of binding 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 arbitration that allows private investors to pursue claims against sovereign nations for alleged
violations of the investment provisions in trade agreements. It violations of the investment provisions in trade agreements. It iswas included in NAFTA and included in NAFTA and is in nearly nearly
all other U.S. FTAs that have been enacted since then, and is also a core provision in U.S. all other U.S. FTAs 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-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 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 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 for Settlement for Investor Dispute or the United Nations Commission on International Trade
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Law. Fifty-nine ISDS actions have been adjudicated under NAFTA, with the majority coming
after 2004.75
ISDS provisions in
NAFTA Record on ISDS
USMCA substantially
As of January 2020
revise longstanding

provisions in NAFTA, other

66 cases initiated under NAFTA Investment Chapter.
U.S. Law. ISDS provisions in USMCA substantially revise longstanding provisions in NAFTA, other U.S. FTAs, and current FTAs, and current

U.S. Investors have won 10 cases against NAFTA partners (5 against
Canada, 5 against Mexico).
BITs that were actively BITs that were actively
sought by past

Foreign investors have won 0 cases against the United States.
Administrations.

26 decided in favor of state (on merits/no jurisdiction); 10 decided
in favor of investor; 8 settled; 10 discontinued; 12 pending.
Significantly, ISDS
between Canada and the

Individual cases initiated against: United States: 17 Canada: 27;
Mexico: 22
sought by past Administrations. Significantly, ISDS between Canada and the United States is ended United States is ended
under the new agreement.

10 decisions favorable to U.S. government as respondent; 0
decisions unfavorable; 4 settled; 3 discontinued; 0 pending.
under the new agreement. U.S. and Mexican investors U.S. and Mexican investors

would not be able to bring would not be able to bring

8 decisions favorable to Canadian government as respondent; 5
unfavorable; 4 settled; 5 discontinued; 5 pending.
arbitration claims under

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, USMCA limits USMCA against Canada,

8 decisions favorable to Mexican government as respondent; 5
unfavorable; 0 settled; 2 discontinued; 7 pending.
nor would Canadian

Nationality of investors in cases initiated against United States:
investors bring such claims
Canada (16); Mexico (1).
against the United States or

Respondent governments in cases initiated by U.S. investors:
Mexico. With respect to
Canada (27); Mexico (20).
Mexico and the United
Source: United Nations Conference on Trade and Development
States, the USMCA limits
(UNCTAD).
ISDS to claimants ISDS to claimants
regarding government regarding government
contracts in natural gas, power generation, infrastructure, transportation, and telecommunications contracts in natural gas, power generation, infrastructure, transportation, and telecommunications
sectors; or in other sectors provided the claimant exhausts national remedies first. Canada and sectors; or in other sectors provided the claimant exhausts national remedies first. Canada and
Mexico are maintaining ISDS among themselves through CPTPP. Mexico are maintaining ISDS among themselves through CPTPP.
USMCA continues ISDS in three circumstances: USMCA continues ISDS in three circumstances:
 Legacy claims from existing investments are eligible for arbitration under  Legacy claims from existing investments are eligible for arbitration under
NAFTA ISDS provisions for three years from the date of NAFTA termination. NAFTA ISDS provisions for three years from the date of NAFTA termination.
 Direct expropriation claims, including claims of violation of national treatment,  Direct expropriation claims, including claims of violation of national treatment,
will continue to be eligible for arbitration for United States and Mexican will continue to be eligible for arbitration for United States and Mexican
investors, provided that they exhaust domestic remedies first. Indirect investors, provided that they exhaust domestic remedies first. Indirect
expropriation, in which an action or series of actions by a party has an effect 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 equivalent to direct expropriation without formal transfer of title or outright
seizure, is no longer covered. seizure, is no longer covered.
 Government contracts in certain covered sectors (oil and gas, power generation,  Government contracts in certain covered sectors (oil and gas, power generation,
telecommunications, transportation, and infrastructure) are eligible for arbitration telecommunications, transportation, and infrastructure) are eligible for arbitration
under USMCA ISDS. This use of ISDS is designed to protect investors in heavily 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-regulated industries whose investments may be affected by the presence of state-
owned enterprises in the sector. owned enterprises in the sector.
Supporters argue that ISDS is important for protecting investors from discriminatory treatment 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 and are modeled after U.S. law. They also argue that trade agreements do not prevent

75 United Nations Conference on Trade and Development (UNCTAD).
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governments from regulating in the public interest, with clear exceptions for these actions, as well 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 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 penalties; and ISDS cannot force governments to change their laws or regulations. Critics counter
Congressional Research Service 20 NAFTA and the United States-Mexico-Canada Agreement (USMCA) that companies use ISDS to restrict governments’ ability to regulate in the public interest (such as 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 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 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. under ISDS in a U.S. investment agreement.
Services
The United States has a highly competitive services sector and has made services trade The United States has a highly competitive services sector and has made services trade
liberalization a priority in its negotiations of FTAs, including NAFTA and USMCA.liberalization a priority in its negotiations of FTAs, including NAFTA and USMCA.7668 USMCA USMCA
continues NAFTA’s inclusion of core obligations in services trade in a separate chapter. Because continues NAFTA’s inclusion of core obligations in services trade in a separate chapter. Because
of the complexity of the issues, USMCA also covers services trade in other related chapters, of the complexity of the issues, USMCA also covers services trade in other related chapters,
including financial services and telecommunications, as did NAFTA. USMCA retains NAFTA’s including financial services and telecommunications, as did NAFTA. USMCA retains NAFTA’s
“negative list” in which all services are covered under the agreement unless specifically excluded “negative list” in which all services are covered under the agreement unless specifically excluded
from it, or unless parties reserved a service to domestic providers at the time of the agreement. from it, or unless parties reserved a service to domestic providers at the time of the agreement.
This approach generally is considered to be more comprehensive than the “positive list approach” This approach generally is considered to be more comprehensive than the “positive list approach”
used in the WTO General Agreement on Trade in Services (GATS), which requires each covered used in the WTO General Agreement on Trade in Services (GATS), which requires each covered
service to be identified. The negative list approach also implies that any new type of service that service to be identified. The negative list approach also implies that any new type of service that
is developed after the agreement enters into force is automatically covered unless it is specifically is developed after the agreement enters into force is automatically covered unless it is specifically
excluded. excluded.
Key provisions of the services chapter in USMCA include: Key provisions of the services chapter in USMCA include:
 Nondiscriminatory treatment of services from partner-country providers in like  Nondiscriminatory treatment of services from partner-country providers in like
circumstances, including national treatment and MFN treatment. circumstances, including national treatment and MFN treatment.
 No limitations on the number of service suppliers, the total value or volume of  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 services provided, the number of persons employed, or the types of legal entities
or joint ventures that a foreign service supplier may employ. or joint ventures that a foreign service supplier may employ.
 Prohibition on locality requirements that a service provider maintain a  Prohibition on locality requirements that a service provider maintain a
commercial presence in the country of the buyer. commercial presence in the country of the buyer.
 Support of mutual recognition of professional qualifications for certification of  Support of mutual recognition of professional qualifications for certification of
service providers. service providers.
 Transparency in the development and application of government regulations.  Transparency in the development and application of government regulations.
 Allowance for payments and transfers of capital flows “freely and without delay”  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 that relate to the provision of services, with permissible restrictions in some cases
for bankruptcy and criminal offences. for bankruptcy and criminal offences.
Express Delivery
NAFTA did not contain commitments on express delivery; however, the United States made 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. USMCA market access of express delivery services a priority in its more recent FTA negotiations. USMCA
addresses express delivery in a chapter annex.addresses express delivery in a chapter annex.7769 The commitments on express delivery focus, in The commitments on express delivery focus, in
particular, on cases where a government-owned and operated postal system provides express particular, on cases where a government-owned and operated postal system provides express
delivery services competing with private sector providers. 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. USMCA also requires independence between express
7668 For more information, see CRS Report R43291, For more information, see CRS Report R43291, U.S. Trade in Services: Trends and Policy Issues, by Rachel F. , by Rachel F.
Fefer, and CRS Report R44354, Fefer, and CRS Report R44354, Trade in Services Agreement (TiSA) Negotiations: Overview and Issues for Congress, ,
by Rachel F. Fefer. by Rachel F. Fefer.
7769 USMCA, Annex 15-A. USMCA, Annex 15-A.
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delivery delivery services competing with private sector providers. 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. USMCA also requires independence between express
delivery regulators and providers, prohibits the requirement of providing universal postal service regulators and providers, prohibits the requirement of providing universal postal service
as a prerequisite for express delivery, and prohibits fees on express delivery providers for the as a prerequisite for express delivery, and prohibits fees on express delivery providers for the
purpose of funding other such providers. In addition, USMCA specifies a threshold level for the purpose of funding other such providers. In addition, USMCA specifies a threshold level for the
customs customs de minimis, a critical commitment for express delivery providers and small businesses as , a critical commitment for express delivery providers and small businesses as
shipments valued below the shipments valued below the de minimis receive expedited customs treatment and pay no duties or receive expedited customs treatment and pay no duties or
taxes. taxes.
De Minimis Threshold
The The de minimis threshold for assessing customs duties on imported goods was a new issue in the USMCA threshold for assessing customs duties on imported goods was a new issue in the USMCA
negotiations, one which affects several negotiating areas such as customs, services, and e-commerce. The issue negotiations, one which affects several negotiating areas such as customs, services, and e-commerce. The issue
involves the threshold customs valuation assessed among the three USMCA nations for goods entering the involves the threshold customs valuation assessed among the three USMCA nations for goods entering the
country (mailed, delivered by courier, transported by distributors, etc.) without charging duty or sales tax. The country (mailed, delivered by courier, transported by distributors, etc.) without charging duty or sales tax. The
United States has sought increased thresholds from its trading partners. United States has sought increased thresholds from its trading partners. While theThe United States currently United States currently
exempts duties for shipments under exempts duties for shipments under US$800 (P.L. 114-125, §901), $800 (P.L. 114-125, §901), Canada’s threshold is C$20 (recently a level that has remained the same after USMCA. Canada raised its level from C$20 to C$40 (about about
US$15-16) and Mexico’s is $50. USMCA raises the customs threshold for duty free treatment to $117 (C$150)
for Canada and Mexico. The tax-free threshold was set at $50 for Mexico and C$40 (about $31) for Canada. A
US$31), while Mexico’s remains at US$50. Both Canada and Mexico raised the duty-free treatment for express shipments up to US$117 (C$150). A footnote in the original USMCA text allowed the U.S. threshold to be lowered to achieve reciprocity, a footnote in the original USMCA text allowed the U.S. threshold to be lowered to achieve reciprocity, a
controversial provision to some Members of Congress. The footnote was dropped in the final USMCA text. controversial provision to some Members of Congress. The footnote was dropped in the final USMCA text.
Temporary Entry for Business Purposes
In addition to cross-border trade in services, a person supplying the service may travel to and 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. USMCA retains NAFTA’s provide certain services in the location where the service is performed. USMCA retains NAFTA’s
commitments on temporary entry for service professionals, such as accountants, architects, legal, 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 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 temporary entry has been a controversial issue in the context of previous trade agreements, the
USMCA chapter on temporary entry largely replicates NAFTA’s provisions. USMCA does not USMCA chapter on temporary entry largely replicates NAFTA’s provisions. USMCA does not
place new restrictions on the number of entrants or expand the list of eligible professionals, as place new restrictions on the number of entrants or expand the list of eligible professionals, as
many businesses and other service providers had hoped. many businesses and other service providers had hoped.
Financial Services
Financial services, including insurance and insurance-related services, banking and related 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 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 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 the foreign investment chapter and the cross-border trade in services chapter. The prudential
exception in both USMCA and NAFTA provides that nothing in the FTA would prevent a party to exception in both USMCA and NAFTA 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 the agreement from imposing measures to ensure the integrity and stability of the financial
system. As with NAFTA and other FTAs, USMCA distinguishes between financial services system. As with NAFTA and other FTAs, USMCA distinguishes between financial services
traded across borders and those sold by a provider with a commercial presence in the home 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 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 applies the negative list approach with commitments applying generally except where noted; in
the case of cross-border trade, the language limits coverage to a positive list of specific banking the case of cross-border trade, the language limits coverage to a positive list of specific banking
and insurance services as defined by each country.and insurance services as defined by each country.78

78 See USMCA Annex 17-A for a complete listing of insurance, banking, and other financial services covered by the
cross-border trade in financial services disciplines.
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70 A key USMCA provision that drew attention during the debate relates to the prohibition on data A key USMCA provision that drew attention during the debate relates to the prohibition on data
localization requirements. Financial services firms rely on cross-border data flows to ensure 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 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 cloud services that are often provided by U.S. technology firms. Localization requirements
70 See USMCA Annex 17-A for a complete listing of insurance, banking, and other financial services covered by the cross-border trade in financial services disciplines. Congressional Research Service 22 NAFTA and the United States-Mexico-Canada Agreement (USMCA) imposed by countries could require companies to have in-country servers and data centers to store 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 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, seeking to enter new markets or a disguised barrier to trade. Localization supporters, though,
claim they increase local control, privacy protection, and data security. claim they increase local control, privacy protection, and data security.
NAFTA allowed the transfer of data in and out of a party in the ordinary course of business. NAFTA allowed the transfer of data in and out of a party in the ordinary course of business.
USMCA strengthens the language to protect the free flow of data and removes the carve-out USMCA strengthens 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 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 purposes, immediate, direct, complete, and ongoing access” to data located in another party’s
territory.territory.7971 Canada has a one-year transition period to implement the data localization prohibition. Canada has a one-year transition period to implement the data localization prohibition.
USMCA also includes commitments on electronic payment card services. It requires that each USMCA also includes commitments on electronic payment card services. It requires that each
party allow for the supply, by persons of other parties, of electronic payment services for payment party 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 card transactions, defined by each country, generally including credit and debit cards. The
provisions on card services, however, allow for certain preconditions of access, including provisions on card services, however, allow for certain preconditions of access, including
requiring a representative or office within country. requiring a representative or office within country.
Other new USMCA financial services provisions include: Other new USMCA financial services provisions include:
 Excluding government procurement from financial services disciplines.  Excluding government procurement from financial services disciplines.
 Modifying investor-state dispute settlement (ISDS) through a bilateral annex on  Modifying investor-state dispute settlement (ISDS) through a bilateral annex on
Mexico-United States Investment Disputes in Financial Services. Mexico-United States Investment Disputes in Financial Services.
 Allowing a financial institution from one party with a presence in a second party  Allowing a financial institution from one party with a presence in a second party
to have access to the latter’s payment and clearance system. to have access to the latter’s payment and clearance system.
 Protecting source code and algorithms and prohibiting on forced technology  Protecting source code and algorithms and prohibiting on forced technology
transfer in the digital trade section. transfer in the digital trade section.
Telecommunications
The telecommunication chapter in NAFTA required regulatory transparency; interconnection The telecommunication chapter in NAFTA required regulatory transparency; interconnection
among providers; reasonable and nondiscriminatory access to network infrastructure and among providers; reasonable and nondiscriminatory access to network infrastructure and
government-controlled resources like spectrum bandwidth for reasonable rates; and protection of government-controlled resources like spectrum bandwidth for reasonable rates; and protection of
the supplier’s options for employing technology. The USMCA telecommunications chapter the supplier’s options for employing technology. The USMCA telecommunications chapter
adopts these provisions and is the first U.S. FTA to cover mobile service providers. The chapter adopts these provisions and is the first U.S. FTA to cover mobile service providers. The chapter
promotes cooperation on charges for international roaming services and allows regulation for promotes cooperation on charges for international roaming services and allows regulation for
mobile roaming service rates. Other provisions aim to ensure that suppliers can resell and 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 chapter promotes the unbundle services, and that suppliers can furnish value-added services. The chapter promotes the
independence of regulators. It does not cover television or radio broadcast or cable suppliers and independence of regulators. It does not cover television or radio broadcast or cable suppliers and
does not contain the provision in NAFTA recognizing the importance of international standards does not contain the provision in NAFTA recognizing the importance of international standards
for global compatibility and interoperability. for global compatibility and interoperability.
The chapter has the effect of binding Mexico to its 2013 Constitutional reforms in The chapter has the effect of binding Mexico to its 2013 Constitutional reforms in
telecommunications, by guaranteeing the independence of the regulatory commission, telecommunications, by guaranteeing the independence of the regulatory commission,
nondiscriminatory repurchase rates, and interconnection obligations. USMCA does not affect nondiscriminatory repurchase rates, and interconnection obligations. USMCA does not affect
Canadian restrictions on foreign ownership of telecommunications common carriers. Canadian restrictions on foreign ownership of telecommunications common carriers.

79 USMCA Article 17.18.
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Digital Trade
NAFTA was negotiated and came into effect at the dawn of the consumer Internet age, and did NAFTA was negotiated and came into effect at the dawn of the consumer Internet age, and did
not contain provisions to address barriers and rules and disciplines on digital trade. Congress not contain provisions to address barriers and rules and disciplines on digital trade. Congress
71 USMCA Article 17.18. Congressional Research Service 23 NAFTA and the United States-Mexico-Canada Agreement (USMCA) established principal negotiating objectives in TPA-2015 on digital trade in goods and services, as established principal negotiating objectives in TPA-2015 on digital trade in goods and services, as
well as on cross-border data flows. The objectives well as on cross-border data flows. The objectives includeincluded equal treatment of electronically equal treatment of electronically
delivered goods and services, as compared to physical products, protection of cross-border data 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 flows, and prevention of data localization regulations, as well as prohibitions on duties on
electronic transmissions. electronic transmissions.
The USMCA digital trade chapter broadly covers all industries, but explicitly excludes The 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 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 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 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 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 the digital trade chapter, there are relevant provisions in other chapters, including financial
services, IPR, and telecommunications. services, IPR, and telecommunications.
Key provisions of the USMCA digital trade chapter: Key provisions of the USMCA digital trade chapter:
 Ensure nondiscriminatory treatment of digital products.  Ensure nondiscriminatory treatment of digital products.
 Prohibit cross-border data flows restrictions and data localization requirements.  Prohibit cross-border data flows restrictions and data localization requirements.
 Prohibit requirements for source code or algorithm disclosure or transfer as a  Prohibit requirements for source code or algorithm disclosure or transfer as a
condition for market access, with exceptions. condition for market access, with exceptions.
 Prohibit customs duties or other charges for electronically transmitted products.  Prohibit customs duties or other charges for electronically transmitted products.
 Require parties to have online consumer protection and anti-spam laws, and a  Require parties to have online consumer protection and anti-spam laws, and a
legal framework on privacy. legal framework on privacy.
 Promote cooperation on cybersecurity, and risk-based strategies and consensus-  Promote cooperation on cybersecurity, and risk-based strategies and consensus-
based standards over prescriptive regulation in combating cybersecurity risks and based standards over prescriptive regulation in combating cybersecurity risks and
events. events.
 Prohibit imposition of liability for harms against Internet services providers or  Prohibit imposition of liability for harms against Internet services providers or
users related to information stored, processed, transmitted, distributed, or made users related to information stored, processed, transmitted, distributed, or made
available by the service, with the exclusion of ISP liability for intellectual available by the service, with the exclusion of ISP liability for intellectual
property rights (IPR) infringement. property rights (IPR) infringement.
 Promote publication of open government data in machine readable format for  Promote publication of open government data in machine readable format for
public usage. public usage.
Intellectual Property Rights (IPR)
NAFTA was the first FTA to contain an IPR chapter, which in turn was the model for the WTO NAFTA was the first FTA to contain an IPR chapter, which in turn was the model for the WTO
Trade-Related Aspects of Intellectual Property Rights (TRIPs) Agreement that came into effect a Trade-Related Aspects of Intellectual Property Rights (TRIPs) Agreement that came into effect a
year later in 1995.year later in 1995.8072 IPR chapters in trade agreements include provisions on patents, copyrights, IPR chapters in trade agreements include provisions on patents, copyrights,
trademarks, trade secrets, geographical indications (GIs), and enforcement. NAFTA predated the trademarks, trade secrets, geographical indications (GIs), and enforcement. NAFTA predated the
widespread use of the commercial Internet, and subsequent IPR chapters in U.S. FTAs contain widespread use of the commercial Internet, and subsequent IPR chapters in U.S. FTAs contain
obligations more extensive than those found in TRIPS and NAFTA. In general, they have obligations more extensive than those found in TRIPS and NAFTA. In general, they have
followed the TPA negotiating objective that agreements should “reflect a standard of protection followed the TPA negotiating objective that agreements should “reflect a standard of protection
similar to that found in U.S. law.” The Trump Administration’s NAFTA renegotiation objectives reflect TPA-2015.
8072 See CRS In Focus IF10033, See CRS In Focus IF10033, Intellectual Property Rights (IPR) and International Trade, by Shayerah Ilias Akhtar , by Shayerah Ilias Akhtar
and Ian F. Fergusson. and Ian F. Fergusson.
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similar to that found in U.S. law.” The President’s NAFTA renegotiation objectives reflect TPA-
2015.
The United States achieved most of what it sought in the USMCA. The sections below describe
and discuss key USMCA provisions.
Patents
Patents protect new innovations, such as pharmaceutical products, chemical processes, business Patents protect new innovations, such as pharmaceutical products, chemical processes, business
technologies, and computer software. These provisions largely track provisions in more recent technologies, and computer software. These provisions largely track provisions in more recent
U.S. FTAs: U.S. FTAs:
  Patentable subject matter. USMCA provides that patents be made available for USMCA provides that patents be made available for
any invention, whether product or process, in all field of technology, provided any invention, whether product or process, in all field of technology, provided
that an invention is new, involves and inventive step, or is capable of industrial that an invention is new, involves and inventive step, or is capable of industrial
application.application. Patent protection for new uses, methods, or processes of a known Patent protection for new uses, methods, or processes of a known
product were included in the USMCA, but were removed by the Protocol of product were included in the USMCA, but were removed by the Protocol of
Amendment. Amendment.
  Patent and regulatory term extension. Provides anProvides an extension for extension for
“unreasonable” delays in the patent examination or regulatory approval “unreasonable” delays in the patent examination or regulatory approval
processes. NAFTA allowed countries to provide such an extension but did not processes. NAFTA allowed countries to provide such an extension but did not
define unreasonable. USMCA defines unreasonable for patent delays as five define unreasonable. USMCA defines unreasonable for patent delays as five
years after the filing of the application, or three years after a request for years after the filing of the application, or three years after a request for
examination has been made. examination has been made.
  Patent linkage. Mandates notification to the patent holder when a generic Mandates notification to the patent holder when a generic
manufacturer seeks to rely on an originator’s test data for marketing approval, manufacturer seeks to rely on an originator’s test data for marketing approval,
and obligates the marketing authority to prevent a generic manufacturer from and obligates the marketing authority to prevent a generic manufacturer from
seeking market approval without the seeking market approval without the
rights holder’s consent. It provides rights holder’s consent. It provides
IPR Highlights in USMCA
flexibility on the notification system flexibility on the notification system
and the procedures (e.g., judicial or and the procedures (e.g., judicial or
Digital enforcement. Extends IPR enforcement, Extends IPR enforcement,
including for copyrights, to the digital environment. including for copyrights, to the digital environment.
administrative proceedings, and administrative proceedings, and
remedies, such as preliminary remedies, such as preliminary
Trade secrets. Requires criminal procedures and Requires criminal procedures and
penalties for trade secret theft, including cybertheft; penalties for trade secret theft, including cybertheft;
injunctions) for a patent holder to injunctions) for a patent holder to
also clarifies that SOEs are subject to trade secret also clarifies that SOEs are subject to trade secret
assert his rights, as well as for a party assert his rights, as well as for a party
protection requirements. protection requirements.
to challenge the patent’s validity. This to challenge the patent’s validity. This
Internet Service Providers (ISPs). Requires Requires
provision was not in NAFTA, but has provision was not in NAFTA, but has
“notice and takedown” to address ISP liability while “notice and takedown” to address ISP liability while
been in more recent U.S. FTAs. The been in more recent U.S. FTAs. The
allowing an alternative system to remain for Canada allowing an alternative system to remain for Canada
USMCA Protocol of Amendment USMCA Protocol of Amendment
(e.g., “notice and notice”). (e.g., “notice and notice”).
allows parties to provide for "effective allows parties to provide for "effective
Trademarks. Extends trademark protection to Extends trademark protection to
sounds and to “sounds and to “col ectivecollective marks” and removes marks” and removes
rewards,“ such as a period of market rewards,“ such as a period of market
administrative requirements to enable easier protection administrative requirements to enable easier protection
exclusivity, for a successful challenge exclusivity, for a successful challenge
and enforcement of trademarks. and enforcement of trademarks.
to the validity or a finding of non- to the validity or a finding of non-
Geographical indications (GIs). Requires Requires
infringement of a patent. infringement of a patent.
administrative procedures for recognizing and opposing administrative procedures for recognizing and opposing
 
GIs, including guidelines for determining when a name GIs, including guidelines for determining when a name
Protection of test data. Protects test Protects test
is common. Also, for GIs that a Party protects through is common. Also, for GIs that a Party protects through
data that patent holders submit for data that patent holders submit for
international agreements, includes requirements on international agreements, includes requirements on
regulatory approval for regulatory approval for
transparency and opportunity to comment or oppose transparency and opportunity to comment or oppose
pharmaceuticals on which generics pharmaceuticals on which generics
GI recognition. GI recognition.
may later rely. These provisions were may later rely. These provisions were
not in NAFTA. USMCA provisions are described below. not in NAFTA. USMCA provisions are described below.
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  Chemical-based (small-molecule) drugs. USMCA provides five years of provides five years of data
data exclusivity for new drugs, and three years for new formulations of existing exclusivity for new drugs, and three years for new formulations of existing
drugs. drugs.
  Biologics. . theThe USMCA Protocol of Amendment removed a ten-year period USMCA Protocol of Amendment removed a ten-year period of
of data exclusivity for biologic drugs originally negotiated in USMCA. U.S. data exclusivity for biologic drugs originally negotiated in USMCA. U.S. Congressional Research Service 25 NAFTA and the United States-Mexico-Canada Agreement (USMCA) law law
provides 12 years of data exclusivity for biologics, while Canada provides a provides 12 years of data exclusivity for biologics, while Canada provides a
total of eight years of biologics exclusivity and Mexico provides a five-year total of eight years of biologics exclusivity and Mexico provides a five-year
exclusivity period for both chemical and biologics.exclusivity period for both chemical and biologics.8173 Some policymakers Some policymakers
were concerned that the negotiated ten-year data exclusivity period would were concerned that the negotiated ten-year data exclusivity period would
have caused the prices of prescription drugs to rise to unaffordable levels. have caused the prices of prescription drugs to rise to unaffordable levels.
Industry stakeholders claim that the changes to USMCA do not protect U.S. Industry stakeholders claim that the changes to USMCA do not protect U.S.
intellectual property and could adversely affect U.S. jobs and U.S. medical intellectual property and could adversely affect U.S. jobs and U.S. medical
innovation.innovation.8274
Copyrights
Copyrights provide creators of artistic and literary works with the exclusive right to authorize or Copyrights provide creators of artistic and literary works with the exclusive right to authorize or
prohibit others from reproducing, communicating, or distributing their works. USMCA attempts prohibit others from reproducing, communicating, or distributing their works. USMCA attempts
to balance copyright protections while protecting the free flow of information, and addresses to balance copyright protections while protecting the free flow of information, and addresses
digital trade through the following: digital trade through the following:
  Extension of copyright terms. Extends copyright terms from 50 years after Extends copyright terms from 50 years after
death of the author, or 50 years from the publication (the WTO standard) to a 70- death of the author, or 50 years from the publication (the WTO standard) to a 70-
year period. Extends to 75-years corporate works. Among the USMCA parties, year period. Extends to 75-years corporate works. Among the USMCA parties,
only Canada maintains the 50-year term. only Canada maintains the 50-year term.
  Technological protection measures. Prohibits circumventing technological Prohibits circumventing technological
protection measures (TPMs), such as encryption, or altering or disabling rights protection measures (TPMs), such as encryption, or altering or disabling rights
management information (RMI). management information (RMI).
  Limitation and exceptions. Confines “limitations and exceptions to “certain Confines “limitations and exceptions to “certain
special cases that do not conflict with the normal exploitation of the work….and special cases that do not conflict with the normal exploitation of the work….and
do not unreasonably prejudice the legitimate interests of the rights holder.” do not unreasonably prejudice the legitimate interests of the rights holder.”
USMCA does not contain additional language that was in the TPP to “endeavor USMCA does not contain additional language that was in the TPP to “endeavor
to achieve an appropriate balance” between users and rights holders in their to achieve an appropriate balance” between users and rights holders in their
copyright systems, including digitally, through exceptions for legitimate purposes copyright systems, including digitally, through exceptions for legitimate purposes
(e.g., criticism, comment, news reporting, teaching, research). The “appropriate (e.g., criticism, comment, news reporting, teaching, research). The “appropriate
balance” language speaks to “fair use,” exceptions in copyright law for media, balance” language speaks to “fair use,” exceptions in copyright law for media,
research, and teaching. Rights-holder groups have criticized such provisions in research, and teaching. Rights-holder groups have criticized such provisions in
the FTA context, while open Internet groups sought to have the fair-use provision the FTA context, while open Internet groups sought to have the fair-use provision
inserted into USMCA. inserted into USMCA.
  “Safe harbor.” Protects internet service providers (ISPs) against liability for Protects internet service providers (ISPs) against liability for
digital copyright infringement, provided ISPs address intermediary copyright digital copyright infringement, provided ISPs address intermediary copyright
liability through “notice and takedown” or alternative systems (e.g., “notice and liability through “notice and takedown” or alternative systems (e.g., “notice and
notice” in Canada). Rights-holder groups sought to limit what they considered notice” in Canada). Rights-holder groups sought to limit what they considered
“overly broad safe harbor provisions,” while technology and business groups favored retention. Trademarks Trademarks protect distinctive commercial names, marks, and symbols. USMCA includes provisions on trademark protection and enforcement and provides for the following:
8173 CRS Report R44489, CRS Report R44489, The Trans-Pacific Partnership (TPP): Key Provisions and Issues for Congress, coordinated by , coordinated by
Ian F. Fergusson and Brock R. Williams. Ian F. Fergusson and Brock R. Williams.
8274 Rachel Cohrs, "Biologic Exclusivity Provision Stripped from Revised USMCA Deal," Rachel Cohrs, "Biologic Exclusivity Provision Stripped from Revised USMCA Deal," Modern Healthcare, ,
December 10, 2019. December 10, 2019.
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“overly broad safe harbor provisions,” while technology and business groups
favored retention.
Trademarks
Trademarks protect distinctive commercial names, marks, and symbols. USMCA includes
provisions on trademark protection and enforcement and provides for the following:
  Sound and scent marks. Extends trademark protection to sounds and requires Extends trademark protection to sounds and requires
“best efforts” to register scents. (Under NAFTA, a party could require that marks “best efforts” to register scents. (Under NAFTA, a party could require that marks
be “visually perceptible” in order to be registered.) be “visually perceptible” in order to be registered.)
  Certification and collective marks. Provides trademark protections to Provides trademark protections to
“certification marks” (e.g., such as the Underwriters’ Laboratory or Good “certification marks” (e.g., such as the Underwriters’ Laboratory or Good
Housekeeping Seal) and adds protection for “collective marks.” Certification Housekeeping Seal) and adds protection for “collective marks.” Certification
marks are usually given for “compliance with defined standards,” while marks are usually given for “compliance with defined standards,” while
collective marks are usually defined as “signs which distinguish the geographical collective marks are usually defined as “signs which distinguish the geographical
origin, material, mode of manufacture or other common characteristics of goods origin, material, mode of manufacture or other common characteristics of goods
or services of different enterprises using the collective mark.”or services of different enterprises using the collective mark.”8375
  Well-known trademarks. Extends specific protections for “well-known marks” Extends specific protections for “well-known marks”
to dissimilar goods and services, whether or not registered, so long as the use of 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 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 owner of the well-known mark and the trademark owner’s interests are likely to
be damaged by the use. be damaged by the use.
  Domain names. Requires each party to have a system for managing its country-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 code top level domains (ccTLDs) and to make available online public access to a
database of contact information for domain-name registrants. USMCA requires database of contact information for domain-name registrants. USMCA requires
parties to make available appropriate remedies when a person registers or holds, 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 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 similar to a trademark. This provision is intended to protect against what is often
referred to as “cybersquatting.” referred to as “cybersquatting.”
Trade Secrets
Trade secrets are confidential business information (e.g., formula, customer list) that are Trade secrets are confidential business information (e.g., formula, customer list) that are
commercially valuable. USMCA parties agreed to require criminal and civil procedures and commercially valuable. USMCA parties agreed to require criminal and civil procedures and
penalties for trade secret theft, prohibition on impeding licensing of trade secrets, protections for 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 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). disclose trade secrets, including through cyber theft and by state-owned enterprises (SOEs).
Geographical Indications (GIs)
GIs are geographical names that protect the quality and reputation of a distinctive product from a 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 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 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 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. 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. 75
83 For more information on these marks, see WIPO, “Certification Marks,” http://www.wipo.int/sme/en/ip_business/ For more information on these marks, see WIPO, “Certification Marks,” http://www.wipo.int/sme/en/ip_business/
collective_marks/certification_marks.htm; and WIPO, “Collective Marks,” http://www.wipo.int/sme/en/ip_business/collective_marks/certification_marks.htm; and WIPO, “Collective Marks,” http://www.wipo.int/sme/en/ip_business/
collective_marks/collective_marks.htm. collective_marks/collective_marks.htm.
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Comprehensive Economic and Trade Agreement (CETA) between Canada and the European
Union, which provides additional protections for GIs in Canada. 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.
 Sets forth guidelines to determine whether a term is customary in the common  Sets forth guidelines to determine whether a term is customary in the common
language. language.
IPR Enforcement
Like previous U.S. FTAs, the USMCA commits parties to provide civil, criminal, and other Like previous U.S. FTAs, the USMCA commits parties to provide civil, criminal, and other
national enforcement for IPR violations, such as copyright enforcement in the digital national enforcement for IPR violations, such as copyright enforcement in the digital
environment, criminal penalties for trade secret theft and camcording, and environment, criminal penalties for trade secret theft and camcording, and ex-officio authority to authority to
seize counterfeit trademark and pirated copyright goods at the border. The provisions of the 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. chapter, in turn, are enforceable through the state-to-state dispute settlement chapter.
Cultural Exemption
Since the U.S.-Canada FTA, Canada has taken an exclusion on cultural industries from national 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 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 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”) 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 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. 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, entertainment industry, in particular, has long sought to have this provision eliminated. In the end,
Canada prevailed and the exclusion remains in USMCA, although a provision was inserted Canada prevailed and the exclusion remains in USMCA, although a provision was inserted
allowing the United States and Mexico to take reciprocal action. allowing the United States and Mexico to take reciprocal action.
State-Owned Enterprises (SOEs)
NAFTA includes provisions on SOEs, but they are limited in scope.NAFTA includes provisions on SOEs, but they are limited in scope.8476 They allow parties to They allow parties to
maintain or establish SOEs, while requiring that any enterprise owned or controlled by a federal, 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 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 obligations when exercising regulatory, administrative, or other government authority, such as the
granting of licenses. NAFTA committed parties to ensure that any SOEs accord 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 nondiscriminatory treatment in the sale of goods or services to another party’s investment in that
territory. territory.
USMCA includes a new chapter on SOEs, requiring SOEs to act in accordance with commercial 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 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 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 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 impact on U.S. workers and businesses. The renegotiations addressed potential commercial
disadvantages to private sector firms from state-supported competitors receiving preferential treatment.77 U.S. government and business stakeholders raised concerns during the negotiations about competing with companies linked to the state through ownership or influence. As a result, they support new specific disciplines in USMCA to address such competition. Some legal analysts 76
84 The definition of a State-Owned Enterprise in the agreement is an enterprise principally engaged in commercial The definition of a State-Owned Enterprise in the agreement is an enterprise principally engaged in commercial
activities and in which a party’s government directly or indirectly owns more than 50% of capital share, controls more activities and in which a party’s government directly or indirectly owns more than 50% of capital share, controls more
than 50% of voting rights, holds the power to control the enterprise through any other ownership interest including than 50% of voting rights, holds the power to control the enterprise through any other ownership interest including
indirect or minority ownership, or holds the power to selects a majority of board membersindirect or minority ownership, or holds the power to selects a majority of board members. 77 USTR, Updating the North American Free Trade Agreement (NAFTA), available at https://ustr.gov/sites/default/files/TPP-Upgrading-the-North-American-Free-Trade-Agreement-NAFTA-Fact-Sheet.pdf. .
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disadvantages to private sector firms from state-supported competitors receiving preferential
treatment.85
U.S. government and business stakeholders raised concerns during the negotiations about
competing with companies linked to the state through ownership or influence. As a result, they
support new specific disciplines in USMCA to address such competition. Some legal analysts
contend that USMCA limits the definition of expropriation so as to protect against “direct” contend that USMCA limits the definition of expropriation so as to protect against “direct”
expropriation only, and that it does not protect interests against indirect expropriation.expropriation only, and that it does not protect interests against indirect expropriation.8678 Indirect Indirect
expropriation occurs when a state’s regulatory actions could take effective control of—or expropriation occurs when a state’s regulatory actions could take effective control of—or
interfere with—an investment. interfere with—an investment.
Labor
NAFTA marked the first time that worker rights provisions were associated with an FTA. NAFTA marked the first time that worker rights provisions were associated with an FTA.
NAFTA’s labor provisions were in a side agreement NAFTA’s labor provisions were in a side agreement containingcalled the North American Agreement on Labor Cooperation (NAALC). It contained 11 “guiding principles” pertaining 11 “guiding principles” pertaining
to worker rights. Other provisions involved technical assistance, capacity building, and separate to worker rights. Other provisions involved technical assistance, capacity building, and separate
dispute procedures, along with a labor cooperation mechanism. Full dispute resolution procedures dispute procedures, along with a labor cooperation mechanism. Full dispute resolution procedures
apply only to a country’s “persistent pattern of failure” in trade-related cases to enforce its own apply only to a country’s “persistent pattern of failure” in trade-related cases to enforce its own
laws regarding child labor, minimum wage, and occupational safety and health. Issues such as laws regarding child labor, minimum wage, and occupational safety and health. Issues such as
freedom of association and the right to organize are limited to ministerial consultations. freedom of association and the right to organize are limited to ministerial consultations.
The rationale for including labor provisions in U.S. FTAs is to help ensure that countries not 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 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 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.provisions in U.S. trade agreements have evolved significantly since NAFTA.8779 More recent U.S. More recent U.S.
FTAs incorporated internationally recognized labor principles requiring parties to adopt and FTAs incorporated internationally recognized labor principles requiring parties to adopt and
maintain in their statutes and regulations core labor principles of the International Labor maintain in their statutes and regulations core labor principles of the International Labor
Organization (ILO) (ILO Declaration). They also require countries to enforce their labor laws and Organization (ILO) (ILO Declaration). They also require countries to enforce their labor laws and
not to waive or derogate from those laws to attract trade and investment. These provisions are 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 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. FTA, and violations are subject to the same potential trade sanctions.
ILO Declaration on Fundamental Principles and Rights at Work (1998)
 
Freedom of association. Freedom of association.
 
Effective recognition of the right to Effective recognition of the right to col ectivecollective bargaining. bargaining.
 
Elimination of all forms of compulsory or forced labor. Elimination of all forms of compulsory or forced labor.
 
Effective abolition of child labor. Effective abolition of child labor.
 
Elimination of discrimination in respect of employment and occupation. Elimination of discrimination in respect of employment and occupation.
USMCA includes components of more recent U.S. FTAs that strengthen labor provisions and USMCA includes components of more recent U.S. FTAs that strengthen labor provisions and
provide recourse to the same dispute settlement mechanism as other parts of the agreement. provide recourse to the same dispute settlement mechanism as other parts of the agreement.
Unlike NAFTA, it requires parties to not only enforce their own laws, but also to adopt and Unlike NAFTA, it requires parties to not only enforce their own laws, but also to adopt and
maintain specific laws related to the ILO Declaration. It requires parties to maintain specific laws related to the ILO Declaration. It requires parties to

85 USTR, Updating the North American Free Trade Agreement (NAFTA), available at https://ustr.gov/sites/default/
files/TPP-Upgrading-the-North-American-Free-Trade-Agreement-NAFTA-Fact-Sheet.pdf.
86  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. 78 Julie Bedard, David Herlihy, and Timothy G. Nelson, Julie Bedard, David Herlihy, and Timothy G. Nelson, The United States-Mexico-Canada Agreement Significantly
Curtails Foreign Investment Protection, Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates, October 2, 2018. Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates, October 2, 2018.
8779 See CRS In Focus IF10046, See CRS In Focus IF10046, Worker Rights Provisions in Free Trade Agreements (FTAs), by Cathleen D. Cimino-, by Cathleen D. Cimino-
Isaacs and M. Angeles Villarreal. Isaacs and M. Angeles Villarreal.
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  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 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. of action or inaction in a manner affecting trade or investment between parties.
 Promote compliance with labor laws through appropriate government action such  Promote compliance with labor laws through appropriate government action such
as appointing and training inspectors or monitoring compliance and investigating as appointing and training inspectors or monitoring compliance and investigating
suspected violations. suspected violations.
USMCA also prohibits imports of goods made by forced labor, and adds new commitments USMCA also prohibits imports of goods made by forced labor, and adds new commitments
related to violence against workers, migrant worker protections, and workplace discrimination. related to violence against workers, migrant worker protections, and workplace discrimination.
The agreement maintains language stating that each party retains the right to exercise reasonable The agreement maintains language stating that each party retains the right to exercise reasonable
enforcement discretion and to make enforcement discretion and to make bona fide decisions with regard to the allocation of decisions with regard to the allocation of
enforcement resources provided that the exercise of that discretion is not inconsistent with the 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 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 empower a party’s authorities to undertake labor law enforcement activities in the territory of
another party. another party.
USMCA Annex 23-A in the labor chapter commits Mexico to enact legislative action in regard to USMCA Annex 23-A in the labor chapter commits Mexico to enact legislative action in regard to
its labor laws, similar to the May 2019 reforms, specifying that absent such action a delay in its labor laws, similar to the May 2019 reforms, specifying that absent such action a delay in
USMCA’s entry into force could be possible. Specifically, Annex-23A commits Mexico to USMCA’s entry into force could be possible. Specifically, Annex-23A commits Mexico to
 Eliminate all forms of forced or compulsory labor.  Eliminate all forms of forced or compulsory labor.
 Protect the right of workers to organize, form, and join the union of their choice.  Protect the right of workers to organize, form, and join the union of their choice.
 Prohibit employer interference in union activities, discrimination, or coercion  Prohibit employer interference in union activities, discrimination, or coercion
against workers. against workers.
 Provide for the exercise of a personal, free, and secret vote of workers for union  Provide for the exercise of a personal, free, and secret vote of workers for union
elections and agreements. elections and agreements.
 Establish and maintain independent and impartial bodies to register union  Establish and maintain independent and impartial bodies to register union
elections and resolve disputes relating to collective bargaining agreements. elections and resolve disputes relating to collective bargaining agreements.
 Establish independent labor courts.  Establish independent labor courts.
While Mexico enacted these labor law reforms in 2019, and undertook constitutional reforms in While Mexico enacted these labor law reforms in 2019, and undertook constitutional reforms in
the past, several Members of Congress remained concerned about Mexico’s ability to fully the past, several Members of Congress remained concerned about Mexico’s ability to fully
implement and enforce its laws. They argued that the original text of the USMCA on labor and implement and enforce its laws. They argued that the original text of the USMCA on labor and
dispute settlement was not strong enough to protect worker rights and they negotiated with the dispute settlement was not strong enough to protect worker rights and they negotiated with the
Administration to amend the agreement. Administration to amend the agreement.
Key changes in the amended USMCA include the following: Key changes in the amended USMCA include the following:
 Prevention of panel blocking in the Dispute Settlement Chapter of USMCA.  Prevention of panel blocking in the Dispute Settlement Chapter of USMCA.
Ensures the formation of a panel in dispute cases where a party refuses to Ensures the formation of a panel in dispute cases where a party refuses to
participate in the selection of panelists. participate in the selection of panelists.
 “In a Manner Affecting Trade and Investment.” Shifts the burden of proof by  “In a Manner Affecting Trade and Investment.” Shifts the burden of proof by
stating that an alleged violation affects trade and investment, unless otherwise stating that an alleged violation affects trade and investment, unless otherwise
demonstrated. demonstrated.
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 Rapid Response Mechanism. Adds a new rapid response mechanism to provide  Rapid Response Mechanism. Adds a new rapid response mechanism to provide
for an independent panel investigation of denial of certain labor rights at for an independent panel investigation of denial of certain labor rights at
“covered facilities,” as opposed to a government inspection. “covered facilities,” as opposed to a government inspection.
 Mexico’s Labor Reform Monitoring. USMCA implementing legislation creates a  Mexico’s Labor Reform Monitoring. USMCA implementing legislation creates a
new interagency committee, labor attachés, and reporting requirements to new interagency committee, labor attachés, and reporting requirements to
Congress on Mexico’s implementation of labor reforms. Congress on Mexico’s implementation of labor reforms.
Congressional Research Service 30 NAFTA and the United States-Mexico-Canada Agreement (USMCA)  New or amended provisions on Rules of Procedure for dispute settlement, forced  New or amended provisions on Rules of Procedure for dispute settlement, forced
labor, and violence against workers. labor, and violence against workers.
Environment
NAFTA was the first U.S. FTA to include a side agreement related to the environment. As with NAFTA was the first U.S. FTA to include a side agreement related to the environment. As with
the chapter on labor, environment provisions in U.S. FTAs have evolved significantly over time. the chapter on labor, environment provisions in U.S. FTAs have evolved significantly over time.
The NAFTA side agreement—the North American Agreement on Environmental Cooperation The NAFTA side agreement—the North American Agreement on Environmental Cooperation
(NAAEC)—required all parties to enforce their own environmental laws, and contains an (NAAEC)—required all parties to enforce their own environmental laws, and contains an
enforcement mechanism applicable to a party’s failure to enforce these laws. NAAEC included a enforcement mechanism applicable to a party’s failure to enforce these laws. NAAEC included a
consultation mechanism for addressing disputes with a special dispute settlement procedure. consultation mechanism for addressing disputes with a special dispute settlement procedure.
Subsequent FTAs included a similar environmental chapter within the main text of the agreement, Subsequent FTAs included a similar environmental chapter within the main text of the agreement,
including a country’s obligations to enforce their own laws.including a country’s obligations to enforce their own laws.8880
More recent U.S. FTAs added an affirmative obligation for FTA partner countries to adhere to 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 multilateral environmental agreements (MEAs) and allowed for environmental disputes under the
FTAs to access the main dispute settlement provisions of the agreement. These obligations FTAs to access the main dispute settlement provisions of the agreement. These obligations
generally were reflected in the TPA-2015 negotiating objectives. The USMCA environment generally were reflected in the TPA-2015 negotiating objectives. The USMCA environment
chapter obligates each party to: chapter obligates each party to:
 Not fail to effectively enforce its environmental laws through a sustained or  Not fail to effectively enforce its environmental laws through a sustained or
recurring course of action or inaction to attract trade and investment. recurring course of action or inaction to attract trade and investment.
 Not waive or derogate from such laws in a manner that weakens or reduces the  Not waive or derogate from such laws in a manner that weakens or reduces the
protections afforded in those laws to encourage trade or investment. protections afforded in those laws to encourage trade or investment.
 Ensure that its environmental laws and policies provide for and encourage high  Ensure that its environmental laws and policies provide for and encourage high
levels of protection. levels of protection.
 Strive to improve its levels of environmental protection.  Strive to improve its levels of environmental protection.
 Require parties to adopt and maintain statutes and regulations consistent with  Require parties to adopt and maintain statutes and regulations consistent with
multilateral environmental agreements to which each is a party. multilateral environmental agreements to which each is a party.
 Recognize the sovereign right of each party to establish its own levels of  Recognize the sovereign right of each party to establish its own levels of
domestic environmental protection, its own regulatory priorities, and to adopt or domestic environmental protection, its own regulatory priorities, and to adopt or
modify its priorities accordingly. modify its priorities accordingly.
 Acknowledge a party’s right to exercise discretion with regard to enforcement  Acknowledge a party’s right to exercise discretion with regard to enforcement
resources. resources.
 Provide for the resolution of disputes.  Provide for the resolution of disputes.
 Provide a mechanism to implement the agreement.  Provide a mechanism to implement the agreement.
USMCA directly or implicitly addresses obligations under major Multilateral Environmental USMCA directly or implicitly addresses obligations under major Multilateral Environmental
Agreements (MEAs). It also includes obligations and encouragements to protect the ozone layer, 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 protect the marine environment from ship pollution, encourage conservation and sustainable use

88 For more information, see CRS In Focus IF10166, Environmental Provisions in Free Trade Agreements (FTAs), by
Richard K. Lattanzio and Ian F. Fergusson.
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of biodiversity, encourage sustainable fisheries management and requires the control, reduction, of biodiversity, encourage sustainable fisheries management and requires the control, reduction,
and eventual elimination of subsidies that lead to overfishing or overcapacity. The USMCA does and eventual elimination of subsidies that lead to overfishing or overcapacity. The USMCA does
not contain language on climate change. not contain language on climate change.
The Protocol of Amendment to USMCA clarified some of the existing language in the agreement The Protocol of Amendment to USMCA clarified some of the existing language in the agreement
and addressed some perceived shortcoming in the original USMCA text, such as: and addressed some perceived shortcoming in the original USMCA text, such as:
80 For more information, see CRS In Focus IF10166, Environmental Provisions in Free Trade Agreements (FTAs), by Richard K. Lattanzio and Ian F. Fergusson. Congressional Research Service 31 link to page 24 NAFTA and the United States-Mexico-Canada Agreement (USMCA)  Asserting the presumption that an environmental dispute affects trade and  Asserting the presumption that an environmental dispute affects trade and
investment unless a respondent party can prove otherwise. investment unless a respondent party can prove otherwise.
 Requiring each party specifically to adopt, maintain, and implement laws,  Requiring each party specifically to adopt, maintain, and implement laws,
regulations and other measures to fulfill the following MEAs to which they are a regulations and other measures to fulfill the following MEAs to which they are a
party: party:
 Convention on International Trade in Endangered Species of Wild Flora and  Convention on International Trade in Endangered Species of Wild Flora and
Fauna (CITES) Fauna (CITES)
 Montreal Protocol on Substances that Deplete the Ozone Layer  Montreal Protocol on Substances that Deplete the Ozone Layer
 International Convention for the Prevention of Pollution from Ship  International Convention for the Prevention of Pollution from Ship
(MARPOL) (MARPOL)
 Ramsar Convention on Wetlands  Ramsar Convention on Wetlands
 Convention on Antarctic Marine Living Resources  Convention on Antarctic Marine Living Resources
 International Whaling Convention  International Whaling Convention
 Inter-American Tropical Tuna Convention  Inter-American Tropical Tuna Convention
The USMCA, as originally signed, only made explicit reference to CITES, MARPOL, and the The USMCA, as originally signed, only made explicit reference to CITES, MARPOL, and the
Montreal Protocol. USMCA implementing legislation creates an Interagency Environment Montreal Protocol. USMCA implementing legislation creates an Interagency Environment
Committee for Monitoring and Enforcement, analogous to the labor chapter, and establishes Committee for Monitoring and Enforcement, analogous to the labor chapter, and establishes
environment-focused attachés in Mexico City to monitor compliance with the agreement. In environment-focused attachés in Mexico City to monitor compliance with the agreement. In
addition, the implementing legislation includes measures for authorizing grants under the U.S.-addition, the implementing legislation includes measures for authorizing grants under the U.S.-
Mexico Border Water Infrastructure Program, the Trade Enforcement Trust Fund and a Mexico Border Water Infrastructure Program, the Trade Enforcement Trust Fund and a
recapitalization of the North American Development Bank (NADB). recapitalization of the North American Development Bank (NADB).
Dispute Settlement
NAFTA and other U.S. FTAs, as well as the WTO, provide for the resolution of disputes arising NAFTA and other U.S. FTAs, as well as the WTO, provide for the resolution of disputes arising
under the agreement. These provisions are in addition to procedures with regard to investor-state under the agreement. These provisions are in addition to procedures with regard to investor-state
dispute resolution (see dispute resolution (see “Investor-State Dispute Settlement”). The USMCA dispute settlement ). The USMCA dispute settlement
provisions are designed to resolve disputes in a cooperative manner. A party first seeks redress of provisions are designed to resolve disputes in a cooperative manner. A party first seeks redress of
a grievance through a request for consultation with the other party. These steps include: a grievance through a request for consultation with the other party. These steps include:
 Initial consultations between the parties.  Initial consultations between the parties.
 Good offices, conciliation, or mediation (if no resolution).  Good offices, conciliation, or mediation (if no resolution).
 Establishment of a dispute settlement panel.  Establishment of a dispute settlement panel.
Panels are composed of five members, of whom each side appoints two. A chair is appointed by 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. 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 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 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 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 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. cannot bring the dispute to multiple fora.
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Under NAFTA, only three state-to-state dispute resolution panels were completed (between 1994 Under NAFTA, only three state-to-state dispute resolution panels were completed (between 1994
and 2001). Because the United States was able to block a panel chair, a fourth case (Restrictions and 2001). Because the United States was able to block a panel chair, a fourth case (Restrictions
on Sugar from Mexico) was never considered. on Sugar from Mexico) was never considered. 8981 The ability of a party to block a panel chair— 81 For more information, see CRS In Focus IF11418, USMCA: A Legal Interpretation of the Panel-Formation Provisions and the Question of Panel Blocking, by Nina M. Hart. Congressional Research Service 32 NAFTA and the United States-Mexico-Canada Agreement (USMCA) The ability of a party to block a panel chair—
and, consequently, a panel—from forming exposed an issue in the panel selection process, which and, consequently, a panel—from forming exposed an issue in the panel selection process, which
has not been used since. has not been used since.
The protocol of amendment to USMCA addressed the panel blocking issue by inserting language The protocol of amendment to USMCA addressed the panel blocking issue by inserting language
that would eliminate the ability of a responding party to block the establishment of a panel that would eliminate the ability of a responding party to block the establishment of a panel
through refusal to participate in the panel establishment procedure. It revised the guidelines for through refusal to participate in the panel establishment procedure. It revised the guidelines for
the Rules of Procedure for panels to give the parties the right to submit testimony, the right to test the Rules of Procedure for panels to give the parties the right to submit testimony, the right to test
the veracity of submitted testimony, the right to submit anonymous testimony, and for the panel to the veracity of submitted testimony, the right to submit anonymous testimony, and for the panel to
accept agreed stipulations prior to a hearing, among other issues. In order to speed up dispute accept agreed stipulations prior to a hearing, among other issues. In order to speed up dispute
settlement, the amendment eliminated the consultative role of the USMCA Free Trade settlement, the amendment eliminated the consultative role of the USMCA Free Trade
Commission, which acts as a secretariat for the agreement, as an intermediate step to resolve Commission, which acts as a secretariat for the agreement, as an intermediate step to resolve
disputes. disputes.
In addition, some chapters or sections are not subject to dispute settlement including the: In addition, some chapters or sections are not subject to dispute settlement including the:
 Good Regulatory Practices chapter;  Good Regulatory Practices chapter;
 Competition Policy chapter;  Competition Policy chapter;
 Competitiveness chapter;  Competitiveness chapter;
 Small and Medium-Sized Enterprise chapter;  Small and Medium-Sized Enterprise chapter;
 Transparency and Procedural Fairness for Pharmaceutical Products and Medical  Transparency and Procedural Fairness for Pharmaceutical Products and Medical
Devices section of the Publications and Administration chapters Devices section of the Publications and Administration chapters.; and
 Macroeconomic Policies and Exchange Rate Matters Chapter other than  Macroeconomic Policies and Exchange Rate Matters Chapter other than
transparency and reporting obligations that have not been resolved through transparency and reporting obligations that have not been resolved through
consultations. consultations.
Binational Review Panels for Trade Remedies
Unlike other U.S. FTAs, NAFTA contained a binational dispute settlement mechanism, which Unlike other U.S. FTAs, NAFTA contained a binational dispute settlement mechanism, which
USMCA retains. USMCA provides disciplines for settling disputes arising from a party’s USMCA retains. USMCA provides disciplines for settling disputes arising from a party’s
statutory amendment of its antidumping (AD) or countervailing duty (CVD) laws, or from a statutory amendment of its antidumping (AD) or countervailing duty (CVD) laws, or from a
party’s AD or CVD final party’s AD or CVD final determination90determination82 on the goods of an exporting party. The dispute on the goods of an exporting party. The dispute
settlement system originated during the Canada-United States Free Trade Agreement (CUSFTA) settlement system originated during the Canada-United States Free Trade Agreement (CUSFTA)
and it was retained under NAFTA. It was a priority negotiating issue for the Canadian and it was retained under NAFTA. It was a priority negotiating issue for the Canadian
government. government.
The binational panel mechanism provides for a review of USMCA parties’ final administrative The binational panel mechanism provides for a review of USMCA parties’ final administrative
determinations in AD/CVD investigations in lieu of judicial review in domestic courts. In cases in determinations in AD/CVD investigations in lieu of judicial review in domestic courts. In cases in
which an aggrieved USMCA country maintains that a partner did not preserve “fair and which an aggrieved USMCA country maintains that a partner did not preserve “fair and
predictable disciplines on unfair trade practices,” or asserts that a partner’s amendment to its AD predictable disciplines on unfair trade practices,” or asserts that a partner’s amendment to its AD

89 For more information, see CRS In Focus IF11418, USMCA: A Legal Interpretation of the Panel-Formation
Provisions and the Question of Panel Blocking, by Nina M. Hart
90or CVD law is inconsistent with the WTO Antidumping or Subsidies Agreements,83 the aggrieved 82 In Canada, AD/CVD investigations on imports are conducted by the Canada Border Services Agency (CBSA, which In Canada, AD/CVD investigations on imports are conducted by the Canada Border Services Agency (CBSA, which
makes dumping and subsidy determinations) and the Canadian International Trade Tribunal (CITT, which determines makes dumping and subsidy determinations) and the Canadian International Trade Tribunal (CITT, which determines
injury to Canadian industries). In Mexico, both injury (i.e., to Mexican industries) and dumping/subsidy determinations injury to Canadian industries). In Mexico, both injury (i.e., to Mexican industries) and dumping/subsidy determinations
are made by the Secretaría de Economía, Unidad de Practicas Comerciales Internacionales. U.S. injury determinations are made by the Secretaría de Economía, Unidad de Practicas Comerciales Internacionales. U.S. injury determinations
are made by the International Trade Commission (ITC), and the International Trade Administration of the Department are made by the International Trade Commission (ITC), and the International Trade Administration of the Department
of Commerce investigates and determines the existence and amount of dumping/subsidies. of Commerce investigates and determines the existence and amount of dumping/subsidies.
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or CVD law is inconsistent with the WTO Antidumping or Subsidies Agreements,91 the aggrieved
partner may request a judgment from a binational panel rather than through the legal system of
the defending party.92
NAFTA Chapter 19 Panels Involving the United States
As of February 26, 2020, Chapter 19 panels have reviewed 156 cases. The United States and its industries have
been a party to 91% of all Chapter 19 panel reviews (142 panels), as either the importing or exporting country. In
70% of these panels (110 panels), the United States was the importing country and investigating authority. In these
110 cases, panels reviewed 55 U.S. decisions regarding U.S. imports from Canada and 55 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.
Source: Evaluated and compiled by CRS using information from the NAFTA Secretariat, previously available at
https://www.nafta-sec-alena.org/Home/Dispute-Settlement. Information after February 26, 2020 was not readily
available at the time this report was updated.
The Trump Administration83 The WTO Antidumping Agreement’s official title is the Agreement on the Implementation of Article VI of the General Agreement on Tariffs and Trade; and the Subsidies Agreement’s title is the Agreement on Subsidies and Countervailing Measures. NAFTA pre-dated the entry-into-force of the agreement establishing the WTO by one year. At the time of the NAFTA negotiations, the multilateral General Agreements on Tariffs and Trade (GATT) was in Congressional Research Service 33 NAFTA and the United States-Mexico-Canada Agreement (USMCA) partner may request a judgment from a binational panel rather than through the legal system of the defending party.84 The United States sought to eliminate the Chapter 19 dispute settlement mechanism sought to eliminate the Chapter 19 dispute settlement mechanism
during the USMCA negotiations.during the USMCA negotiations.9385 By contrast, Canada and Mexico expressed support for By contrast, Canada and Mexico expressed support for
retaining the mechanism, with Canada drawing a “red line” firmly opposing its elimination.retaining the mechanism, with Canada drawing a “red line” firmly opposing its elimination.9486 At At
the end of the negotiations, the three countries decided to retain the system. NAFTA Chapter 19 is 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. effectively replicated in the Trade Remedies Chapter of the USMCA.
Currency Manipulation
NAFTA did not have provisions related to currency manipulation. For the first time in a U.S. NAFTA did not have provisions related to currency manipulation. For the first time in a U.S.
trade agreement, USMCA includes obligations to guard against currency manipulation. The trade agreement, USMCA includes obligations to guard against currency manipulation. The
parties agreed to “achieve and maintain a market-determined exchange rate regime,” and to 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 “refrain from competitive devaluation, including through intervention in the foreign exchange
market.” However, only transparency and reporting requirements are subject to dispute settlement market.” However, only transparency and reporting requirements are subject to dispute settlement
procedures. procedures.
The June 2015 TPA included, for the first time, a principal trade negotiating objective addressing 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 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 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 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 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 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. 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. currencies to boost exports, making it harder for other countries to compete in global markets.

91 The WTO Antidumping Agreement’s official title is the Agreement on the Implementation of Article VI of the
General Agreement on Tariffs and Trade; and the Subsidies Agreement’s title is the Agreement on Subsidies and
Countervailing Measures. NAFTA pre-dated the entry-into-force of the agreement establishing the WTO by one year.
At the time of the NAFTA negotiations, the multilateral General Agreements on Tariffs and Trade (GATT) was in
force. The GATT was incorporated with revisions into the WTO agreements.
92 CRS In Focus IF10645, Dispute Settlement in the WTO and U.S. Trade Agreements, by Ian F. Fergusson.
93 USTR, Summary of Objectives for the NAFTA Renegotiation, p. 14.
94 “Trudeau: Chapter 19, cultural exemptions are NAFTA red lines for Canada,” Inside U.S. Trade, September 4, 2018.
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They argue that U.S. companies and jobs have been adversely affected by the exchange rate 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.policies adopted by China, Japan, and other countries “manipulating” their currencies.9587 Some Some
economists are skeptical about currency manipulation and whether it is a significant problem. 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 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 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.activities, and the net effect of alleged currency manipulation on the U.S. economy.9688
Regulatory Practices
Nontariff barriers, including discriminatory and unpredictable regulatory processes, can be an Nontariff barriers, including discriminatory and unpredictable regulatory processes, can be an
impediment to market access for U.S. goods and services exports. NAFTA included broad impediment to market access for U.S. goods and services exports. NAFTA included broad
provisions on regulatory practices in several chapters, including the Customs Procedures, 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 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 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 cooperation on economic and security issues through various endeavors such as the North
force. The GATT was incorporated with revisions into the WTO agreements. 84 CRS In Focus IF10645, Dispute Settlement in the WTO and U.S. Trade Agreements, by Ian F. Fergusson. 85 USTR, Summary of Objectives for the NAFTA Renegotiation, p. 14. 86 “Trudeau: Chapter 19, cultural exemptions are NAFTA red lines for Canada,” Inside U.S. Trade, September 4, 2018. 87 See CRS In Focus IF10049, Exchange Rates and Currency Manipulation, by Rebecca M. Nelson, and CRS Report R44717, International Trade and Finance: Overview and Issues for the 115th Congress, coordinated by Mary A. Irace and Rebecca M. Nelson. 88 Ibid. Congressional Research Service 34 NAFTA and the United States-Mexico-Canada Agreement (USMCA) American Leaders’ Summits, the North American Trusted Traveler Program, the U.S.-Canada 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 Beyond the Border Action Plan, and the U.S.-Mexico High Level Regulatory Cooperation
Council.Council.9789
USMCA has a new, separate chapter on regulatory practices with commitments to promote USMCA has a new, separate chapter on regulatory practices with commitments to promote
regulatory quality through greater transparency, objective analysis, accountability, and regulatory quality through greater transparency, objective analysis, accountability, and
predictability to facilitate international trade, investment, and economic growth. The chapter 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 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, regulatory approaches among the parties, and reduce or eliminate unnecessarily burdensome,
duplicative, or divergent regulatory requirements. Such commitments could complement ongoing duplicative, or divergent regulatory requirements. Such commitments could complement ongoing
efforts and include increased transparency in the development and implementation of proposed 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 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.impact assessments and other methods to ensure regulations are evidence-based and current.9890
Trucking
NAFTA provided Mexican commercial trucks full access to four U.S.-border states by 1995 and 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 implementation of NAFTA trucking full access throughout the United States by 2000. The implementation of NAFTA trucking
provisions was a major trade issue between the United States and Mexico for many years because provisions was a major trade issue between the United States and Mexico for many years because
the United States delayed its trucking commitments. The two countries cooperated to resolve the the United States delayed its trucking commitments. The two countries cooperated to resolve the
issue over time and engaged in numerous talks regarding safety and operational issues. By 2015, issue over time and engaged in numerous talks regarding safety and operational issues. By 2015,
the trucking issue had been resolved. the trucking issue had been resolved.
USMCA generally retains NAFTA trucking provisions. NAFTA granted Mexican commercial USMCA generally retains NAFTA trucking provisions. NAFTA granted Mexican commercial
trucks authority to operate in the United States, but they cannot operate between two points trucks authority 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 within the country. This means that they can haul cross-border loads but cannot haul loads that
originate and end in the United States. USMCA caps the number of Mexican-domiciled carriers originate and end in the United States. USMCA caps the number of Mexican-domiciled carriers
that can receive U.S. operating authority and continues the prohibition on Mexican-based carriers that can receive U.S. operating authority and continues the prohibition on Mexican-based carriers

95 See CRS In Focus IF10049, Debates over Currency Manipulation, by Rebecca M. Nelson, and CRS Report R44717,
International Trade and Finance: Overview and Issues for the 115th Congress, coordinated by Mary A. Irace and
Rebecca M. Nelson.
96 Ibid.
97 See section on North American Cooperation in CRS Report 96-397, Canada-U.S. Relations, by Ian F. Fergusson and
Peter J. Meyer.
98 USTR, Summary of Objectives for the NAFTA Renegotiation, July 17, 2017, p. 7.
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hauling freight between two points within the United States. Mexican carriers that already have hauling freight between two points within the United States. Mexican carriers that already have
authority under NAFTA to operate in the United States will continue to be allowed to operate in authority under NAFTA to operate in the United States will continue to be allowed to operate in
the United States. the United States.
Anticorruption
The United States has been influential in including commitments to combat corruption in 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 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 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 provisions has evolved over time with anticorruption commitments becoming progressively
stronger.stronger.9991 NAFTA does not include a separate chapter related to transparency or anticorruption, 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 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 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. 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 Earlier agreements such as the U.S.-Chile FTA included anticorruption provisions related to
government procurement, but none in the transparency chapter. government procurement, but none in the transparency chapter.
89 See section on North American Cooperation in CRS Report 96-397, Canada-U.S. Relations, by Ian F. Fergusson and Peter J. Meyer. 90 USTR, Summary of Objectives for the NAFTA Renegotiation, July 17, 2017, p. 7. 91 Transparency International, “Anti-Corruption and Transparency Provisions in Trade Agreements,” Anti-Corruption Helpdesk, 2017. Congressional Research Service 35 NAFTA and the United States-Mexico-Canada Agreement (USMCA) USMCA has a new chapter on anti-corruption in which the parties affirm their resolve to prevent USMCA has a new chapter on anti-corruption in which the parties affirm their resolve to prevent
and combat bribery and corruption in international trade and investment. The scope of the chapter 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 is limited to measures to prevent and combat bribery and corruption in regard to any matter
covered by the agreement. covered by the agreement.
“Sunset” Provision in Review and Term Extension
In the Final Provisions chapter of USMCA, parties commit to a review of the agreement on the In the Final Provisions chapter of 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 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 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 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 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 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 what its role would be in the agreement. This may be of interest to Congress as it considers what its role would be in
reviewing the USMCA and in the next authorization of TPA. Some industry observers contend reviewing the USMCA and in the next authorization of TPA. Some industry observers contend
that the sunset provision may have a detrimental effect on investor confidence and affect long-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 term investments. Others believe that the provision will not have an effect as parties can choose
to review an agreement at any time. to review an agreement at any time.
Issues for Congress
Policymakers faced numerous significant issues in the debate and approval of USMCA. Key
issues Congress examined included the modernized provisions of the agreement, the role of the
Congress and the President in the NAFTA renegotiation, whether the agreement made progress in
advancing TPA’s negotiating 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 contend that the renegotiations resulted
in a positive outcome on balance that will enhance relations with NAFTA partners through a
modernized agreement. Other lawmakers expressed concerns about specific aspects of the
agreement, including labor, investment, and IPR, and some Members negotiated with the Trump

99 Transparency International, “Anti-Corruption and Transparency Provisions in Trade Agreements,” Anti-Corruption
Helpdesk, 2017.
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Administration to amend the agreement. What follows are a few selected areas of potential
congressional interest.
Congressional Oversight Role and Key Changes to USMCA
USMCA contains key significant changes from past U.S. FTAs, including ISDS, labor and the
environment, rules of origin for motor vehicles and parts, government procurement, and the
sunset provision to review the agreement after six years. Congress may examine these issues
more closely in terms of whether they should be a model for future agreements. Although
numerous policymakers contend that USMCA contains groundbreaking provisions such as those
on labor enforcement and the environment, others believe that USMCA rolls back some
liberalization commitments in previous U.S. FTAs and will result in diminishing free trade
instead of liberalizing it.100
Congress may consider an oversight role on implementation of these and other provisions. For
example, policymakers may continue to examine whether labor provisions in FTAs, such as
USMCA, are effective in enhancing worker rights. Organized labor in the United States has long
argued that labor enforcement in trade agreements needs to be strengthened in order to protect
U.S. workers, but others argue that domestic policy might be “the most direct, and most effective,
way to improve workers’ lot, especially in advanced countries like the United States.”101 The
motor vehicle auto rules of origin raise other issues. As stated earlier, economic studies and
industry observers have concluded that the more restrictive rules of origin on autos and auto parts
may result in higher prices, lower U.S. exports, and adversely affect U.S. and Mexican auto
employment. Policymakers may monitor the effects of USMCA on the North American motor
vehicle industry as the new rules of origin are implemented. As noted above, the USMCA will
remove bilateral U.S. government procurement (GP) obligations with regard to Canada. GP
obligations continue under the WTO Government Procurement Agreement (GPA), but if the
United States withdraws from the GPA,102 the issue of the value of open government procurement
versus Buy American policies may come to the fore. Disagreement over the value and content of
Investor-State Dispute Settlement (ISDS) and whether it should or should not be included in
future trade agreements likely will persist despite their restriction in USMCA.
Roles of Congress and the President in NAFTA Renegotiations
Under Trade Promotion Authority, 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. USMCA was ultimately considered and approved under TPA
procedures well within the 90-day deadline. Some Members of Congress expressed concerns

100 See for example, Senator Pat Toomey, “I'll Vote Against This Antitrade Agreement,” Op-Ed, Wall Street Journal,
December 19, 2019.
101 Anne Kim, “The Truth About USMCA’s Labor Provisions, Domestic policy reforms can more effectively help
American workers,” Washington Monthly, December 21, 2019.
102 Isabelle Icso, “USTR backs U.S. withdrawal from WTO procurement agreement,” World Trade Online, February
26, 2020.
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about the path USMCA took to ratification, stating that the final agreement was not negotiated
under TPA procedures, which could set an undesirable precedent for future trade agreements.103
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. Some in Congress expressed interest in the extent to
which the President advanced 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.
President Trump indicated in the early phase of NAFTA renegotiations that he would consider
withdrawing from NAFTA as a means of pressuring Congress to support timely action on
implementing legislation. It was not clear, though, whether the President had the legal authority
for withdrawing from an agreement without the consent of Congress. If President Trump
attempted to withdraw from the agreement, it is possible that Congress would have attempted 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.104
Lawmakers may choose to clarify language for withdrawing from an agreement in future
authorizations of TPA.
Economic and Broader Considerations
Congress reviewed the economic effects of a USMCA and the broader strategic implications of
possible withdrawal from NAFTA absent action on legislation to implement the USMCA. 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.
The full effects of the USMCA on North American trade relations are not be expected to be
significant because nearly all U.S. trade with Canada and Mexico that meets rules of origin
requirements was already conducted duty and barrier free under NAFTA. The USMCA maintains
NAFTA’s tariff and non-tariff barrier eliminations. Many economists and other observers believe
that USMCA is not expected to have a measurable effect on U.S. trade and investment with
Mexico or Canada, jobs, wages, or overall economic growth, and that it would probably not have
a measurable effect on the U.S. trade deficit.105 The U.S. International Trade Commission (ITC)
conducted an investigation into the likely economic impacts of the USMCA, a required element
of the Trade Promotion Authority (TPA) process.106 The ITC study, published in April 2019,
stated that the elements of USMCA that would have the most significant effects on the U.S.
economy are those related to digital trade and the new rules of origin applicable to the automotive
sector. USMCA’s new international data transfer provisions, absent in NAFTA, are expected to
positively impact industries that rely on such data transfers. The new more restrictive, auto rules
of origin may result in an increase in U.S. production but also lead to a small increase in prices
and a small decrease in the consumption of vehicles in the United States. Overall, according to

103 Isabelle Icso, “Senate Passes USMCA 89-10,” World Trade Online, January 16, 2020.
104 For more information, see CRS Report R44630, U.S. Withdrawal from Free Trade Agreements: Frequently Asked
Legal Questions, by Brandon J. Murrill.
105 John Brinkley, “USMCA is not the Magnificent Trade Deal Trump Says It Is,” Forbes.com, October 8, 2018.
106 CRS In Focus IF10038, Trade Promotion Authority (TPA), by Ian F. Fergusson.
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the ITC report, USMCA is expected to have a minimal, but positive effect on the overall U.S.
economy.107
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.108 Some
observers contend that manufacturers with a stronger presence in Mexico, such as General Motors
and Fiat Chrysler Automobiles, may be more impacted.109
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. Some lawmakers, however, do not agree with
these USMCA provisions stating that they do not protect workers or do not meet TPA negotiating
objectives.110 Other new USMCA provisions, 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.
Outlook
USMCA replaced NAFTA as of July 1, 2020. All three parties to the agreement must have ratified
USMCA before it could enter into force. Mexico was the first party to ratify the agreement in
June 2019 and the first party to approve the amended USMCA on December 12, 2019. The
United States ratified the agreement when President Trump signed the USMCA implementing
legislation into law on January 29, 2020 (P.L. 116-113). Canada ratified the agreement on March
13, 2020.
TPA requires that at least 30 days prior to an FTA’s entry into force, the President must notify
Congress that the other parties have taken the necessary legal and regulatory measures to comply
with their commitments under the agreement.111 For USMCA, such measures included laws or
regulations regarding rules of origin, tariffs, panel rosters related to dispute resolution,
establishing committees such as the one called for in the chapter on small and medium-sized
enterprises, labor law implementation in Mexico, among others. USMCA text states that the

107 United States International Trade Commission, U.S.-Mexico-Canada Trade Agreement: Likely Impact on the U.S.
Economy and on Specific Industry Sectors, Publication Number: 4889, April 2019.
108 Nick Lichtenberg, “USMCA ‘Manageable’ Changes Auto Compliance, Production Costs: Moody's,” Bloomberg
First Word, October 10, 2018.
109 Ibid.
110 See for example, Maria Curi, “Rep. Levin, a no on USMCA, sees long-term dangers for Democrats who voted yes,”
World Trade Online, December 27, 2019, and Senator Pat Toomey, “I’ll Vote Against This Antitrade Agreement,”
Wall Street Journal, December 18, 2019.
111 For more information, see CRS Legal Sidebar LSB10399, USMCA: Implementation and Considerations for
Congress, by Nina M. Hart.
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agreement would enter into force “on the first day of the third month following the last
notification” from all parties stating they have the necessary legal and regulatory measures in
place to meet their USMCA commitments.”112
USTR Lighthizer notified Congress on April 24, 2020 that Canada and Mexico had taken the
measures necessary to comply with their USMCA commitments and that the agreement would
enter into force on July 1, 2020.113 The United States was the third country to notify the other
parties that it had completed its domestic procedure to implement the agreement.
As USMCA enters into the implementation phase, some issues of interest to Congress may
include:
 How the U.S. Customs and Border Protection is enforcing the new importing
requirements under USMCA and whether there has been sufficient time for
importers to adjust to the new requirements.114
 Whether extending the implementing of the new rules of origin for the motor
vehicle industry until January 2021 provides vehicle producers, exporters and
importers sufficient time to provide certification that products meet the rules of
origin requirements.
 Whether Canada and Mexico are meeting their USMCA commitments as the
agreement is implemented. For example, U.S. business groups have raised
concerns that Mexico’s new customs regulations issued on June 30, 2020, apply a
fee on goods worth between $50 and $117, which is a violation of USMCA’s de
minimis provisions.115
 How well Mexico is implementing its labor law reforms to provide more worker
rights protection, to ensure that workers are able to exercise their right to vote by
secret ballot and form their own unions, to establish independent labor courts,
and the effectiveness of the new enforcement measures, including the rapid
response mechanism.
 The extent to which USMCA’s updated dispute resolution procedures are
improving the enforcement of the agreement’s provisions.
 How effectively is the Trump Administration using the funding appropriated by
Congress to provide the necessary capacity building to support and ensure
effective implementation of required labor law reforms in Mexico. Title IX of the
USMCA Implementing Act P.L. 116-113 provides $180 million “to support
reforms of the labor justice system in Mexico, including grants to support worker
focused capacity building…”116

112 Protocol Replacing the North American Free Trade Agreement with the Agreement Between the United States of
America, the United Mexican States, and Canada, November 30, 2018.
113 Office of the United States Representative, USMCA to Enter Into Force July 1 After United Stat4es Takes Final
Procedural Steps for Implementation, Press Release, April 24, 2020.
114 For more information, see U.S. Customs and Border Protection, “U.S.-Mexico-Canada Agreement (USMCA)” at
https://www.cbp.gov/trade/priority-issues/trade-agreements/free-trade-agreements/USMCA.
115 Brett Fortnam, "Business Groups Claim Mexico is Flouting USMCA De Minimis Rules," World Trade Online, July
17, 2020.
116 See Letter from The Honorable Richard E. Neal, Chairman, House Committee on Ways and Means, The Honorable
Earl Blumenauer, Chairman, House Subcommittee on Trade, and 25 other Members of Congress to The Honorable
Eugene Scalia, Secretary of Labor, and The Honorable Robert Lighthizer, United States Trade Representative, July 23,
2020.
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The COVID-19 pandemic has significantly affected the economies of the United States, Mexico,
and Canada. Leaders of the three countries view USMCA as an instrument to help address the
economic challenges. On July 8, 2020, Mexican President Andrés López Obrador met in
Washington and signed a joint declaration celebrating USMCA as an “ideal instrument to provide
economic certainty and increased confidence”117 The declaration states that the United States and
Mexico “continue to coordinate closely as we respond to unprecedented health, security, and
economic challenges.”118 Canada’s Deputy Prime Minister, Chrystia Freeland, also issued a
statement on USMCA’s entry into force, stating the “The new NAFTA protects jobs and
prosperity for workers in all three NAFTA countries. It is good for Canada and good for Canadian
workers. It will help ensure that North America emerges stronger from the COVID-19
pandemic.”119


Author Information

M. Angeles Villarreal
Ian F. Fergusson
Specialist in International Trade and Finance
Specialist in International Trade and Finance



Acknowledgments
Keigh E. Hammond, Research Librarian, and Amber Hope Wilhelm, Visual Information Specialist,
contributed to this report.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
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under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
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copy or otherwise use copyrighted material.


117 President Donald J. Trump, President of the United States of America and Andres Manuel Lopez Obrador, Joint
Declaration Between the United States and Mexico, The White House, July 8, 2020.
118 Ibid.
119 Government of Canada, Statement by the Deputy Prime Minister on the Entry-Into-Force of the New NAFTA, June
30, 2020.
Congressional Research Service
R44981 · VERSION 19 · UPDATED
44Implementation of USMCA The implementation of USMCA has raised a number of issues for U.S. policymakers and other stakeholders, such as labor advocates and U.S. energy and motor vehicle companies. The implementation of the labor provisions, which include the novel rapid response mechanism meant to resolve labor disputes rapidly, is one of the primary areas of interest for some Members of Congress. Other key issues include the implementation of motor vehicle rules of origin, as well as current proposals under the López Obrador government to scale back some of the 2013 energy reforms, which could adversely affect U.S. energy companies. Some observers have suggested that the United States use USMCA as “leverage” to persuade Mexico to allay U.S. labor concerns, adopt policies that can further North American economic integration, including in the energy sector, encourage supply chain relocation to Mexico, and enhance regional competitiveness.92 Labor Issues The first USMCA labor complaint was filed on March 23, 2021, against the United States by migrant worker women and a binational coalition of civil society organizations. Months later, the United States filed two complaints against facilities in Mexico under USMCAs novel rapid-response mechanism; the first complaint was initiated by the AFL-CIO and other groups on May 10, 2021, against Tridonex, an auto parts factory located in Mexico, and the second was initiated by USTR on May 12, 2021, against a General Motors (GM) facility in Mexico. The Rapid Response Labor Mechanism under USMCA allows for a facility-specific, rapid labor dispute resolution process. The process can be initiated under USMCA if a party believes in good faith 92 Peterson Institute for International Economics, Supply Chain Relocation to Mexico and North American Economic Competitiveness, Virtual Conference, October 21, 2021, https://www.piie.com/events/supply-chain-relocation-mexico-and-north-american-economic-competitiveness. Congressional Research Service 36 NAFTA and the United States-Mexico-Canada Agreement (USMCA) that “workers at covered facilities are being denied the right of free association and collective bargaining.”93 Mexican Female Migrant Laborers Dispute U.S. Visa Process The first USMCA labor complaint was lodged by women organized with Centro de los Derechos del Migrante (CDM) against the United States for alleged gender-based discrimination against Mexican migrant workers in the recruitment and hiring processes for U.S. jobs in agriculture.94 CDM submitted the complaint to Mexico’s Labor Ministry asking the Mexican government to initiate a state-to-state dispute against the United States.95 CDM was joined by a binational coalition of civil society organizations, along with two Mexican migrant women. CDM is a non-profit organization that defends migrant workers’ rights.96 The complaint states that women applying for visas in the United States are being disproportionately channeled into obtaining H2B labor visas instead of H2A agricultural visas, which does not allow them access to higher paying jobs in agriculture. The complaint alleges that the United States is not enforcing the provision of the USMCA agreement, which protects workers to “exercise their labor rights in a climate free from violence, threats, and intimidation.”97 In June 2021, the complainants met with the U.S. and Mexican governments in separate meetings to discuss the complaints.98 The dispute appears not to have moved beyond the consultation phase of the dispute resolution mechanism.99 Tridonex Mexico Facility and Workers’ Right to Organize Freely On May 10, 2021, the AFL-CIO, the Service Employees International Union (SEIU), the Sindicato Nacional Independiente de Trabajadores de Industrias y de Servicios Movimiento (SNITIS), and Public Citizen filed a complaint against the Tridonex factory in Tamaulipas, Mexico.100 It was the first complaint filed under the novel rapid response mechanism of USMCA. The complaint purported that workers had been denied the right to organize with SNITIS, a Mexican labor union, by the company and current union. According to the AFL-CIO, over 600 workers were fired from their positions at Tridonex, as a result of attempting to organize with 93 USMCA Article 31-A2. 94Centro de los Derechos Del Migrante, Inc., Migrant Worker Women File First Complaint Against the U.S. Government Under the United States-Mexico-Canada Agreement, Press Release , March 23, 2021, https://cdmigrante.org/migrant-worker-women-file-first-complaint-against-the-us-government-under-the-united-states-mexico-canada-agreement/. 95 Amended Petition on Labor Law Matters Arising in the United States submitted to the Labor Policy and Institutional Relations Unit through the General Directorate of Institutional Relations in the Secretariat of Labor and Social Welfare of the Mexican government, March 23, 2021, available at https://cdmigrante.org/wp-content/uploads/2021/03/USMCA-Amended-Peition-and-Appendices_March-23-2021_reduced.pdf. 96 Maria Curia, "Mexican Migrant Women File First USMCA Labor Complaint Against U.S.," World Trade Online, March 24, 2021. 97 See USMCA Article 23.7 and Amended Petition on Labor Law Matters at https://cdmigrante.org/wp-content/uploads/2021/03/USMCA-Amended-Peition-and-Appendices_March-23-2021_reduced.pdf. 98 "Migrant Advocacy Group Set to Discuss USMCA Complaint with Mexican, U.S. Labor Officials," World Trade Online, June 4, 2021. 99 As of December 15, 2021, the U.S. Department of Labor does not have information available on its website regarding the Mexican migrant worker complaint under USMCA alleging discrimination. See https://www.dol.gov/agencies/ilab/our-work/trade/labor-rights-usmca. 100 The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), AFL-CIO, SEIU, SNITIS and Public Citizen Announce Filing of First USMCA 'Rapid Response Mechanism' Labor Case to Fight for Mexican Workers Denied Independent Union Representation, Press Release, May 10, 2021. Congressional Research Service 37 NAFTA and the United States-Mexico-Canada Agreement (USMCA) SNITIS. In August, USTR announced that it had reached an agreement with Tridonex, under which the company would provide six months of back pay to at least 154 workers who were dismissed from the plant.101 In addition, Tridonex agreed to provide its employees with workers’ rights training and make other managerial arrangements to better support the rights of its workers. The Mexican government also agreed to assist in the training programs and to monitor the union status of the facility.102 U.S.-Mexico Announcement Regarding Settlement of U.S. Complaint Regarding Workers’ Rights Denial at GM Mexican Facility On July 8, 2021, the United States and Mexico announced for the first time under USMCA’s Rapid Response Labor Mechanism a course of remediation which seeks to provide the workers of the GM facility in Silao, Mexico with the ability to vote on whether to approve their collective bargaining agreement and to remediate the denial of the right of free association and collective bargaining to workers at the facility. The announcement came after an investigation into complaints that workers’ rights had been violated. The joint announcement states that the remediation “reflects the shared intent of the United States and Mexico that trade benefit workers.” The action follows the request sent by the United States to Mexico on May 12, 2021, for review of concerns regarding an April 2021 vote on a collective bargaining agreement for workers at the facility. Mexico agreed to commence discussion on a remediation plan. As part of the remediation, Mexico agreed to:  ensure a new vote at the facility;  have federal inspectors present at the facility to prevent and address any intimidation or coercion;  permit international observers from the ILO and from a Mexican autonomous institution to be at the vote;  investigate and, as appropriate, sanction anyone responsible for any violation of law related to the April 2021 vote or subsequent votes; and  monitor an email address and create a hotline to receive and respond to complaints from workers about the voting process. According to a statement by USTR, this course of remediation “is the result of the commitment of the U.S. and Mexican Governments to workers' rights and represents a success for the workers in the facility.” The resolution was seen by numerous observers as an early test of USMCA’s rapid response mechanism that was designed to quickly investigate and resolve labor complaints under the agreement without a labor dispute settlement panel. If the terms of the remediation plan are not followed, further action could still be taken by the United States. Sources: Office of the United States Trade Representative, United States and Mexico Announce Course of Remediation for Workers' Rights Denial at Auto Manufacturing Facility in Silao , Press Release, July 8, 2021; Doug Palmer, “U.S., Mexico Settle First Labor Complaint Under USMCA,” Politico, July 8, 2021. USTR Complaint against a General Motors Mexican Facility On May 12, 2021, USTR announced that the United States asked Mexico to review whether workers at a GM facility in Mexico are being denied the right of free association and collective bargaining.103 USTR stated that the action would help protect worker rights in both the United States and Mexico and support Mexico’s efforts to implement its recent labor law reforms. The request was in regard to a vote of whether to legitimize the facility’s current labor union. USTR alleged that the events at the GM facility involved a violation of Mexico’s Federal Labor Law the Presidential Decree of April 2019. An agreement for remediation was reached by the two countries in July 2021, which called for a revote that would be overseen by the Mexican Labor 101 Office of the United States Trade Representative, United States Reaches Agreement with Mexican Auto Parts Company to Protect Workers' Rights, Press Release, August 10, 2021. 102 Ibid. 103 Office of the United States Trade Representative, United States Seeks Mexico's Review of Alleged Worker's Rights Denial at Auto Manufacturing Facility, Press Release, May 12, 2021. Congressional Research Service 38 link to page 43 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Ministry and observers from the International Labor Organization (ILO) to help ensure fairness. In August, the vote was held with voters deciding to leave the union.104 USMCA implementing legislation included $210 million to the Department of Labor’s Bureau of International Labor Affairs (ILAB) for USMCA-implementation activities. Out of this amount, $180 million would be used over four years for USMCA-related technical assistance projects and $30 million over eight years for the capacity of ILAB to monitor USMCA compliance, including the necessary expenses of additional full-time employees for the Interagency Committee and labor attachés in Mexico.105 Table 2 lists four technical assistance projects that began after USMCA’s entry into force. Table 2. Select Technical Assistance Projects in Mexico (After USMCA’s Entry Into Force) Project/Grantee Amount Description Dates Mexico Auto Employers $3,000,000 Bring automotive sector employers into compliance 11/01/2020 – Pan American with the country’s labor law reforms, improve 06/30/2025 Development Foundation working conditions in the automotive supply sector by raising awareness, supporting employers to implement provisions, proactively adopting policies for compliance, and strengthening relations between employers and workers. Strengthening Workers’ $10,000,000 Build the capacity of workers, support worker 12/31/2020 – Ability to Exercise their engagement and organizing, strengthen democratic 06/30/2025 Labor Rights in Mexico worker organizations in the aerospace, mining, and American Center for call center industries through technical assistance, International Labor skills development, and pro bono advisory and legal Solidarity (Solidarity services. The project will also create space for Center) analysis and exchange of ideas to improve labor law reform implementation. Improving Workers’ $5,000,000 Improve the occupational safety and health of 01/01/2021 – Occupational Safety and workers in selected supply chains with a focus on 12/31/2024 Health in Selected Supply COVID-19, female workers, and workers in Chains in Mexico vulnerable conditions. Help Mexico meet its labor International Labor obligations under the USMCA. Organization/Vision Zero Fund Mexico Awareness $10,000,000 Support the government of Mexico to design, 01/01/2021 – Raising execute, and sustain effective communication 06/30/2025 Partners of the Americas strategies that inform workers, unions, and employers of the legal ramifications of the country’s labor law reforms. Source: U.S. Department of Labor, Bureau of International Affairs, https://www.dol.gov/agencies/ilab/country/ilab-mexico. Notes: This table does not include projects related to improve worker rights protection that were implemented prior to USMCA’s entry into force. Projects prior to July 1, 2020 include at least 14 projects beginning in 2002 related to the elimination of child labor and discrimination, gender equality, raising of awareness, strengthening labor law enforcement, and strengthening workers’ ability to exercise their labor rights in Mexico. 104 Office of the United States Trade Representative, Biden Administration Reaches Agreement with Mexico on GM Silao Rapid Response Action and Delivers Results for Workers, Fact Sheet, July 2021. 105 U.S. Department of Labor, Bureau of International Labor Affars, Labor Rights and the United States-Mexico-Canada Agreement (USMCA), https://www.dol.gov/agencies/ilab/our-work/trade/labor-rights-usmca. Congressional Research Service 39 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Motor Vehicle Rules of Origin A major implementation issue regarding USMCA’s updated rules of origin for the motor vehicle industry is whether non-originating material in core auto parts (e.g., engines and advanced batteries) deemed originating (100% North American content) should be included in the calculation of the regional value content (RVC) in larger parts or motor vehicles. In August 2021, the Mexican and Canadian governments, which argue that total value of core parts deemed originating should be counted, formally requested consultations with the United States, which asserts that non-originating parts should not be included in the larger RVC calculation. In September, Mexican President Andrés Manual López Obrador stated that he believed that the three countries would be able to settle their differences over how to interpret USMCA auto rules of origin without establishing a dispute settlement panel. He added that the trading partners are in consultations to resolve the dispute.106 Mexico’s Energy Policies Mexican President López Obrador is seeking a constitutional reform that would shift control of Mexico’s energy market that is open to private investment back to the government. Policymakers and other stakeholders argue that such an action would violate Mexico’s USMCA commitments. The measure would be a significant change to Mexico’s previous constitutional reforms from 2013, which opened the energy sector to private investment and helped spur U.S. and other international energy companies to invest heavily in Mexico. U.S. stakeholders have criticized the proposal as anticompetitive and contend that it would go against Mexico’s USMCA commitments. In a November 3, 2021, letter to USTR Ambassador Katherine Tai, Commerce Secretary Gina Raimondo, Energy Secretary Jennifer Granholm, and Secretary of State Antony Blinken, 40 Members of the House of Representative stated their concerns about reports of escalating efforts by the Mexican government to exclude private companies from its energy sector and argued that these efforts represent a violation of Mexico’s USMCA commitments.107 The lawmakers noted recent media reports alleging that the Mexican government has suspended the permits of several U.S.-owned fuel storage terminals.108 In September 2021, Talos Energy Inc., a Texas-based energy company, filed a Notice of Dispute with Mexico under USMCA over Mexico’s decision to grant authority over a major oil field to the state-controlled company PEMEX. In a press release issued by the energy company, the “aim is to resolve the dispute amicably through consultations and negotiations and avoid the need for further legal action, including arbitration.”109 It is not clear whether USMCA’s provisions on U.S.-Mexican investment disputes would be used if the case moves forward past the consultation phase. According to the dispute, a consortium of U.S. companies has invested nearly $350 million developing the field, while Mexico’s state-owned oil company PEMEX failed to drill in its part of 106 "López Obrador: Dispute Panel Unlikely in USMCA Clash Over Auto Rules," World Trade Online, September 2, 2021. 107 Letter from Representatives Clay Higgins, Jeff Duncan, Brett Guthrie, et al. to USTR Katherine Tai, Secretary of Commerce Gina Raimondo, Secretary of State Anthony Blinken, and Secretary of Energy Jennifer Granholm, November 3, 2021. 108 Garrett Downs, "Forty GOP Lawmakers Urge Administration to Address Energy Irritants with Mexico," World Trade Online, November 4, 2021. 109 Talos Energy, "Talos Energy Files Notices of Dispute Regarding Zama in an Effort to Achieve a Mutually Beneficial Resolution," press release, September 3, 2021. Congressional Research Service 40 NAFTA and the United States-Mexico-Canada Agreement (USMCA) the field.110 In July, a group of 20 lawmakers from the House of Representatives and the Senate called on President Biden to address the issue with Mexican President López Obrador.111 Talos Energy states in its dispute that the aim is to resolve the dispute amicably through consultations and avoid the need for further legal action.112 According to a journal article, PEMEX does not have the nearly $2 billion needed to develop the oil field.113 Selected Trade Issues Regarding North American Trade Other major issues regarding North American trade relations that may be of interest to Congress include the advancement of the USMCA Competitiveness Committee, the U.S. proposed tax credits for electric vehicles, U.S.-Canada trade issues on softwood lumber and potato imports, among others. USMCA Competitiveness Committee USMCA Chapter 26 established the creation of a new North American Competitiveness Committee to promote further North American economic integration and enhance the competitiveness of North American Exports. The Committee is pursuing initiatives in various priority areas. Recommendations from stakeholders include specific areas to focus on, which include preparing workers for a competitive future, deploying technologies to move digital and physical products and services more efficiently, and increased cooperation and coordination on IPR, export controls, supply chains, energy, and regulatory cooperation to confront China’s increasing presence in the region.114 On December 15, 2021, senior officials of the U.S., Mexican, and Canadian governments joined leading industry and academic experts from all three countries with the goal of advancing North American competitiveness and developing an agenda for the USMCA Competitiveness Committee.115 It was the first major event of the Committee. Assistant USTR Daniel Watson described the committee as a unique feature in U.S. trade agreements that establishes a permanent form for the three countries to work together. The Committee is in the early stages of development and is currently focused on hearing from a range of stakeholders to develop its agenda, which includes an emphasis on boosting workforce development across North America.116 110 For more information, see Government of Canada, Global Affairs, Canada, Minister Ng Meets with U.S. Trade Representative Katherine Tai, Readout, November 30, 2021; Margaret Spiegelman, "U.S. Energy Company Files USMCA Investor Dispute Notice with Mexico," World Trade Online, September 7, 2021. 111 Letter from Senators John Cornyn, James Inhofe, Ted Cruz, et al. to President Joseph R. Biden Jr, July 20, 2021. 112 Talos Energy Inc., "Talos Energy File Notices of Dispute Regarding Zama in an Effort to Achieve a Mutually Beneficial Resolution," press release, September 3, 2021, https://jusmundi.com/en/document/other/en-talos-energy-inc-and-talos-international-holdings-scs-v-united-mexican-states-notice-of-dispute-press-release-friday-3rd-september-2021#other_document_21139. 113 Max De Haldevang, "Talos Files Dispute Notice Against Mexico over Zama," Bloomberg, September 3, 2021. 114 Matthew Rooney and Andrea Durkin, North American Competitiveness in the World: George W. Bush Institute Recommendations for the U.S.-Mexico-Canada Agreement Competitiveness Committee, George W. Bush Presidential Center, February 23, 2021. 115 For more information, see George W. Bush Institute and NASCO, "USMCA and Workforce Development: Building a Competitive North America," December 15, 2021, https://www.bushcenter.org/exhibits-and-events/events/2021/12/usmca-and-workforce-development.html. 116 Margaret Spiegelman, "USMCA Competitiveness Committee Meets with an Eye on Worker Development," World Trade Online, December 16, 2021. Congressional Research Service 41 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Proposed U.S. Electric Vehicle Tax Credits The United States is proposing a tax credit for electric vehicles, which would allow certain tax credits for purchasers and manufacturers of electric vehicles in the United States.117 The governments of Canada, Mexico, and several other countries have raised concerns that the proposed tax credits for U.S.-manufactured electric vehicles would harm the North American motor vehicle industry and violate certain U.S. commitments under both the USMCA and the World Trade Organization (WTO).118 They claim that the proposed U.S. tax credits for U.S.-manufactured electric vehicles would harm the North American motor vehicle industry. On December 2, 2021, the Mexican Secretary of the Economy Tatiana Clouthier announced that Mexico will retaliate, potentially with tariffs, if the United States implements incentives for domestic-made electric vehicles.119 She stated in a September 2021 letter that the proposed incentives, including the tax credits of $4,500 if a vehicle is assembled at unionized U.S. facilities and $500 if it has at least 50% domestic content and U.S.-made batter sales, run counter to USMCA RVC rules.120 On October 22, 2021, Canada’s Minister of Small Business, Export Promotion, and International Trade, Mary NG, wrote a letter to U.S. House and Senate leaders stating that the proposed tax credits “would undermine decades of United States-Canada cooperation to foster a mutually beneficial integrated automotive production and supply chain.”121 Foreign-owned motor vehicle manufacturers in the United States, including Toyota Motor Corporation, Volkswagen AG, Daimler AG, Honda Motor Company, Hyundai Motor Company, and BMW AG, oppose the proposed provision that would provide additional tax credits if the final assembly of the vehicle is at a facility in the United States operating under a union-negotiated collective bargaining agreement. They argue that the provision would violate USMCA and other trade agreements because it would disproportionately benefit General Motors, Ford Motor, and Chrysler-parent Stellantis NV, which assemble vehicles in the United States in union-represented plants. Foreign motor vehicle manufacturers are reportedly nearly all unionized outside the United States but not domestically.122 Canadian Softwood Lumber Trade in softwood lumber traditionally has been one of the most controversial topics in the U.S.-Canada trading relationship.123 The dispute revolves around different pricing policies and forest management structures in the two countries. It has been an ongoing dispute for many years. In May 2021, 96 Members of the House of Representative urged USTR Tai to pursue a new 117 For more information, see CRS Report R46923, Tax Provisions in the “Build Back Better Act:” The House Ways and Means Committee’s Legislative Recommendations, coordinated by Molly F. Sherlock. 118 See Andy Blatchford, Sabrina Rodriguez, and Gavin Bade, “Electric Vehicles Spark Discord at Biden's Trilateral Summit,” Politico, November 18, 2021; Steven Chase and Brent Jang, ”Canadian Delegates Head to Washington to Fight Made-in-U.S. Vehicle Credits, Softwood Duties,” The Globe and Mail, December 1, 2021; Maya Averbuch, “Mexico Threatens Retaliation in Electric Cars Dispute,” Bloomberg Government, December 2, 2021. 119 Margaret Spiegelman, “Clouthier: Mexico Could Impose Tariffs if U.S. Goes Ahead with EV Incentives,” World Trade Online, December 2, 2021. 120 Margaret Spiegelman, “Canada, Mexico Warn U.S. Proposed EV tax Credits Could Violate USMCA,” World Trade Online, October 22, 2021. 121 Ibid. 122 David Shepardson, “U.S. House Plan Would Give Electric Vehicles Boost but Faces Opposition,” Reuters, October 29, 2021. 123 See CRS Report 96-397, Canada-U.S. Relations, by Peter J. Meyer and Ian F. Fergusson. Congressional Research Service 42 NAFTA and the United States-Mexico-Canada Agreement (USMCA) agreement with Canada on softwood lumber.124 On May 24, 2021, the Department of Commerce (DOC) issued a preliminary ruling in twin AD/CVD reviews on Canadian softwood lumber imports. On December 2, 2021, DOC determined that producers and exporters of certain softwood lumber products from Canada received countervailable subsidies and moved to raise duties on Canadian softwood lumber.125 The Canadian government has pushed back on the claim and has stated it is willing to negotiate an agreement “that’s a good agreement for Canada.”126 Issues for Congress Policymakers faced numerous significant issues in the debate and approval of USMCA. Key issues Congress examined included the modernized and revised certain provisions of the agreement, especially on labor and the enforceability of USMCA labor provisions, the role of the Congress and the President in the NAFTA renegotiation, whether the agreement made progress in advancing TPA’s negotiating objectives, the possible economic impact, especially in the auto industry, and how the agreement may impact broader U.S. relations with Canada and Mexico, two of the United States’ largest trading partners. Some lawmakers contend that the renegotiations resulted in a positive outcome on balance that will enhance relations with NAFTA partners through a modernized agreement. Other lawmakers expressed concerns about specific aspects of the agreement, including labor, investment, and IPR, and some Members negotiated with the President to amend the agreement. What follows are a few selected areas of potential congressional interest. Congressional Oversight Role and USMCA Implementation USMCA contains key significant changes from past U.S. FTAs, including digital trade, ISDS, labor and the environment, rules of origin for motor vehicles and parts, dispute settlement, government procurement, and the sunset provision to review the agreement after six years. As implementation of the agreement moves forward, Congress may examine these issues more closely, including in terms of whether they should be a model for future agreements. Although numerous policymakers contend that USMCA contains groundbreaking provisions, such as those on digital trade and worker rights enforcement and the environment, others believe that USMCA rolls back some liberalization commitments in previous U.S. FTAs and may result in diminishing trade instead of liberalizing it.127 Congress may consider an oversight role on implementation of these and other provisions. For example, policymakers may continue to examine whether the labor provisions in FTAs, such as USMCA, are effective in enhancing worker rights. Organized labor in the United States has long argued that labor enforcement in trade agreements needs to be strengthened in order to protect 124 Letter from 96 Members of the House of Representatives to The Honorable Katherine Tai, United States Trade Representative, May 17, 2021. 125 Department of Commerce, International Trade Administration, "Certain Softwood Lumber Products from Canada: Final Results of the Countervailing Duty Administrative Review, 2019," December 2, 2021. 126 Margaret Spiegelman, "Canada Pushes Back on U.S. Lumber Tariff Hike, Potato Import Approach," December 1, 2021. 127 See for example, Senator Pat Toomey, “I'll Vote Against This Antitrade Agreement,” Op-Ed, Wall Street Journal, December 19, 2019. Congressional Research Service 43 NAFTA and the United States-Mexico-Canada Agreement (USMCA) U.S. workers, but others argue that domestic policy might be “the most direct, and most effective, way to improve workers’ lot, especially in advanced countries like the United States.”128 Implementation of the provisions on the motor vehicle auto rules of origin raise other issues. As stated earlier, economic studies and industry observers have concluded that the more restrictive rules of origin on autos and auto parts may result in higher prices, lower U.S. exports, and adversely affect U.S. and Mexican auto employment. Policymakers may monitor how the rules of origin are implemented, as well as the effects on the North American motor vehicle industry as the new rules of origin are implemented. Some analysts contend that the new rules could raise compliance and production costs and 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.129 As noted above, USMCA will remove bilateral U.S. government procurement (GP) obligations with regard to Canada. GP obligations between the United States and Canada continue under the WTO Government Procurement Agreement (GPA), but if the United States withdraws from the GPA,130 the issue of the value of more open government procurement versus Buy American policies may come to the fore. Disagreement over the value and content of Investor-State Dispute Settlement (ISDS) and whether it should or should not be included in future trade agreements likely will persist, despite their new restrictions in USMCA. Economic and Broader Considerations The full effects of the USMCA on North American trade relations are not expected to be significant because nearly all U.S. trade with Canada and Mexico that meets rules of origin requirements was already conducted duty and barrier free under NAFTA. The USMCA maintains NAFTA’s tariff and non-tariff barrier eliminations. Many economists and other observers believe that USMCA is not expected to have a measurable effect on U.S. trade and investment with Mexico or Canada, jobs, wages, or overall economic growth, and that it would probably not have a measurable effect on the U.S. trade deficit.131 The U.S. International Trade Commission (ITC) conducted an investigation into the likely economic impacts of USMCA, a required element of the Trade Promotion Authority (TPA) process.132 The ITC study, published in April 2019, stated that the elements of USMCA that would have the most significant effects on the U.S. economy are those related to digital trade and the new rules of origin applicable to the automotive sector. USMCA’s new international data transfer provisions, absent in NAFTA, are expected to positively impact industries that rely on such data transfers. The new more restrictive, auto rules of origin may result in an increase in U.S. production, but also lead to a small increase in prices and a small decrease in the consumption of vehicles in the United States. Overall, according to 128 Anne Kim, “The Truth About USMCA’s Labor Provisions, Domestic policy reforms can more effectively help American workers,” Washington Monthly, December 21, 2019. 129 Nick Lichtenberg, “USMCA ‘Manageable’ Changes Auto Compliance, Production Costs: Moody's,” Bloomberg First Word, October 10, 2018. 130 Isabelle Icso, “USTR backs U.S. withdrawal from WTO procurement agreement,” World Trade Online, February 26, 2020. 131 John Brinkley, “USMCA is not the Magnificent Trade Deal Trump Says It Is,” Forbes.com, October 8, 2018. 132 CRS In Focus IF10038, Trade Promotion Authority (TPA), by Ian F. Fergusson. Congressional Research Service 44 NAFTA and the United States-Mexico-Canada Agreement (USMCA) the ITC report, USMCA is expected to have a minimal, but positive effect on the overall U.S. economy.133 Author Information M. Angeles Villarreal Specialist in International Trade and Finance Acknowledgments A special acknowledgment goes to Ian F. Fergusson, former CRS Specialist in International Trade and Finance, who provided significant contributions and co-authored the original version of this report. The following people also provided helpful contributions: Rileigh Greutert, Research Assistant, Keigh E. Hammond, Research Librarian, and Amber Hope Wilhelm, Visual Information Specialist. Disclaimer This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material. 133 United States International Trade Commission, U.S.-Mexico-Canada Trade Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors, Publication Number: 4889, April 2019. Congressional Research Service R44981 · VERSION 20 · UPDATED 45

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