The United States-Mexico-Canada Agreement (USMCA)

Changes from December 28, 2021 to September 29, 2023

This page shows textual changes in the document between the two versions indicated in the dates above. Textual matter removed in the later version is indicated with ~~red strikethrough~~ and textual matter added in the later version is indicated with blue.

The United States-Mexico-Canada Agreement
~~December 28, 2021~~September 29, 2023
(USMCA)
M. Angeles Villarreal
The United States-Mexico-Canada Agreement (USMCA) entered into force on July 1, The United States-Mexico-Canada Agreement (USMCA) entered into force on July 1,
Specialist in International Specialist in International
2020, replacing the North American Free Trade Agreement (NAFTA), which had been in 2020, replacing the North American Free Trade Agreement (NAFTA), which had been in
Trade and Finance Trade and Finance
effect since January 1, 1994. Congress, in both its legislative and oversight capacities, 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 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 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 to Congress of its intent to begin began 90 days after the May 2017 notice that the Trump Administration sent to Congress of its intent to begin
talks with Canada and Mexico to renegotiate and modernize NAFTA, as was required by the 2015 Trade talks with Canada and Mexico to renegotiate and modernize NAFTA, as was required by the 2015 Trade
Promotion Authority (TPA). Negotiations officially began on August 16, 2017, and were concluded on September Promotion Authority (TPA). Negotiations officially began on August 16, 2017, and were concluded on September
30, 2018. The USMCA was signed on November 30, 2018. The agreement was approved by the House of 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 a vote of 385-41, and by the Senate on January 16, 2020, 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. The agreement was signed into law on January 29, 2020 (P.L. 116-113) and entered into force by a vote of 89-10. The agreement was signed into law on January 29, 2020 (P.L. 116-113) and entered into force
five months later. five months later.
NAFTA was particularly significant because it was the most comprehensive free trade agreement (FTA) NAFTA was 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 generation of U.S. 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 disciplines for 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 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 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 trade among the three provisions gradually eliminated nearly all tariff and most nontariff barriers on merchandise trade among the three
trading partners. At the time of NAFTA negotiations, average applied U.S. duties on imports from Mexico were trading partners. 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 nontariff and investment barriers, in 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 under NAFTA. Mexico. The U.S.-Canada FTA, which had been in effect since 1989, was suspended under NAFTA.
USMCA, comprised of 34 chapters and 12 side letters, retains most of NAFTA’s market opening measures and 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 motor vehicle rules of origin, dispute settlement provisions, other measures, while making notable changes to motor vehicle rules of origin, dispute settlement provisions,
government procurement, investment, and intellectual property rights (IPR) protection. It also modernizes government procurement, 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 provisions on services, labor, and the environment. New trade issues, such as digital trade, state-owned
enterprises, anticorruption, and currency misalignment, also have specific commitments. Key issues for Congress enterprises, anticorruption, and currency misalignment, also have specific commitments. Key issues for Congress
in the debate surrounding USMCA included worker rights protection in Mexico, IPR provisions and rules of 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 authority 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. 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 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. progress in meeting them, as required under TPA.
Key issues for Congress in the implementation phase of USMCA include Key issues for Congress in the implementation phase of USMCA include: how the new importing requirements how the new importing requirements
under USMCA are being phased in; whether the new rules of origin for the motor vehicle industry are being 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 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; how requirements; how well Mexico is implementing labor law reforms to provide more worker rights protection; how
well the funding provided by USMCA legislation is ensuring effective implementation of Mexico’s labor reforms; well the funding provided by USMCA legislation is ensuring effective implementation of Mexico’s labor reforms;
how well the new labor enforcement measures, including the rapid response mechanism, are working; and, among how well the new labor enforcement measures, including the rapid response mechanism, are working; and, among
other issues, the extent to which USMCA’s updated dispute resolution procedures are improving the enforcement other issues, the extent to which USMCA’s updated dispute resolution procedures are improving the enforcement
of the agreement’s provisions. of the agreement’s provisions.
Congressional Research Service Congressional Research Service

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

Introduction
The United States-Mexico-Canada Agreement (USMCA) is a free trade agreement among the The 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 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 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 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 issues related to renegotiation of NAFTA and continues to be active in the implementation of
and other trade policy issues related to USMCA. Implementing legislation for USMCA was passed by the House on December 19, 2019, USMCA. Implementing legislation for USMCA 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 89-10. The legislation by a vote of 385-41, and by the Senate on January 16, 2020, by a vote of 89-10. The legislation
was signed into law on January 29, 2020 (P.L. 116-113). was signed into law on January 29, 2020 (P.L. 116-113).
Key issues for Congress in regard to Key issues for Congress in regard to
~~Joint Statement Regarding First Meeting~~Third Meeting of the USMCA Free Trade
renegotiation of NAFTA and passage of renegotiation of NAFTA and passage of
~~of USMCA Free Trade~~ Commission (FTC)
USMCA included USMCA included ~~protection of worker~~
~~“Today~~labor and environmental On July 7, 2023, the United States, Canada, and Mexico 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~~ provisions, digital trade, intellectual held the third meeting of the USMCA Free Trade
property rights (IPR) property rights (IPR) protection, changes to Commission (FTC). After the meeting, the three North rules of origin in the motor vehicle American trade ministers issued the fol owing statement: industry, the economic effects of the “Today, Mexico, the United States, and Canada held the third meeting of the T-MEC/USMCA/CUSMA FTC in agreement, as well as the constitutional Cancún, Quintana Roo, Mexico. Three years after the authority of Congress over international Agreement’s entry into force, it continues to strengthen a trade and its role in revising, approving, or competitive and dynamic North America.” withdrawing from an agreement. Also of The meeting included discussions regarding North interest to Congress is its constitutional American competitiveness, the encouragement of authority to impose tariffs and regulate participation of small and medium-sized enterprises (SMEs) in international trade, especial y those SMEs led by groups trade with foreign nations and the that are traditionally underrepresented, and commitments possibility of reauthorizing Trade to uphold workers’ rights set forth in USMCA. The trade Promotion Authority.2 Congress may ministers also recognized the importance of the most evaluate whether U.S. negotiating recent FTC Decision, Number 5, which entered into force in February 2023. This Decision is intended to coordinate objectives under TPA-15 were met during North American efforts to maintain regional trade flows in USMCA negotiations.3 emergency situations and understandings surrounding critical infrastructure priorities. Many policymakers and industry representatives view USMCA as a Source: USTR, United States, Mexico and Canada Joint Statement of the Third Meeting of the USMCA, T- modernized version of NAFTA that MEC/CUSMCA Free Trade Commission, Press Release, July 13, incorporates elements of more recent U.S. 2023, available at https://ustr.gov/about-us/policy- FTAs, such as the U.S.-Korea FTA offices/press-office/press-releases/2023/july/united-states- (KORUS).4 The U.S. and global economies mexico-and-canada-joint-statement-third-meeting-usmcat-meccusma-free-trade-commission. have changed significantly since NAFTA’s entry into force in 1994, especially due to 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 Trade Promotion Authority commonly refers to the legislated authorities and procedures that Congress has granted to the President to negotiate trade agreements and adjust tariff rates. For more information, see CRS In Focus IF10038, Trade Promotion Authority (TPA), by Christopher A. Casey and Cathleen D. Cimino-Isaacs. 3 President Trump sought expedited treatment of the implementing legislation for USMCA under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (P.L. 114-26), which was authorized until July 1, 2021. 4 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. Congressional Research Service 1 NAFTA and the United States-Mexico-Canada Agreement (USMCA) ~~, 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~~
Source: USTR, at https://ustr.gov/about-us/policy-offices/
~~press-office/press-releases.~~
~~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~~
~~benefits” of the agreement, echoing President Trump’s statements that NAFTA was a “disaster”~~
~~and the “worst agreement ever negotiated.”2 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~~
~~previous liberalization commitments in specific areas, such as periodically reviewing and~~
~~potentially “sunsetting” the agreement, questioning the validity of binational dispute settlement,~~
~~enhancing government procurement restrictions, and increasing U.S. and North American content~~
~~in the auto rules of origin, among other positions.3 Trump Administration officials also spoke of~~

~~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 Canada and Mexico to the United States.4 Mexican and Canadian negotiators~~
~~viewed such 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 agreement and U.S. proposals led to perceived tensions in the negotiations.~~
~~Many policymakers and industry representatives viewed the renegotiation of NAFTA as an~~
~~opportunity to form a new agreement that incorporated elements of more recent U.S. FTAs that~~
~~have entered into force or were negotiated, such as the U.S.-Korea FTA (KORUS) and the~~
~~proposed Trans-Pacific Partnership.5 The U.S. and global economies had changed significantly~~
~~since NAFTA’s entry into force in 1994, especially due to~~ technology advances. The widespread technology advances. The widespread
use of the commercial internet, for example, dramatically affected consumer habits and use of the commercial internet, for example, dramatically affected consumer habits and
commercial activities, such as e-commerce, data flows, and supply chain management. commercial activities, such as e-commerce, data flows, and supply chain management.
~~Negotiators also sought~~USMCA includes updated provisions in other areas, including IPR, labor, and the updated provisions in other areas, including IPR, labor, and the
environment. The increased role of state-led or state-supported firms in trade competition environment. The increased role of state-led or state-supported firms in trade competition
globally, particularly involving China, with private sector firms was also an issue of debate and globally, particularly involving China, with private sector firms was also an issue of debate and
focus of new rules-setting. focus of new rules-setting.
This report provides a brief overview of NAFTA, the role of Congress in the renegotiation This report provides a brief overview of NAFTA, the role of Congress in the renegotiation
process, key provisions in USMCA, as well as issues related to implementation of the process, key provisions in USMCA, as well as issues related to implementation of the ~~agreement.~~
~~For more information on NAFTA, please see CRS Report R42965,~~ ~~The North American Free~~
~~Trade Agreement (NAFTA), by M. Angeles Villarreal and Ian F. Fergusson.~~
agreement.5 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 to the United States. These ~~include~~included provisions on intellectual property rights (IPR) protection, 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.
NAFTA addressed policy issues that were new to FTAs and was influential in concluding major 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 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 successor, the World Trade Organization (WTO). The United States now has 14 FTAs with 20
countries. countries.
NAFTA’s market-opening provisions gradually eliminated nearly all tariff and most nontariff 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, 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 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, 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 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?, AEI Ideas, January 31, 2017,~~
~~http://www.aei.org/publication/does-trump-want-to-somehow-get-rid-of-global-supply-chains/.~~
~~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.~~
~~Many trade policy experts and economists give credit to NAFTA for expanding trade and~~
~~economic linkages among the parties, creating more efficient production processes, increasing the~~
~~availability of lower-priced and greater choice of consumer goods, and improving living~~
~~standards and working conditions.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~~
~~enough to improve labor standards and environmental conditions abroad.9~~
~~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~~
~~developing closer U.S. relations with both Mexico and Canada and it accelerated 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 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 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 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 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 NAFTA (see Table 1).~~
~~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~~
~~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~~
~~effect since 1989.~~
~~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~~
~~of Commerce, NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth, and Jobs, October 2015.~~
~~9 For example, see AFL-CIO, NAFTA at 20, 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,
~~September 28, 2006.~~
~~10 For more information on Mexico’s trade policies, see CRS Report R40784, Mexico’s Free Trade Agreements, by M.~~
~~Angeles Villarreal.~~
~~11 CRS Report R42965, The North American Free Trade Agreement (NAFTA), by M. Angeles Villarreal and Ian F.~~
~~Fergusson.~~
~~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~~

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~~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 2020)~~
~~Mexico~~
~~Canada~~
~~United States~~

~~1994~~
~~2020~~
~~1994~~
~~2020~~
~~1994~~
~~2020~~
~~Population (millions)~~
90
~~129~~
29
38
~~262~~
~~331~~
~~Nominal GDP (US$ billions)a~~
~~528~~
~~1,073~~
~~580~~
~~1,644~~
~~7,287 20,894~~
~~Nominal GDP, PPP Basis (US$ billions)b~~
~~813~~
~~2,420~~
~~656~~
~~1,828~~
~~7,287309 20,894~~
~~Per Capita GDP (US$)~~
~~5,856~~
~~8,319~~
~~20,090 43,553~~
~~27,788 63,123~~
~~Per Capita GDP in $PPP~~
~~9,017 18,771~~
~~22,735 48,425~~
~~27,788 63,123~~
~~Exports of goods and services (% of GDP)~~
~~13%~~
~~40%~~
~~33%~~
~~29%~~
~~10%~~
~~10%~~
~~Imports of goods and services (% of GDP)~~
~~17%~~
~~38%~~
~~32%~~
~~31%~~
~~11%~~
~~13%~~
Source: 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.~~
~~b. PPP refers to purchasing power parity, which reflects the purchasing power of foreign currencies in U.S.~~
~~dollars~~agreement entered into force, forming integrated production chains among all three countries. Many trade policy experts and economists give credit to NAFTA for expanding trade and economic linkages among the parties, creating more efficient production processes, increasing the availability of lower-priced and greater choice of consumer goods, and improving living standards and working conditions.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 enough to improve labor standards and environmental conditions abroad.9 5 For more information on the North American Free Trade Agreement, see CRS Report R42965, The North American Free Trade Agreement (NAFTA), by M. Angeles Villarreal. 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 Canada and Mexico, because the United States and Canada had a free trade agreement at the time that had been in effect since 1989. 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 of Commerce, NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth, and Jobs, October 2015. 9 For example, see AFL-CIO, NAFTA at 20, 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, September 28, 2006. Congressional Research Service 2 link to page 7 link to page 8 NAFTA and the United States-Mexico-Canada Agreement (USMCA) 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 developing closer U.S. relations with both Mexico and Canada and it accelerated 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 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 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 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 ownership.11 Mexico’s failed protectionist policies did not result in increased income levels or economic growth. The income disparity between Mexico and its USMCA partners remains large, even after NAFTA’s entry into force in 1994. In 1994, for example, Mexico’s per capita GDP ($5,856) was equal to 21% of U.S. per capita GDP ($27,788); in 2022, this percentage went down to 15% ($11,102 compared to $75,269) (see Figure 1). Figure 1. Per Capita GDP Compared Among USMCA Countries Source: Created by CRS with data from the Economist Intelligence Unit Ltd (EIU). Notes: PPP refers to purchasing power parity, which reflects the purchasing power of foreign currencies in U.S. dol ars. The agreement appears to have had the most significant effect on Mexico, as demonstrated by the reliance of the Mexican economy on trade. Mexico’s exports of goods and services as a percentage of GDP, for example, increased from 13% in 1994 to 43% in 2022 (see Figure 2). The U.S. economy relies far less on trade with exports of goods and services equaling only 12% of GDP in 2022. While Canada relies more on trade, the changes between 1994 and 2022 have been minimal. 10 For more information on Mexico’s trade policies, see CRS Report R40784, Mexico’s Free Trade Agreements, by M. Angeles Villarreal. 11 CRS Report R42965, The North American Free Trade Agreement (NAFTA), by M. Angeles Villarreal. Congressional Research Service 3 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Figure 2. Imports and Exports (% GDP) Compared Source: Created by CRS with data from Economist Intelligence Unit Ltd. .
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 expanded the significance of trade for Mexico’s~~
~~economy. In 1994, Mexico’s exports and imports equaled 14% and 18%, respectively, of GDP,~~
~~while in 2019, these percentages increased to 40% and 38%. For the United States, trade is less~~
~~significant for the economy, with the value of imports and exports equaling 10% and 13%,~~
~~respectively, of GDP in 2020 (see Table 1).~~
~~Key NAFTA provisions included:~~
Key NAFTA provisions included the following: • 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.and Canada.1312 NAFTA helped “lock in” Mexico’s trade and investment 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.Mexico.14

1313 • Agriculture. NAFTA eliminated tariffs and tariff-rate quotas (TRQs) on most 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 and phytosanitary (SPS) measures and other types of agricultural non-tariff barriers. SPS regulations are often regarded by agricultural exporters as one of 12 Mexico’s average tariff on all imports from the United States in 1993 was 10%, compared to the U.S. tariff of 2.07%. Mexico’s average tariff on all imports from the United States in 1993 was 10%, compared to the U.S. tariff of 2.07%.
1413 Prior to NAFTA U.S. businesses were very restricted in investing in Mexico under Mexico’s former 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.
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~~ Agriculture. NAFTA eliminated tariffs and tariff-rate quotas (TRQs) on most~~
~~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~~
~~and phytosanitary (SPS) measures and other types of agricultural non-tariff~~
~~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.loss and disrupting integrated supply chains.15
14 • 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).drilling (Mexico).1615 NAFTA liberalized certain service sectors in Mexico, NAFTA liberalized certain service sectors in Mexico,
particularly financial services, which significantly opened its banking sector.particularly financial services, which significantly opened its banking sector.17
16 • 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
telecommunications services, including access to public telecommunications telecommunications services, including access to public telecommunications
services; connection to private lines that reflect economic costs and services; connection to private lines that reflect economic costs and are available available
on a flat-rate pricing basis; and the right to choose, purchase, or lease on a flat-rate pricing basis; and the right to choose, purchase, or lease
terminal equipment best suited to their needs.terminal equipment best suited to their needs.1817 NAFTA did not require NAFTA did not require
parties to authorize a person of another NAFTA country to provide or operate parties to authorize a person of another NAFTA country to provide or operate
telecommunications transport networks or services. Nor did it bar a party telecommunications transport networks or services. Nor did it bar a party
from maintaining a monopoly provider of public networks or services.from maintaining a monopoly provider of public networks or services.19

1518 • Intellectual Property Rights (IPR) Protection. NAFTA was the first U.S. FTA 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 Intellectual Property Rights (TRIPS) agreement in the WTO and on various existing international intellectual property treaties. The agreement set specific 14 See CRS Report R44875, See CRS Report R44875, The North American Free Trade Agreement (NAFTA) and U.S. Agriculture, by Renée , by Renée
Johnson. Johnson.
1615 United States General Accounting Office (GAO, now called Government Accountability Office), “North American United States General Accounting Office (GAO, now called Government Accountability Office), “North American
Free Trade Agreement: Assessment of Major Issues, Volume 2,” Free Trade Agreement: Assessment of Major Issues, Volume 2,” Report to the Congress, September 1993, pp. 35-36. September 1993, pp. 35-36.
1716 Hufbauer and Schott, Hufbauer and Schott, NAFTA Revisited, pp. 28. pp. 28.
1817 GAO, GAO, Report to Congress, September 1993, pp. 38-39. September 1993, pp. 38-39.
1918 Office of the Office of the ~~united~~United States Trade Representative (USTR), States Trade Representative (USTR), Description of the Proposed North American Free Trade
Agreement, August 12, 1992, p. 29. , August 12, 1992, p. 29.
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~~ Intellectual Property Rights (IPR) Protection. NAFTA was the first U.S. FTA~~
~~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~~
~~Intellectual Property Rights (TRIPS) agreement in the WTO and on various~~
~~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.Commission, or going through arbitral panel proceedings.2019 NAFTA included 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 viewed it as an opportunity ~~for establishing~~to establish a new type of relationship among a new type of relationship among
NAFTA partners.NAFTA partners.2120 Labor and environmental provisions, which were in separate 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. U.S. merchandise trade with NAFTA partners increased after the agreement entered into force, trade with NAFTA partners increased after the agreement entered into force, with imports increasing more increasing 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.~~
rapidly than exports. U.S. total merchandise U.S. total merchandise ~~imports from NAFTA~~exports to NAFTA/USMCA partners increased from $ partners increased from $~~150.9~~165.1 billion in billion in ~~1993~~1994 to $680.8 billion in 2022 (312 to
~~$687.3 billion in 2019 (355~~%), while merchandise %), while merchandise ~~exports~~imports increased from $ increased from $~~141.8~~178.4 billion to billion to
~~$550~~$891.3 billion (.3 billion (~~288~~400%) during the same time period (%) during the same time period (~~see~~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~~3). In services, U.S. exports to NAFTA/USMCA partners increased from $38.1 ~~from~~
~~$941.9~~ billion in billion in ~~2019 to $780~~1999 to $109.0 billion in .0 billion in ~~2020, while U.S. exports decreased from $652.5 billion~~
~~to $544.8 billion. The United States~~ 2022, while U.S. services imports increased from $27.7 billion in 1999 to $83.0 billion in 2022. The United States has had a services trade surplus with Canada and Mexico had a services trade surplus with Canada and Mexico of
~~$30.6 billion in 2020 (see Figure 2).~~

20since at least 1999.21 In 2022, the services trade surplus with USMCA partners was $26.0 billion. By comparison, the U.S. merchandise trade deficit in 2022 reached a low of $210.6 billion (see Figure 4). 19 If the parties are unable to resolve the issue through consultations, they may take the dispute to the NAFTA Trade 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.
2120 Woodrow Wilson International Center for Scholars, Woodrow Wilson International Center for Scholars, NAFTA at 10: Progress, Potential, and Precedents, pp. 20-30. , pp. 20-30.
21 Trade services data in this report is from the U.S. Bureau of Economic Analysis at https://www.bea.gov, which provides data for the years 1999-2022. Congressional Research Service Congressional Research Service

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Figure 13. U.S. Merchandise Trade with ~~NAFTA~~USMCA Partners: 1993-~~2020~~
~~(billions of nominal dollars)~~2022

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.

Figure 24. U.S. Trade Balance with USMCA Partners: 1999-2022

Source: Compiled by CRS using data from the U.S. Bureau of Economic AnalysisCompiled by CRS using data from the U.S. Bureau of Economic Analysis and USITC. .
Merchandise Trade in Selected Industries
~~NAFTA and the elimination of Mexican trade barriers were instrumental in~~The elimination of trade and investment barriers under NAFTA were instrumental in expanding North American manufacturing industries and the initial integration the initial integration
of the North American motor vehicle industry. The of the North American motor vehicle industry. The motor vehicle sector experienced some of the most sector experienced some of the most
significant changes in significant changes in trade ~~trade following the agreement~~ and ranks first among leading exports to and and ranks first among leading exports to and
imports from NAFTAimports from NAFTA/USMCA countries countries ~~as shown in Figure 3.~~ ~~Agriculture~~(see Figure 5). Agricultural trade also expanded after NAFTA, but to a lesser degree ~~trade also expanded after~~
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~~NAFTA and the United States-Mexico-Canada Agreement (USMCA)~~

~~NAFTA, but to a lesser degree than the motor vehicle industry. The trade balance in agriculture~~
~~also has a far lower trade deficit~~. The U.S. textiles and apparel sectors experienced adjustment . The U.S. textiles and apparel sectors experienced adjustment
~~costs since NAFTA~~costs, with a significant expansion in U.S. imports in the first ten years after the , with a significant expansion in U.S. imports in the first ten years after the
agreement entered into force. agreement entered into force. ~~In 2020, the United States had a trade surplus in of $3.5 billion in~~
~~textiles and apparel trade with Canada and Mexico.~~ These trade trends indicate that NAFTA These trade trends indicate that NAFTA
achieved many of the trade and economic benefits that proponents claimed it would bring, achieved many of the trade and economic benefits that proponents claimed it would bring,
although there have been adjustment costs. However, it is difficult to isolate the effects of NAFTA although there have been adjustment costs. However, it is difficult to isolate the effects of NAFTA
on trade in specific industries because other factors, such as economic growth and currency on trade in specific industries because other factors, such as economic growth and currency
fluctuations, also affect trade. fluctuations, also affect trade.
Congressional Research Service 7 link to page 13 link to page 13 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Figure 5~~Figure 3~~. U.S. Trade with ~~NAFTA~~USMCA Partners in Selected Industries
~~(billions of nominal dollars)~~

Source: Compiled by CRS using data from the U.S. International Trade Commission, U.S. Department of Agriculture Compiled by CRS using data from the U.S. International Trade Commission, U.S. Department of Agriculture
(USDA), International Trade Administration’s Office of Textiles and Apparel. (USDA), 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 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 Industry Classification System (NAICS) codes 3361, 3362, and 3363. For agriculture, data includes “agricultural
products” as defined by USDA. products” as defined by USDA.
U.S. Investment with Canada and Mexico
Foreign direct investment (FDI) has been an integral part of the Foreign direct investment (FDI) has been an integral part of the U.S. economic relationship economic relationship ~~between~~
~~the United States and NAFTA partners~~with Canada and Mexico for many years. Two-way investment between Canada and for many years. Two-way investment between Canada and
the United States has increased markedlythe United States has increased markedly ~~since NAFTA~~, both in terms of the stock and flow of , both in terms of the stock and flow of
investment. The United States is the largest single investor in Canada with investment. The United States is the largest single investor in Canada with a stock of FDI stock of FDI ~~into~~
~~Canada~~stock reaching $ reaching $~~422.2~~438.8 billion in billion in ~~2020~~2022, up from a stock of $96.6 billion in 1997 (, up from a stock of $96.6 billion in 1997 (~~see~~see Figure 4).
~~U.S. investment~~6). Investment from the United States represents about half of the total stock of FDI in Canada from global investors. represents about half of the total stock of FDI in Canada from global investors.
The United States was the largest destination for The United States was the largest destination for ~~Canadian~~Canada’s total FDI in FDI in ~~2020~~2022, with a stock of $, with a stock of $~~569~~683.8 .8
billion, a significant increase from $78.6 billion in 1997 (by ultimate beneficial owner).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~~
~~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.~~
In Mexico, the United States is In Mexico, the United States is also the largest source of FDI. The stock of U.S. FDI in Mexico 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 $~~101.1~~130.3 billion in billion in ~~2020~~2022 (see (see Figure 4~~). Some economists~~
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~~NAFTA and~~6). Mexican FDI in the United States, while substantially lower than U.S. investment in Mexico, has also increased rapidly under NAFTA/USMCA, from $4.1 billion in 1997 to $54.0 billion in 2022 (by ultimate beneficial owner).22 22 Foreign direct investment data in this section is derived from data from the Bureau of Economic Analysis online database at http://www.bea.gov, accessed on September 25, 2023. Congressional Research Service 8 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Figure 6. Foreign Direct Investment Positions Among NAFTA Partners: 1993-2022~~United States-Mexico-Canada Agreement (USMCA)~~

~~contend that Mexico’s economic and energy sector reforms have added resilience to the Mexican~~
~~economy in recent years. However, investor unease persists due to domestic policy uncertainty~~
~~over the international economy and 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~~
~~uncertainty as there could be legal challenges and commercial retaliations from the United States~~
~~if Mexico breaches USMCA provisions.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~~
~~$42.1 billion in 2020 (by ultimate beneficial owner).23~~
~~Figure 4. Foreign Direct Investment Positions Among NAFTA Partners: 1993-2020~~
(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 (TPA 2015)Accountability Act of 2015 (TPA 2015)~~.24~~
~~Under TPA 2015~~, which was authorized through July 1, 2021, which was authorized through July 1, 2021 (P.L. 114-26). Under TPA 2015, the President was required to , the President was required to
consult with Congress before giving the required 90-day notice of his intention to start consult with Congress before giving the required 90-day notice of his intention to start
negotiations.negotiations.2523 The Trump Administration’s consultations included meetings between then-U.S. The Trump Administration’s consultations included meetings between then-U.S.
Trade Representative Robert Lighthizer and Members of the House Ways and Means Committee Trade Representative Robert Lighthizer and Members of the House Ways and Means Committee
and Senate Finance Committee and with Members of the and Senate Finance Committee and with Members of the House and Senate Advisory Groups on Negotiations.24~~House and Senate 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.~~
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~~Negotiations.26~~ The Office of the United States Trade Representative (USTR) held public The Office of the United States Trade Representative (USTR) held public
hearings prior to the release of the negotiating objectives and received more than 12,000 public hearings prior to the release of the negotiating objectives and received more than 12,000 public
comments.comments.2725
In order to use In order to use ~~the~~TPA expedited procedures expedited procedures ~~of TPA~~, the President was required to notify and consult , the President was required to notify and consult
with Congress before initiating and during negotiations, and adhere to several reporting with Congress before initiating and during negotiations, and adhere to several reporting
requirements following the conclusion of any negotiations resulting in an agreement. The requirements following the conclusion of any negotiations resulting in an agreement. The
President also was required to conduct the negotiations based on the negotiating objectives set President also was required to conduct the negotiations based on the negotiating objectives set
forth by Congress in the 2015 TPA authority. See the box below for the dates on which these forth by Congress in the 2015 TPA authority. See the box below for the dates on which these
~~requirements were met.~~
~~Key Dates for USMCA and TPA~~
requirements were met. 23 CRS In Focus IF10038, Trade Promotion Authority (TPA), by Christopher A. Casey and Cathleen D. Cimino-Isaacs. 24 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. 25 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. Congressional Research Service 9 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Key Dates for USMCA and TPA •
May 17, 2017: Ninety-day Presidential notification to Congress of intent to begin negotiations with Canada and May 17, 2017: Ninety-day Presidential notification to Congress of intent to begin negotiations with Canada and
Mexico. Mexico.
•
July 17, 2017: USTR publication of a summary of specific objectives with respect to the negotiations. July 17, 2017: USTR publication of a summary of specific objectives with respect to the negotiations.
•
August 16, 2017: Negotiations with Mexico and Canada began. August 16, 2017: Negotiations with Mexico and Canada began.
•
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 signed. November 30, 2018: USMCA 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 ~~bill~~ bil 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: USMCA signed into law (P.L. 116-113). January 29, 2020: USMCA signed into law (P.L. 116-113).
•
July 1, 2020: USMCA enters into force. July 1, 2020: USMCA enters into force.

USMCA
USMCA, USMCA, ~~comprised of~~comprising 34 chapters and 12 side letters, retains most of NAFTA’s market-opening 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 commitments, while making notable changes to market access provisions for autos and
agriculture products, and to rules and disciplines, such as on investment, government agriculture products, and to rules and disciplines, such as on investment, government
procurement, and IPR. procurement, and IPR. ~~New issues, such as~~It includes new provisions, including digital trade, state-owned enterprises, anticorruption, digital trade, state-owned enterprises, anticorruption,
and currency misalignmentand currency misalignment~~, are also addressed~~. On December 10, 2019, . On December 10, 2019, after the text of the final agreement was released, USMCA parties agreed USMCA parties agreed
to a Protocol of Amendment to USMCA.to a Protocol of Amendment to USMCA.~~28 The revisions included modifications to key elements~~
~~of the original text regarding~~ The protocol amended the original text to include modifications on dispute settlement, labor and environmental provisions, intellectual dispute settlement, labor and environmental provisions, intellectual
property rights protection, and steel and aluminum requirements in the motor vehicle industry property rights protection, and steel and aluminum requirements in the motor vehicle industry
rules of origin. The following selective rules of origin. The following selective topics provide an overview of USMCA provisions. 26~~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 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.~~
~~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.~~
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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
26 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) 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.2927 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. U.S. ~~MFN~~Most Favored Nation (MFN) tariff rates. 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. 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~~
~~negotiations.~~
~~Motor Vehicle Industry~~
~~NAFTA phased out~~ Motor Vehicle Industry USMCA raised the regional value content requirements for the motor vehicle industry formerly required under NAFTA. Upon its entry into force in 1994, NAFTA phased out all U.S. tariffs on motor vehicle imports from MexicoU.S. tariffs on motor vehicle imports from Mexico ~~and~~, as well as Mexican tariffs on Mexican tariffs on
U.S. and Canadian productsU.S. and Canadian products, as long as they met the rules of origin requirements of 62.5% North 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~~
~~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~~parts. Another significant development at the time of NAFTA negotiations was Mexico’s agreement to phase out its restrictive auto decrees, which for many years limited U.S. motor vehicle exports to Mexico and restricted U.S. investment in Mexico’s auto sector. NAFTA was instrumental in opening the 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.3028
USMCA USMCA ~~tightens NAFTA auto~~’s more restrictive rules of origin in the motor vehicle industry include: • product-specific rules requiring 75% North American content; • ~~rules of origin by including:~~
~~ New motor vehicle rules of origin and procedures, including product-specific~~
~~rules, and requiring 75% North American content.~~
~~ For the first time in a trade agreement,~~ wage requirements stipulating 40%-45% wage requirements stipulating 40%-45%
of North American auto content be of North American auto content be made by workers earning at least $16 per made by workers earning at least $16 per
~~hour.~~
~~ A~~hour (for the first time in any U.S. trade agreement); • a requirement that 70% of a vehicle’s steel and aluminum must originate (melted and poured) in North America; and • a provision aiming to streamline the enforcement of manufacturers’ rules of origin certification requirements. ~~requirement that 70% of a vehicle’s steel and aluminum must originate (melted~~
~~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.~~
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~~ A provision aiming to streamline the enforcement of manufacturers’ rules of~~
~~origin certification requirements.~~
~~In addition, side letters exempt from potential Section 232 tariffs the following items from~~
~~Canada and Mexico:~~
~~ 2.6 million passenger vehicles each from Canada and Mexico on an annual basis.~~
~~ Light trucks imported from Canada or Mexico.~~
~~ 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.~~
~~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.31~~
~~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~~
~~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~~
~~meet the requirements under the World Trade Organization’s Article XXIV of the General~~
~~Agreement on Tariffs and Trade.32 Article XXIV states that duties and other commerce~~
~~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~~
~~prior to the formation of such union.”33~~
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.USMCA benefits. ~~The~~29 In 2019, the Congressional Budget Office (CBO) estimated that USMCA’s stricter 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.3430 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.35 Other economists~~
~~also contend that it would be more cost efficient for manufacturers of motor vehicles and motor~~
~~vehicle parts to pay the MFN tariff36 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~~

~~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.~~
34requirements will pay approximately $3 billion in duties over the next decade.31 27 For more information, see CRS In Focus IF10754, Rules of Origin, by Liana Wong and CRS Report RL34524, International Trade: Rules of Origin, by Liana Wong. 28 Beginning in the 1960s and up until the years prior to NAFTA, 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. 29 See for example, Christopher Wilson, Francisco de Rosenzweig, and Luis Rubio, The Expert Take - USMCA Rules of Origin Disputes, Wilson Center, September 23, 2021. 30 Congressional Budget Office (CBO), Congressional Budget Office (CBO), CBO Estimate for H.R. 5430H.R. 5430, the United States-Mexico-Canada Agreement
Implementation Act, Cost Estimate, December 16, 2019. , Cost Estimate, December 16, 2019.
3531 Ibid. Congressional Research Service 11 ~~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.~~
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~~NAFTA and the United States-Mexico-Canada Agreement (USMCA)~~

~~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~~
~~substitution of machines for workers.37 Auto manufacturers in Mexico are concerned that they~~
~~may lose market share to Asian manufacturers.38 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~~
~~vehicle producers would shift production to South Korea, especially in light trucks.39~~
~~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.40 Others~~
~~contend that the new rules will hurt demand for vehicles and parts, reduce U.S. production, and~~
~~cause significant job losses.41 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~~
~~U.S. jobs.42 Auto industry representatives reacted favorably to the conclusion of the negotiations~~
~~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.43~~
~~Agriculture44~~ NAFTA and the United States-Mexico-Canada Agreement (USMCA) Agriculture32
USMCA partners agreed to maintain NAFTA’s market opening provisions and add several other 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) 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, chapter. NAFTA’s agriculture provisions included tariff and quota elimination, SPS measures,
rules of origin, and grade and quality standards.rules of origin, and grade and quality standards.4533
USMCA agriculture provisions include USMCA agriculture provisions include:
 the following: • regulatory alignment among the parties; regulatory alignment among the parties;
• protection for proprietary formulas for pre-packaged foods and food additives protection for proprietary formulas for pre-packaged foods and food additives
(limited to furthering “legitimate objective[s],” which is not defined); (limited to furthering “legitimate objective[s],” which is not defined);
• SPS rules based on “relevant scientific principles;” and SPS rules based on “relevant scientific principles;” and
• greater transparency in SPS rules. greater transparency in SPS rules.
Biotechnology provisions in USMCA affecting agriculture include Biotechnology provisions in USMCA affecting agriculture include the following: • transparent:
~~ Transparent and timely application and approval process for crops using~~
~~biotechnology.~~

~~37 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.~~
~~38 Personal communication with motor vehicle representatives and government officials in Mexico City on September~~
~~25-29, 2017.~~
~~39 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.~~
~~40 Sarah Foster and Andrew Mayeda, "USMCA Content Rules will Raise Production Costs, Automakers Warn,"~~
Automotive News Canada, November 16, 2018.
~~41 Ibid.~~
~~42 Sarah Foster and Andrew Mayeda, “USMCA Will Add to Costs, Could Eliminate Jobs,” Bloomberg News,~~
~~November 15, 2018.~~
~~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.~~
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~~NAFTA and the United States-Mexico-Canada Agreement (USMCA)~~

~~ Procedures~~ and timely application and approval process for crops using biotechnology; • procedures for import shipments containing a low-level presence of an for import shipments containing a low-level presence of an
unapproved crop produced with biotechnology unapproved crop produced with biotechnology.
~~ Establishment~~; and • establishment of a working group on agricultural biotechnology. ~~of a working group on agricultural biotechnology.~~
~~In the USMCA negotiations on agriculture, a principal U.S. demand was for additional market~~
~~access to Canada’s supply-management-restricted dairy, poultry, and egg markets. This system~~
~~places a tariff-rate quota on imports of those products into Canada. While most of the in-quota~~
~~tariff levied is 0%, out of quota tariffs (TRQ) can reach 313.5% for dairy products. Canada was~~
~~not willing to abolish supply management, but did allow a yearly expansion of the TRQ for dairy~~
~~products; an expansion of duty-free quota for poultry from 47,000 tons to 57,000 tons in year six,~~
~~and a subsequent 1% annual increase for 10 years. The TRQ for eggs would increase to 10~~
~~million dozen annually. In return, the United States is providing more access to Canadian dairy,~~
~~sugar, peanuts and cotton. U.S. tariffs for peanuts and cotton are to be phased-out over five years,~~
~~and TRQs for dairy and sugar products are to be increased. The United States also negotiated~~
~~changes to Canadian wheat grading system and providing national treatment for beer, wine, and~~
~~spirits labeling and sales. A U.S. proposal to allow trade remedies to be used for seasonal produce~~
~~was not adopted~~
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 CUSFTA provisions ~~continued~~continue to apply on trade with Canada. to apply on trade with Canada.4634 Under CUSFTA, Canada Under CUSFTA, Canada
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),47 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.such as U.S. dairy and poultry exports to Canada.35 Canada maintains a supply-management system 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. Canada-Mexico trade liberalization. ~~NAFTA also addressed~~USMCA maintains provisions on SPS measures and other types of SPS measures and other types of
~~nontariff barriers that may limit agricultural trade. SPS regulations continue to be regarded by~~
~~agricultural exporters~~nontariff barriers. Some agricultural exporters continue to regard SPS regulations as challenging to trade and disruptive to integrated supply chains. as challenging to trade and disruptive to integrated supply chains.4836
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 ~~TRQs49~~TRQs 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~~
~~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~~
~~as high as 12%. However, approximately one-fourth of U.S. agricultural exports to Mexico (by~~
~~value) were subjected to restrictive import licensing requirements.50~~

46USMCA maintains these market opening measures. 32 For more information on USMCA outcomes, see CRS In Focus IF10996, Agricultural Provisions of the U.S.-Mexico-Canada Agreement, by Jenny Hopkinson. 33 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. 34 Governments of Canada, the United Mexican States, and the United States of America, 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. , August 12, 1992, p. 12.
4735 Tariff-rate quotas (TRQs) allowed NAFTA partners to export specified quantities of a product to other NAFTA 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 countries at a relatively low tariff, but subjected all imports of the product above a pre-determined threshold to a higher
tariff. tariff.
4836 CRS In Focus IF10682, CRS In Focus IF10682, NAFTA Renegotiation: Issues for U.S. Agriculture, by Renée Johnson. , 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.~~
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14 Congressional Research Service 12

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. 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~~
~~customs regulation and cooperation. More recent agreements have modernized provisions in~~
~~regard to customs procedures and trade facilitation.~~ The World Trade Organization (WTO) Trade 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.5137 Trade facilitation measures Trade facilitation measures in trade agreements aim to simplify and 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~~
~~agreements.~~ the costs of trade. Trade facilitation can be defined narrowly as improving administrative procedures at 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.5238
Under USMCA, parties affirm their rights and obligations under the Under USMCA, parties affirm their rights and obligations under the ~~TFA of the WTO~~WTO TFA. USMCA . 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
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 for issuing written advance customs rulings, procedures for efficient release of goods ~~in order to~~
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.5339
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.5440 Some Members and other stakeholders raised concerns about a footnote that would have Some Members and other stakeholders raised concerns about a footnote that would have
allowed the United States to decrease its threshold to a reciprocal allowed the United States to decrease its threshold to a reciprocal de minimis amount in an amount in an
amount no greater than the Canadian or Mexican threshold. They contended that lowering the amount no greater than the Canadian or Mexican threshold. They contended that lowering the

51current U.S. threshold could come at a cost to U.S. consumers and express carriers.41 In the end, the footnote was dropped in the final text of the agreement. 37 CRS Report R44777, CRS Report R44777, WTO Trade Facilitation Agreement, by Rachel F. Fefer and Vivian C. Jones. , by Rachel F. Fefer and Vivian C. Jones.
5238 Ibid. Ibid.
5339 The World Trade Organization’s (WTO’s) Trade Facilitation Agreement (TFA), if fully ratified, could also affect 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. trade facilitation among NAFTA parties. Ninety-eight out of a necessary 109 countries have ratified the agreement.
5440 Gary Clyde Hufbauer and Euijin Jung, Gary Clyde Hufbauer and Euijin Jung, Higher De Minimis Thresholds: A Win in the USMCA, Peterson Institute for , Peterson Institute for
International Economics, October 15, 2018. International Economics, October 15, 2018.
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~~current U.S. threshold could come at a cost to U.S. consumers and express carriers.55 In the end,~~
~~the footnote was dropped in the final text of the agreement.~~
~~Energy~~
~~USMCA does not have an energy chapter and moves~~41 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. Congressional Research Service 13 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Energy USMCA does not have an energy chapter and moved some of NAFTA’s energy provisions to 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, regard to Mexico’s energy sector, ~~would~~aim to help protect private U.S. energy projects in Mexico. U.S. and Canadian investors in Mexico’s energy sector are ~~help protect private U.S. energy projects in Mexico.~~
~~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~~
~~constitutions. This was of particular importance for Mexico and its 1917 Constitution, which~~
~~established Mexican national ownership of all hydrocarbons resources. Under NAFTA, the~~
~~Mexican government reserved to itself strategic activities, including investment and provisions in~~
~~such activities, related to the exploration and exploitation of crude oil, natural gas, and basic~~
~~petrochemicals. Mexico also reserved the right to provide electricity as a public service within the~~
~~country. Despite these exclusions from NAFTA, energy remains a central component of U.S.-~~
~~Mexico trade.56~~
~~Existing U.S. and Canadian investors in Mexico’s energy sector would remain~~ protected by 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.5742 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~~
~~private and foreign investors while keeping the ownership of Mexico’s hydrocarbons under state~~
~~control.58 Following the reforms, Mexico adopted new procurement rules to increase efficiency~~
~~and effectiveness in the procurement process.~~own assets. Mexican President Andrés Manuel López Obrador, however, has made efforts to reverse some of the 2013 energy reforms, which could be a violation of its USMCA commitments.43
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.59

~~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.~~
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44
Government Procurement
~~The NAFTA~~FTA government procurement government procurement ~~chapter~~provisions set standards and parameters for government set standards and parameters for government
purchases of goods and services.purchases of goods and services.45 Government procurement chapters typically extend national and 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 commitmentsThe schedule of commitments~~, set out in an annex to the chapter,~~ provides opportunities for firms 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 includeprocurement. Core provisions include:
~~ Promote transparency in the tendering process through online tender information~~
~~and descriptions.~~
~~ Provide online application and documentation processes without cost to the~~
~~applicant.~~
~~ Provide for publication of post-award explanations of procurement decisions.~~
~~ Exclude government procurement from the financial services chapter.~~
~~ Exclude textile and apparel procured by the Transportation Security~~
~~Administration (TSA) under the “Kissell Amendment.”~~
~~ Allow Mexico to set aside annual procurement contracts of $2.328 billion,~~
~~annually adjusted for inflation, to Mexican suppliers.~~
 the following: 42 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. 43 On July 20, 2022, the United States requested consultations with Mexico under USMCA over a series of efforts by the Mexican government to reverse reforms undertaken in 2013 to liberalize the country’s energy sector. Canada later joined as a party in these consultations. For more information, see Office of the United States Trade Representative, United States Requests Consultations Under the USMCA Over Mexico's Energy Policies, Press Release, July 20, 2022. 44 Canadian Labour Congress, “13 Facts You Need to Know About the United States-Mexico-Canada Agreement (USMCA),” October 18, 2018. 45 For more information of U.S. government procurement and international trade, see CRS Report R47243, U.S. Government Procurement and International Trade, by Andres B. Schwarzenberg. Congressional Research Service 14 link to page 21 link to page 21 NAFTA and the United States-Mexico-Canada Agreement (USMCA) • Promote transparency in the tendering process through online tender information and descriptions. • Provide online application and documentation processes without cost to the applicant. • Provide for publication of post-award explanations of procurement decisions. • Exclude government procurement from the financial services chapter. • Exclude textile and apparel procured by the Transportation Security Administration (TSA) under the “Kissell Amendment.” • Allow Mexico to set aside annual procurement contracts of $2.328 billion, annually adjusted for inflation, to Mexican suppliers. • Allow for coverage of build-operate-transfer (BOT) contracts. (As Mexico has 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).6046 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.~~
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~~GPA. Government procurement between Canada and Mexico will continue to be covered by the~~
~~Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11).~~
~~Some industry groups criticized the exclusion of Canada and financial services from the~~
~~agreement. The Automotive and Capital Goods Advisory Committee (ITAC-2) maintained that~~
~~excluding countries sets a bad precedent for future FTAs, that there was a “not inconceivable”~~
~~chance that the United States could withdraw from the GPA, leaving no reciprocal access to the~~
~~Canadian procurement market, and that other countries with FTAs with Canada would have~~
~~greater access to the Canadian procurement market than that provided by the GPA.61 The Services~~
~~ITAC (ITAC-10) expressed concern that continued access to government procurement for~~
~~financial services under USMCA has been called into doubt by the exclusion of that sector from~~
~~the agreement. ITAC-10 noted that, under NAFTA coverage, U.S. insurance providers cover two-~~
~~thirds of Mexican government employees.62~~
~~Supporters of expanded procurement opportunities in FTAs argue that the reciprocal nature of the~~
~~government procurement provisions in FTAs allows U.S. firms access to major government~~
~~procurement market opportunities overseas. In addition, supporters claim open government~~
~~procurement markets at home allow government entities to accept bids from partner country~~
~~suppliers, potentially making more efficient use of public funds. Other stakeholders contend that~~
~~public procurement should primarily benefit domestic industries. The Buy American Act of 1933,~~
~~as amended, limits the ability of foreign companies to bid on government procurements of~~
~~manufactured and construction products. Buy American provisions periodically are proposed for~~
~~legislation, such as infrastructure projects requiring government purchases of iron, steel, and~~
~~manufactured products.63 Such restrictions are waived for products from countries with which the~~
~~United States has FTAs or to countries belonging to the GPA.~~
~~Investment~~
~~NAFTA removed significant investment barriers, ensured basic protections for NAFTA investors,~~
~~and provided a mechanism for the settlement of disputes between investors and a NAFTA~~
~~country. U.S. FTAs, including NAFTA and~~ 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).47 Investment U.S. FTAs, including bilateral investment treaties (BITs), maintain core 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
from FTA or BIT countries 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.~~64 Since NAFTA, investment chapters in~~
~~FTAs and the U.S. model BIT clarified certain provisions, including commitments to affirm more~~
~~clearly a government’s right to regulate for environmental, health, and other public policy~~
~~objectives.~~
48 USMCA provisions, in general, track those of NAFTA USMCA provisions, in general, track those of NAFTA and other U.S. FTAs, with the exception of the elimination of , with the exception of the elimination of
some investor-state dispute settlement (ISDS) provisionssome investor-state dispute settlement (ISDS) provisions ~~in NAFTA’s investment chapter~~ (See (See
“Investor-State Dispute Settlement (ISDS)”). USMCA clarifies language related to national treatment and most-favored-nation treatment. In determining whether an investment is afforded national treatment in the context of expropriation, a “like circumstances” analysis can be used. Under the article, “like circumstances… depends on the totality of the circumstances including whether the relevant 46 “Procurement Thresholds for Implementation of the Trade Agreements Act of 1979,” 82 Fed. Reg. 58248, December 11, 2017. 47 See CRS In Focus IF12078, CPTPP: Overview and Issues for Congress, by Cathleen D. Cimino-Isaacs. 48. ~~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, See CRS In Focus IF10052, U.S. International Investment Agreements (IIAs), by Martin A. Weiss and Shayerah Ilias , by Martin A. Weiss and Shayerah Ilias
Akhtar. Akhtar.
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treatment distinguishes between investors or investments on the basis of legitimate public welfare objectives.”49 During USMCA negotiations, 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.”6550 On the other hand, On the other hand, some U.S. labor and civil society groups welcomed the 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~~
~~consideration of an agreement.66~~
~~USMCA clarifies language related to national treatment and most-favored-nation treatment. In~~
~~determining whether an investment is afforded national treatment in the context of expropriation,~~
~~a “like circumstances” analysis can be used. Under the article, “like circumstances… depends on~~
~~the totality of the circumstances including whether the relevant treatment distinguishes between~~
~~investors or investments on the basis of legitimate public welfare objectives.”67~~
meaningful procedures for resolving investment disputes.”51 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 Government Right to Regulate Unlike NAFTA, USMCA contains a provision stating that, except in rare circumstances, nondiscriminatory regulatory action by a party to protect legitimate public welfare objectives (e.g., in public health, safety, and the environment) do not constitute indirect expropriation. The USMCA includes a statement that nothing in the Investment Chapter shall be construed to prevent 49 USMCA Article 14.5.4. 50 American Petroleum Institute (API), 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-, February 20, 2017, http://www.api.org/news-policy-and-issues/news/2018/02/20/api-supports-nafta-
modernization-that-protect-us-investors. modernization-that-protect-us-investors.
6651 P.L. 114-26, §102 (b)(4)(f). P.L. 114-26, §102 (b)(4)(f).
~~67USMCA Article 14.5.4~~
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~~Government Right to Regulate~~
~~Unlike NAFTA, USMCA contains a provision stating that, except in rare circumstances,~~
~~nondiscriminatory regulatory action by a party to protect legitimate public welfare objectives~~
~~(e.g., in public health, safety, and the environment) do not constitute indirect expropriation. The~~
~~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 was included in NAFTA and is in violations of the investment provisions in trade agreements. It was included in NAFTA and is in
nearly all other U.S. FTAs that have been enacted since thennearly all other U.S. FTAs that have been enacted since then~~, and~~; it is also a core provision in U.S. 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
Law. Law.
ISDS provisions in USMCA substantially revise longstanding provisions in NAFTA, other U.S. ISDS provisions in USMCA substantially revise longstanding provisions in NAFTA, other U.S.
FTAs, and current BITs that were actively sought by past Administrations. Significantly, ISDS FTAs, and current BITs that were actively sought by past Administrations. Significantly, ISDS
between Canada and the United Statesbetween Canada and the United States is, and between Canada and Mexico, ended under the new agreement. U.S. and Mexican ended under the new agreement. U.S. and Mexican
investors investors ~~would~~are not not be able to bring able to bring USMCA arbitration claims arbitration claims ~~under USMCA~~ against Canada, nor against Canada, nor ~~would~~
are Canadian investorsCanadian investors able to bring such claims against the United States or Mexico. bring such claims against the United States or Mexico. ~~With respect to~~
~~Mexico and the United States, USMCA limits ISDS to claimants regarding government contracts~~
~~in natural gas, power generation, infrastructure, transportation, and telecommunications sectors;~~
~~or in other sectors provided the claimant exhausts national remedies first. Canada and Mexico are~~
~~maintaining ISDS among themselves through CPTPP.~~
~~USMCA continues ISDS in three circumstances:~~
~~ Legacy claims from existing investments are eligible for arbitration under~~
~~NAFTA ISDS provisions for three years from the date of NAFTA termination.~~
~~ Direct~~ Canada and Mexico are maintaining ISDS among themselves through CPTPP. For ISDS between the United States and Mexico, USMCA maintains similar provisions applicable under NAFTA regarding government contracts that belong to five covered sectors, including oil and gas, power generation, telecommunications, transportation, and infrastructure. This use of ISDS is designed to protect investors in heavily regulated industries whose investments may be affected by the presence of state-owned enterprises in the covered sectors. For all other foreign investors, USMCA ISDS provisions are more limited than those of NAFTA. Investors must first defend their claims in local courts before initiating arbitration. Direct expropriation claims, including claims of violation of national treatment, ~~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
investorsinvestors under USMCA, provided that , provided that ~~they~~the claimants exhaust domestic remedies first. Indirect 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.~~
~~ Government contracts in certain covered sectors (oil and gas, power generation,~~
~~telecommunications, transportation, and infrastructure) are eligible for arbitration~~
~~under USMCA ISDS. This use of ISDS is designed to protect investors in heavily~~
~~regulated industries whose investments may be affected by the presence of state-~~
~~owned enterprises in the sector~~seizure, is no longer covered. .
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
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 reasonsas 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~~
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. Critics counter 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 for environmental or health reasons)~~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 . 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 StatesThe United States, which has a highly competitive services sector has a highly competitive services sector ~~and~~, has made services trade 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.68 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.
Congressional Research Service 17 NAFTA and the United States-Mexico-Canada Agreement (USMCA) 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 the following: •:
 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.6952 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 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 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 cross-subsidize an express delivery service. USMCA also requires independence between express

~~68 For more information, see CRS Report R43291, U.S. Trade in Services: Trends and Policy Issues, by Rachel F.~~
~~Fefer, and CRS Report R44354, Trade in Services Agreement (TiSA) Negotiations: Overview and Issues for Congress,~~
~~by Rachel F. Fefer.~~
~~69 USMCA, Annex 15-A.~~
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delivery regulators and providers, prohibits the requirement of providing universal postal service delivery 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. The United States currently exempts United States has sought increased thresholds from its trading partners. The United States currently exempts
duties for shipments under US$800 (P.L. 114-125, §901), a level that has remained the same after USMCA. Canada duties for shipments under US$800 (P.L. 114-125, §901), a level that has remained the same after USMCA. Canada
raised its level from C$20 to C$40 (about US$31), while Mexico’s remains at US$50. Both Canada and Mexico raised its level from C$20 to C$40 (about 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 raised the duty-free treatment for express shipments up to US$117 (C$150). A footnote in the original USMCA
52 USMCA, Annex 15-A. Congressional Research Service 18 NAFTA and the United States-Mexico-Canada Agreement (USMCA) text allowed the U.S. threshold to be lowered to achieve reciprocity, a controversial provision to some Members 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. 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.7053
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.~~
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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.7154 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
53 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. 54 USMCA Article 17.18. Congressional Research Service 19 NAFTA and the United States-Mexico-Canada Agreement (USMCA) 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 the following: •:
 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 The chapter has the effect of binding ~~Mexico~~the Mexican government to its 2013 Constitutional reforms to its 2013 Constitutional reforms in
~~telecommunications, by guaranteeing the independence of the regulatory commission,~~
, which established a telecommunications regulatory framework to encourage competition, investment and an independent regulatory regime, in addition to nondiscriminatory repurchase ratesnondiscriminatory repurchase rates, and interconnection obligations. USMCA does not affect 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.
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.~~
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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 included equal treatment of electronically well as on cross-border data flows. The objectives included 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:
Congressional Research Service 20 NAFTA and the United States-Mexico-Canada Agreement (USMCA) • Ensure nondiscriminatory treatment of digital products. Ensure nondiscriminatory treatment of digital products.
• Prohibit cross-border data Prohibit cross-border data ~~flows~~flow restrictions and data localization requirements. 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 NAFTA was the first FTA to contain an IPR chapter, which ~~in turn~~ was the model for the WTO was the model for the WTO
Trade-Related Aspects of Intellectual Property Rights (TRIPs) Agreement that came into effect Trade-Related Aspects of Intellectual Property Rights (TRIPs) Agreement that came into effect a
~~year later in~~ in 1995.1995.7255 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. 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 U.S. FTAs contain
~~obligations more extensive than those found in TRIPS and NAFTA. In general, they~~obligations in general that have have
followed the TPA negotiating objective that agreements should 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.~~

~~72 See CRS In Focus IF10033, Intellectual Property Rights (IPR) and International Trade, by Shayerah Ilias Akhtar~~
~~and Ian F. Fergusson.~~
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reflect U.S. law. 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. technologies, and computer software. ~~These~~USMCA provisions largely track provisions largely track with provisions in more recent 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 that an invention is new, involves ~~and~~an inventive step, or is capable of industrial 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.
 55 See CRS In Focus IF10033, Intellectual Property Rights (IPR) and International Trade, by Shayerah I. Akhtar and Liana Wong. Congressional Research Service 21 NAFTA and the United States-Mexico-Canada Agreement (USMCA) • 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
Digital enforcement. Extends IPR enforcement, and the procedures (e.g., judicial or and the procedures (e.g., judicial or
Digital 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~~
Trade secrets. Requires criminal procedures and Requires criminal procedures and
remedies, such as preliminary 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 assert ~~his~~their rights, as well as for a rights, as well as for a ~~party~~
protection requirements. protection requirements.
party to challenge the patent’s validity. to challenge the patent’s validity. ~~This~~
Internet Service Providers (ISPs). Requires Requires
~~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~~This provision was not in NAFTA, but
allowing an alternative system to remain for Canada allowing an alternative system to remain for Canada
~~USMCA Protocol of Amendment~~
has been in more recent U.S. FTAs. (e.g., “notice and notice”). (e.g., “notice and notice”).
~~allows parties to provide for "effective~~• Protection of test data. Protects test
Trademarks. Extends trademark protection to Extends trademark protection to
data that patent holders submit for sounds and to “sounds and to “~~collective~~col ective marks” and removes marks” and removes
~~rewards,“ such as a period of market~~regulatory approval for
administrative requirements to enable easier protection administrative requirements to enable easier protection
~~exclusivity, for a successful challenge~~
~~and enforcement of trademarks.~~
~~to the validity or a finding of non-~~
and enforcement of trademarks. pharmaceuticals on which generics Geographical indications (GIs). Requires Requires
~~infringement of a patent.~~may later rely. These provisions were
administrative procedures for recognizing and opposing administrative procedures for recognizing and opposing

not in NAFTA. USMCA provisions GIs, including guidelines for determining when a name GIs, including guidelines for determining when a name
~~Protection of test data.~~ ~~Protects test~~ are described below.
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~~
• international agreements, includes requirements on international agreements, includes requirements on
~~regulatory approval for~~ Chemical-based (small-molecule)
transparency and opportunity to comment or oppose transparency and opportunity to comment or oppose
~~pharmaceuticals on which generics~~
~~GI recognition.~~
~~may later rely. These provisions were~~
~~not in NAFTA. USMCA provisions are described below.~~
 Chemical-based (small-molecule) drugs. ~~USMCA provides five~~ drugs. USMCA provides five GI recognition. years of ~~years of~~
data exclusivity for new drugs, and three years for new formulations of data exclusivity for new drugs, and three years for new formulations of
existing drugs. existing drugs.
• Biologics. The USMCA Protocol of Amendment removed a ten-year period . The USMCA Protocol of Amendment removed a ten-year period
of data exclusivity for biologic drugs originally negotiated in USMCA. U.S. of data exclusivity for biologic drugs originally negotiated in USMCA. U.S.
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law provides 12 years of data exclusivity for biologics, while Canada law provides 12 years of data exclusivity for biologics, while Canada
provides a total of eight years of biologics exclusivity and Mexico provides a provides a total of eight years of biologics exclusivity and Mexico provides a
five-year exclusivity period for both chemical and biologics.five-year exclusivity period for both chemical and biologics.73 Some Some
policymakers were concerned that the negotiated ten-year data exclusivity policymakers were concerned that the negotiated ten-year data exclusivity
period would have caused period would have caused ~~the prices of prescription drugs~~prescription drug prices to rise to to rise to
unaffordable levels. Industry stakeholders claim that the changes to USMCA unaffordable levels. Industry stakeholders claim that the changes to USMCA
do not protect U.S. intellectual property and could adversely affect U.S. jobs do not protect U.S. intellectual property and could adversely affect U.S. jobs
and U.S. medical innovation.and U.S. medical innovation.7456
Copyrights
Copyrights provide Copyrights provide ~~creators of~~ artistic and literary artistic and literary ~~works~~creators with the exclusive right to authorize or 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.
 56 Rachel Cohrs, “Biologic Exclusivity Provision Stripped from Revised USMCA Deal,” Modern Healthcare, December 10, 2019. Congressional Research Service 22 NAFTA and the United States-Mexico-Canada Agreement (USMCA) • 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 exceptionsConfines “limitations and exceptions” to “certain 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 “overly broad safe harbor provisions,” while technology and business groups
favored retention. favored retention.
Trademarks
Trademarks protect distinctive commercial names, marks, and symbols. USMCA includes Trademarks protect distinctive commercial names, marks, and symbols. USMCA includes
provisions on trademark protection and enforcement and provides for the following: provisions on trademark protection and enforcement and provides for the following:

~~73 CRS Report R44489, The Trans-Pacific Partnership (TPP): Key Provisions and Issues for Congress, coordinated by~~
~~Ian F. Fergusson and Brock R. Williams.~~
~~74 Rachel Cohrs, "Biologic Exclusivity Provision Stripped from Revised USMCA Deal," Modern Healthcare,~~
~~December 10, 2019.~~
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 • 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.”7557
• 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,
57 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/collective_marks.htm. Congressional Research Service 23 NAFTA and the United States-Mexico-Canada Agreement (USMCA) 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., region (e.g., ~~Ontario ice wine, Florida oranges~~Mexican Tequila, Canadian Whisky). In FTA negotiations, the United States has sought ). 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.” 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~~
USMCA: • Protects GIs for food products that Canada and Mexico have already accepted as Protects GIs for food products that Canada and Mexico have already accepted as
a consequence of trade agreements with the European Union. a consequence of trade agreements with the European Union.
• Provides transparency and notification requirements, and objection procedures, Provides transparency and notification requirements, and objection procedures,
for new GIs. for new GIs.

~~75 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/collective_marks.htm.~~
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 • 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.
Congressional Research Service 24 NAFTA and the United States-Mexico-Canada Agreement (USMCA) State-Owned Enterprises (SOEs)
NAFTA NAFTA ~~includes~~included provisions on SOEs, but they provisions on SOEs, but they ~~are~~were limited in scope. limited in scope.7658 They They ~~allow~~allowed parties to 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 provincial, or state government must act in a manner consistent with that country’s ~~NAFTA~~
~~obligations~~ obligations when exercising regulatory, administrative, or other government authority, such as the 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 disadvantages to private sector firms from state-supported competitors receiving preferential
treatment.treatment.7759
U.S. government and business stakeholders raised concerns during U.S. government and business stakeholders raised concerns during ~~the~~USMCA negotiations about negotiations about
competing with companies linked to the state through ownership or influence. As a result, they 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 support new specific disciplines in USMCA to address such competition. Some legal analysts

~~76 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~~
~~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 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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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.7860 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’s labor provisions were in a side agreement called the North American Agreement on~~
~~Labor Cooperation (NAALC).~~The rationale for including labor provisions in U.S. FTAs is to help ensure that countries not derogate from labor laws to attract trade and investment and that liberalized trade does not give a competitive advantage to countries due to a lack of adequate standards. NAFTA marked the first time that worker rights provisions were associated with an FTA.61 It contained 11 “guiding principles” pertaining to worker rights. It contained 11 “guiding principles” pertaining to worker rights.
Other provisions involved technical assistance, capacity building, and separate dispute Other provisions involved technical assistance, capacity building, and separate 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 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.~~
~~The rationale for including labor provisions in U.S. FTAs is to help ensure that countries not~~
~~derogate from labor laws to attract trade and investment and that liberalized trade does not give a~~
~~competitive advantage to developing countries due to a lack of adequate standards. Worker rights~~
~~provisions in U.S. trade agreements have evolved significantly since NAFTA.79 More recent U.S.~~
~~FTAs incorporated internationally recognized labor principles requiring parties to adopt and~~
~~maintain in their statutes and regulations core labor principles of the International Labor~~
~~Organization (ILO) (ILO Declaration). They also require countries to enforce their labor laws and~~
~~not to waive or derogate from those laws to attract trade and investment. These provisions are~~
~~enforceable under the same dispute settlement procedures that~~ procedures, along with a labor cooperation mechanism. Worker rights provisions in U.S. trade agreements have evolved significantly since NAFTA.62 More recent U.S. FTAs incorporated internationally recognized labor principles requiring parties to adopt and maintain in their statutes and regulations core labor principles of the International Labor Organization (ILO) (ILO Declaration, see Text Box). 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 enforceable under the same dispute settlement procedures that 58 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 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 members. 59 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. 60 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. 61 NAFTA’s labor provisions were in a side agreement called the North American Agreement on Labor Cooperation (NAALC). 62 See CRS In Focus IF10046, Worker Rights Provisions in Free Trade Agreements (FTAs), by Cathleen D. Cimino-Isaacs and M. Angeles Villarreal. Congressional Research Service 25 NAFTA and the United States-Mexico-Canada Agreement (USMCA) apply to other provisions of the 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 ~~collective~~col ective 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 tomaintain specific laws related to the ILO Declaration. It requires parties to:
• Adopt and maintain in statutes and regulation, and practices, worker rights as 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 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 conditions of work with respect to minimum wages, hours of work, and
occupational safety and health. occupational safety and health.
• Not waive or otherwise derogate from Not waive or otherwise derogate from ~~its~~the party’s statues or regulations. • ~~statues or regulations.~~

~~78 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.~~
~~79 See CRS In Focus IF10046, Worker Rights Provisions in Free Trade Agreements (FTAs), by Cathleen D. Cimino-~~
~~Isaacs and M. Angeles Villarreal.~~
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 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~~• Prohibit imports of goods made by forced labor, and imports of goods made by forced labor, and ~~adds new commitments~~
~~related to~~commit to protections regarding violence against workers, migrant violence against workers, migrant ~~worker protections~~workers, and workplace , and workplace discrimination. • Recognize the sovereign right of each party to establish its own levels of labor law enforcement activities in the territory of another party. • Acknowledge a party’s right to exercise discretion with regard to labor obligations. USMCA Protocol of Amendment: Labor Provisions After USMCA negotiations had been completed, several Members of Congress remained concerned about the agreement’s enforcement mechanism. They argued that the original text was not strong enough to protect worker rights and they pressed with the Administration to negotiate amendments to the agreement with Mexico and Canada. Key amendments included the following: • 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 participate in the selection of panelists. • “In a Manner Affecting Trade and Investment.” Shifts the burden of proof by stating that an alleged violation affects trade and investment, unless otherwise demonstrated. Congressional Research Service 26 NAFTA and the United States-Mexico-Canada Agreement (USMCA) • Rapid Response Mechanism. Adds a new rapid response mechanism to provide for an independent panel investigation of denial of certain labor rights at “covered facilities,” as opposed to a government inspection. Mexico’s Labor Reform Commitments~~discrimination.~~
~~The agreement maintains language stating that each party retains the right to exercise reasonable~~
~~enforcement discretion and to make bona fide decisions with regard to the allocation of~~
~~enforcement resources provided that the exercise of that discretion is not inconsistent with the~~
~~labor obligations. The agreement also states that nothing in the labor chapter shall be construed to~~
~~empower a party’s authorities to undertake labor law enforcement activities in the territory of~~
~~another party.~~
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 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~~Mexican government’s May 2019 reforms. Specifically, Annex-23A commits Mexico to. 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. USMCA implementing legislation creates a new interagency committee, labor attachés, and reporting requirements to Congress on Mexico’s implementation of labor reforms. Mexico’s 2019 Labor Reforms On May 1, 2019, Mexico’s president codified a labor reform bil that secured stronger worker’s rights adjacent to labor standards set forth by USMCA Chapter 23 on labor, and Annex 23-A, which addresses worker representation in col ective bargaining in Mexico. The reforms include new enforcement mechanisms to ensure free and fair union elections, and also created an independent labor court system called the Federal Center for Conciliation and Labor Reform (CFCRL) to resolve future disputes between union workers and employers. The reform brought changes to Mexico’s existing protectionist contract system, which allowed workplace leadership to sign col ective bargaining agreements (CBAs) with unrepresentative unions without consent from employees. Notably, the reform further required all pre-existing CBA’s to be dissolved and/or subject to vote through secret ballot for approval by May 1, 2023. According to the Mexican government, approximately 29,000 unions have been legitimized through the government of Mexico as a result of the reforms, with an additional 1,200 stil in progress. The Mexican government also confirmed that 747 new col ective contracts have been registered in accordance with the new labor model, as of August 2023. The Mexican Labor Department intends to nul ify all unaccounted-for labor contracts, which as of May 2023, was approximately 20,000 contracts. Sources: CRS In Focus IF11308, USMCA: Labor Provisions, by M. Angeles Vil arreal and Cathleen D. Cimino-Isaacs; Gobierno de Mexico, “Contratos Colectivos de Trabajo (CCT)”, at https://centrolaboral.gob.mx/listado-cct-nuevos-reforma/. Environment As with labor and worker rights, NAFTA was the first U.S. FTA associated with environmental protection. The ~~Establish independent labor courts.~~
~~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~~
~~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~~
~~Administration to amend the agreement.~~
~~Key changes in the amended USMCA include the following:~~
~~ 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~~
~~participate in the selection of panelists.~~
~~ “In a Manner Affecting Trade and Investment.” Shifts the burden of proof by~~
~~stating that an alleged violation affects trade and investment, unless otherwise~~
~~demonstrated.~~
~~ Rapid Response Mechanism. Adds a new rapid response mechanism to provide~~
~~for an independent panel investigation of denial of certain labor rights at~~
~~“covered facilities,” as opposed to a government inspection.~~
~~ Mexico’s Labor Reform Monitoring. USMCA implementing legislation creates a~~
~~new interagency committee, labor attachés, and reporting requirements to~~
~~Congress on Mexico’s implementation of labor reforms.~~
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~~ New or amended provisions on Rules of Procedure for dispute settlement, forced~~
~~labor, and violence against workers.~~
~~Environment~~
~~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 NAFTA side agreement—the~~ North American Agreement on Environmental Cooperation North American Agreement on Environmental Cooperation
(NAAEC)(NAAEC)— required all parties to enforce their own environmental laws, and required all parties to enforce their own environmental laws, and ~~contains~~contained an 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.80
Congressional Research Service 27 NAFTA and the United States-Mexico-Canada Agreement (USMCA) 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. 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 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 USMCA directly or implicitly addresses obligations under major ~~Multilateral Environmental~~
~~Agreements (MEAs)~~MEAs. It also includes obligations and encouragements to protect the ozone layer, . 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
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 not contain language on climate change. USMCA Protocol of Amendment: Environmental Provisions ~~change.~~
The Protocol of Amendment to USMCA clarified some of the existingThe Protocol of Amendment to USMCA clarified some of the existing environmental language in the agreement 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.~~
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~~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
 Congressional Research Service 28 link to page 21 NAFTA and the United States-Mexico-Canada Agreement (USMCA) • 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~~Dispute settlement provisions in U.S. FTAs, as well as the WTO, provide for the resolution of disputes arising 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 (dispute resolution (~~see~~ see “Investor-State Dispute Settlement”). ). ~~The~~Similar to NAFTA, the USMCA dispute settlement 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 includea 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 Panels are composed of five members~~, of whom~~; each side appoints two each side appoints two~~. A~~ and a chair is appointed by 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 choose the forum in which to bring the dispute (i.e., at the WTO or before a ~~NAFTA~~USMCA panel), but cannot bring the dispute to multiple fora. Under NAFTA, a party had the ability to block a panel chair—and, consequently, a panel—from forming, which was seen by some as a shortcoming of the agreement. Only three state-to-state dispute resolution panels were completed under NAFTA (between 1994 and 2001). Because the United States was able to block a panel chair, a fourth case (Restrictions on Sugar from Mexico) was never considered.63 The Protocol of Amendment ~~panel), but~~
~~cannot bring the dispute to multiple fora.~~
~~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~~
~~on Sugar from Mexico) was never considered. 81 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.~~
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~~and, consequently, a panel—from forming exposed an issue in the panel selection process, which~~
~~has not been used since.~~
~~The protocol of amendment~~ to USMCA addressed the panel blocking issue by inserting language 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~~Some USMCA chapters or sections are not subject to dispute settlement including the: chapters or sections are not subject to dispute settlement including the:
• Good Regulatory Practices chapter; Good Regulatory Practices chapter;
~~ Competition Policy chapter;~~
~~ Competitiveness chapter;~~
~~ Small and Medium-Sized Enterprise chapter;~~
 63 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 and CRS In Focus IF10645, Dispute Settlement in the WTO and U.S. Trade Agreements, by Christopher A. Casey and Cathleen D. Cimino-Isaacs. Congressional Research Service 29 NAFTA and the United States-Mexico-Canada Agreement (USMCA) • Competition Policy chapter; • Competitiveness 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; and 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 ~~determination82~~determination on the goods of an exporting party. on the goods of an exporting party.64 The dispute 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.and it was retained under NAFTA. ~~It was a priority negotiating issue for the Canadian~~
~~government.~~
The binational panel mechanism provides for a review of 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
or CVD law is inconsistent with the WTO Antidumping or Subsidies Agreements,or CVD law is inconsistent with the WTO Antidumping or Subsidies Agreements,8365 the aggrieved the aggrieved

82partner may request a judgment from a binational panel rather than through the legal system of the defending party.66 The United States sought to eliminate the Chapter 19 dispute settlement mechanism during the USMCA negotiations.67 By contrast, Canada and Mexico expressed support for retaining the mechanism, with Canada drawing a “red line” firmly opposing its elimination.68 At the end of the negotiations, the three countries decided to retain the system. NAFTA Chapter 19 is effectively replicated in the Trade Remedies Chapter of the USMCA. Currency Manipulation For the first time in a U.S. FTA, USMCA includes obligations to guard against currency manipulation. The parties agreed to “achieve and maintain a market-determined exchange rate 64 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.
8365 The WTO Antidumping Agreement’s official title is the 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; 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. . 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 At the time of the NAFTA negotiations, the multilateral General Agreements on Tariffs and Trade (GATT) was in
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~~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 during the~~
~~USMCA negotiations.85 By contrast, Canada and Mexico expressed support for retaining the~~
~~mechanism, with Canada drawing a “red line” firmly opposing its elimination.86 At the end of the~~
~~negotiations, the three countries decided to retain the system. NAFTA Chapter 19 is effectively~~
~~replicated in the Trade Remedies Chapter of the USMCA.~~
~~Currency Manipulation~~
~~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~~
~~parties agreed to “achieve and maintain a market-determined exchange rate~~ force. The GATT was incorporated with revisions into the WTO agreements. 66 CRS In Focus IF10645, Dispute Settlement in the WTO and U.S. Trade Agreements, by Ian F. Fergusson. 67 USTR, Summary of Objectives for the NAFTA Renegotiation, p. 14. 68 “Trudeau: Chapter 19, cultural exemptions are NAFTA red lines for Canada,” Inside U.S. Trade, September 4, 2018. Congressional Research Service 30 NAFTA and the United States-Mexico-Canada Agreement (USMCA) regime,” and to 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, precedent for including such provisions in future FTAs. Over the past decade, ~~some Members of~~
~~Congress~~policymakers and policy experts have been concerned that foreign countries may use exchange rate 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.
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.8769 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.8870
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 Financial Services, and Energy chapters, but ~~does~~did not have a specific chapter on regulatory not have a specific chapter on regulatory
practices. 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~~

~~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.~~
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USMCA has a new, separate chapter on regulatory practices with commitments to promote regulatory quality through greater transparency, objective analysis, accountability, and predictability to facilitate international trade, investment, and economic growth. The chapter states that the application of good regulatory practices can support the development of compatible regulatory approaches among the parties, and reduce or eliminate unnecessarily burdensome, duplicative, or divergent regulatory requirements. Such commitments could complement ongoing efforts and include increased transparency in the development and implementation of proposed regulations, opportunities for public comment in the development of regulations, and/or the use of impact assessments and other methods to ensure regulations are evidence-based and current.71 NAFTA and USMCA provisions on regulatory practices may have influenced the United States, Canada, and Mexico to increase cooperation on economic and security issues through various endeavors such as the North American Leaders’ Summits, the North American Trusted Traveler Program, the U.S.-Canada 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.89
~~USMCA has a new, separate chapter on regulatory practices with commitments to promote~~
~~regulatory quality through greater transparency, objective analysis, accountability, and~~
~~predictability to facilitate international trade, investment, and economic growth. The chapter~~
~~states that the application of good regulatory practices can support the development of compatible~~
~~regulatory approaches among the parties, and reduce or eliminate unnecessarily burdensome,~~
~~duplicative, or divergent regulatory requirements. Such commitments could complement ongoing~~
~~efforts and include increased transparency in the development and implementation of proposed~~
~~regulations, opportunities for public comment in the development of regulations, and/or the use of~~
~~impact assessments and other methods to ensure regulations are evidence-based and current.90~~
~~Trucking~~
~~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~~
Trucking 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 69 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. 70 Ibid. 71 USTR, Summary of Objectives for the NAFTA Renegotiation, July 17, 2017, p. 7. Congressional Research Service 31 NAFTA and the United States-Mexico-Canada Agreement (USMCA) 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 the trucking issue had finally been resolved. been resolved.
USMCA generally retains NAFTA trucking provisions. USMCA generally retains NAFTA trucking provisions. ~~NAFTA granted~~It grants Mexican commercial Mexican commercial
trucks authority to operate in the United States, but trucks authority to operate in the United States, but ~~they cannot~~does not allow trucks to operate between two points 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
hauling freight between two points within the United States. Mexican carriers that already hauling freight between two points within the United States. Mexican carriers that already ~~have~~had
authority under NAFTA to operate in the United States authority under NAFTA to operate in the United States ~~will~~ continue to be allowed to operate in 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.9172 NAFTA NAFTA ~~does~~did not include a separate chapter related to transparency or anticorruption, not include a separate chapter related to transparency or anticorruption,
but it but it ~~does~~did include several provisions that were considered groundbreaking at the time, including include several provisions that were considered groundbreaking at the time, including
binding rules and disciplines onbinding rules and disciplines on, and removal of and removal of, barriers to foreign investment. It was not until the 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.~~
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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 In ~~the~~USMCA’s Final Provisions chapter Final Provisions chapter of USMCA, parties commit to a review of the agreement on the 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.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-~~
~~term investments. Others believe that the provision will not have an effect as parties can choose~~
~~to review an agreement at any time.~~
Implementation of ~~USMCA~~
~~The~~Labor Provisions USMCA implementation implementation ~~of USMCA has raised a number of issues for~~ is an area of focus for numerous U.S. policymakers and other U.S. policymakers and other
stakeholdersstakeholders~~, such as labor advocates and U.S. energy and motor vehicle companies~~. The . The
implementation of the labor provisions, which include the novel rapid response 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~~
72 Transparency International, “Anti-Corruption and Transparency Provisions in Trade Agreements,” Anti-Corruption Helpdesk, 2017. Congressional Research Service 32 NAFTA and the United States-Mexico-Canada Agreement (USMCA) mechanism meant to resolve labor disputes rapidly, is one of the primary areas of interest for some Members of Congress. The first USMCA labor complaint was filed on March 23, 2021, against the United States by 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 migrant worker women and a binational coalition of civil society organizations. Months later, the
United States United States ~~filed two~~began filing complaints against facilities in Mexico under USMCAs novel rapid- complaints against facilities in Mexico under USMCAs novel rapid-
response mechanismresponse 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 . The Rapid
Response Labor Mechanism under USMCA allows for a facility-specific, rapid labor dispute Response Labor Mechanism under USMCA allows for a facility-specific, rapid labor dispute
resolution process. The process can be initiated under resolution process. The process can be initiated under USMCA if a party believes in good faith ~~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.~~
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that “workers at covered facilities are being denied the right of free association and collective that “workers at covered facilities are being denied the right of free association and collective
bargaining.”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~~
73 Confederación de Trabajadores de México (CTM): A Mexican Labor Union Established in 1936, CTM claims 4.5 mil ion affiliated workers and over 6,000 member unions. The CTM has been considered one of the largest and most influential labor federations in Mexico. Prior to Mexico’s 2019 labor law reform, unions such as the CTM were permitted to engage in protectionist agreements, where companies could legally sign contracts with unions without the input or approval of employees at the workplace. These anti-democratic labor practices created opacity between union, government, and employee. Before USMCA had entered into force, human rights organizations and labor unions jointly filed complaints of abuse by CTM with the U.S. Department of Labor. Abuse complaints included intimidation, harassment, threats of physical violence, and job loss. CTM has been cited in seven of the twelve reports under the USCMA rapid Response Labor Mechanism. Reports against CTM include incidents of destroyed and stolen ballot boxes, acts of employer-union favoritism, and irregular access to workplace facilities during operational hours. Sources: USTR, “Chapter 31 Annex A: Facility-Specific Rapid-Response Labor Mechanism”, at https://ustr.gov/issue-areas/enforcement/dispute-settlement-proceedings/fta-dispute-settlement/usmca/chapter-31-annex-facility-specific-rapid-response-labor-mechanism; and Confederación de Trabajadores de México (CTM), “Nuestra Historia”, at https://ctmoficial.org/nuestra-historia-2/. USMCA Rapid Response Cases The U.S. Department of Labor and USTR have collaborated on multiple cases to protect worker rights. These include: Tridonex. On May 10, 2021, the AFL-CIO, the Service Employees International Union (SEIU), the 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 Sindicato Nacional Independiente de Trabajadores de Industrias y de Servicios Movimiento
(SNITIS), and Public Citizen filed a complaint against the Tridonex factory in Tamaulipas, (SNITIS), and Public Citizen filed a complaint against the Tridonex factory in Tamaulipas,
Mexico.Mexico.~~100 It was the first complaint filed under the novel rapid response mechanism of USMCA.~~
74 The complaint purported that workers had been denied the right to organize with SNITIS, a 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.~~
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~~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~~Mexican labor union, by the company and current union. In August 2021, 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.75 General Motors (GM) Silao. 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.76 USTR alleged that the events at the GM facility involved a violation of Mexico’s labor reform law of 2019. The two countries reached an agreement for 73 USMCA Article 31-A2. 74 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. 75 Office of the United States Trade Representative (USTR), United States Reaches Agreement with Mexican Auto Parts Company to Protect Workers’ Rights, Press Release, August 10, 2021. 76 USTR, United States Seeks Mexico’s Review of Alleged Worker’s Rights Denial at Auto Manufacturing Facility, Press Release, May 12, 2021. Congressional Research Service 33 NAFTA and the United States-Mexico-Canada Agreement (USMCA) remediation in July 2021, which called for a revote that would be overseen by the Mexican Labor Ministry and observers from the International Labor Organization (ILO). In August, the vote was held with voters deciding to leave the union.77 Unique Fabricating. On March 6, 2023, USTR announced that the United States asked Mexico to review whether workers at a Unique Fabricating facility in Santiago de Querétaro are being denied the rights of free association and collective bargaining.78 The Mexican government conducted facility training on workers’ rights and monitored an independent union election. Unique signed agreements that acknowledged standards for union facility access in addition to zero tolerance policies towards discrimination and favoritism. In April 2023, USTR announced that the U.S. and Mexico came to a successful resolution.79 Panasonic. On May 18, 2022, USTR announced that the United States asked Mexico to review whether workers at the Panasonic Automotive Systems de Mexico facility in Reynosa, Tamaulipas are being denied the rights of free association and collective bargaining. 80 It was alleged that Panasonic maintained invalid collective bargaining agreements with the Sindicato Industrial Autónomo de Operarios en General de Maquiladoras de la República Mexicana (SIAMARM), therefore violating updated labor law requirements. On May 31, Mexico agreed to conduct a review of the complaints. On July 14, 2022, USTR announced that the United States and Mexico came to a successful resolution, which included a free and fair election of a representative union, the Sindicato Nacional Independiente de Trabajadores de Industrias y de Servicios Movimiento (SNITIS), and compensation to aggrieved workers.81 Manufacturas VU. The United States has enacted the Rapid Response Labor Mechanism against Manufacturas VU in Mexico twice. On July 21, 2022, USTR announced that the United States asked Mexico to review whether workers at the Manufacturas VU facility in Piedras Negras, State of Coahuila are being denied the rights of free association and collective bargaining.82 On September 14, 2022 USTR announced a resolution, which included the free and fair election of an independent Mexican union, La Liga Sindical Obrera Mexicana (LSOM).83 On January 30, 2023, USTR again announced a review of whether workers at the same location are being denied the rights of free association and collective bargaining.84 It was found that following the first resolution, labor conditions continued to deteriorate as confirmed by the International Labor Conference (ILC) after receiving an RRM petition from LSOM. On March 31, 2023, USTR announced that the United States and Mexico reached a resolution. Upon the course of remediation, Mexico agreed to initiate sanctions against organizations that violated Mexican labor 77 USTR, Biden Administration Reaches Agreement with Mexico on GM Silao Rapid Response Action and Delivers Results for Workers, Fact Sheet, July 2021. 78 USTR, United States Seeks Mexico’s Review of Alleged Denial of Workers’ Rights at Unique Fabricating, Press Release, March 6, 2023. 79 USTR, United States Announces Successful Resolution of a Rapid Response Mechanism Petition Regarding a Unique Fabricating Facility in Mexico, Press Release, April 24, 2023. 80 USTR, United States Seeks Mexico’s Review of Alleged Freedom of Association and Collective Bargaining Violations at Panasonic Facility, Press Release, May 18, 2022. 81 USTR, United States Announces Successful Resolution of Rapid Response Labor Mechanism Matter at Panasonic Auto Parts Facility in Mexico, Press Release, July 14, 2022. 82 USTR, United States Seeks Mexico’s Review of Alleged Denial of Workers’ Rights at Automotive Components Facility, Press Release, July 21, 2022. 83 USTR, United States Announces Successful Resolution of a Rapid Response Mechanism Matter at Manufacturas VU Automotive Components Facility in Mexico, Press Release, September 14, 2022. 84 USTR, United States Invokes Rapid Response Labor Mechanism for a Second Time at Manufacturas VU, Press Release, January 30, 2023. Congressional Research Service 34 NAFTA and the United States-Mexico-Canada Agreement (USMCA) laws, conduct workers’ rights trainings with regular monitoring efforts, and ensure that U.S. based executives have access to review the facility among other efforts. The deadline to finalize remediate actions is September 30, 2023.85 Teksid Hierro. On June 6, 2022, USTR announced that the United States asked Mexico to review whether , USTR announced that the United States asked Mexico to review whether
workers at workers at ~~a GM facility in Mexico~~Teksid Hierro de Mexico facility in Frontera, State of Coahuila are being denied the are being denied the ~~right~~rights of free association and collective of free association and collective
~~bargaining.103 USTR stated that the action would help protect worker rights in both~~bargaining.86 It was alleged that Teksid maintained invalid collective bargaining agreements with the Sindicato de Trabajadores de la Industria Metal Mecánica del Estado, C.T.M. (STIMME), violating updated labor law requirements. On August 16, 2022, USTR announced that the United 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~~
States and Mexico reached a resolution, including the issuing of a neutrality statement that denotes federal standards for valid collective bargaining agreements. The government of Mexico also agreed to continue monitoring the facility following the resolution.87 Goodyear SLP. On May 22, 2023, USTR announced that the United States asked Mexico to review whether workers at Goodyear SLP, S, de R.L. de C.V. in San Luis Potosi are being denied the rights of free association and collective bargaining.88 It was alleged by La Liga Sindical Obrera Mexicana (LSOM) that voting processes and collective bargaining agreements contained significant irregularities that violated updated labor laws, later confirmed by the ILC and the Government of Mexico. On July 19, 2023, USTR announced an agreement upon a course of remediation with a deadline of January 19, 2024 for the finalizations of the remediate actions.89 85 USTR, United States and Mexico Announce Plan to Remediate Denials of Rights at Manufacturas VU Facility, Press Release, March 31, 2023. 86 USTR, Unites States Seeks Mexico’s Review of Labor Rights Issues at Teksid Hierro Facility, Press Release, June 6, 2022 87 USTR, United States Announces Successful Resolution of Rapid Response Labor Mechanism Matter at Auto Parts Facility in Frontera, Mexico, Press Release, August 16, 2022. 88 USTR, Unites States Seeks Mexico’s Review of Alleged Denial of Worker’ Rights at Goodyear SLP, Press Release, May 22, 2023. 89 USTR, United States and Mexico Announce Plan to Remediate Denials of Rights at Goodyear SLP Facility, Press Release, July 19, 2023. Congressional Research Service 35 link to page 40 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Mexican Female Migrant Laborers Dispute U.S. Visa Process The first USMCA labor complaint was lodged by a binational coalition of civil society organizations, two Mexican migrant women, and Centro de los Derechos del Migrante (CDM), a nonprofit organization that defends migrant workers’ rights. The complaint was lodged 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. CDM submitted the complaint to Mexico’s Labor Ministry asking the Mexican government to initiate a state-to-state dispute against the United States. The complaint stated 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 Article 23.7 on violence against workers in USMCA Chapter 23, which protects workers to “exercise their labor rights in a climate free from violence, threats, and intimidation.” In June 2021, the complainants met with the U.S. and Mexican governments in separate meetings to discuss the complaints. On January 17, 2023, the United States and Mexico signed a Memorandum of Understanding (MOU) on Labor Mobility and Protection of Participants in Temporary Foreign Worker Programs. The MOU aims to promote fair recruitment and decent work, strengthen bilateral cooperation on temporary work visa programs, explore ways to support labor mobility options, and allow for the flow of information on worker rights, protections, and resources. Sources. Centro 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, available at https://cdmigrante.org/usmca/; and Memorandum of Understanding Between the Government of the United States of Mexico and the Government of the United States of America on Labor Mobility and Protection of Participants in Temporary Foreign Worker Programs, available at https://www.gob.mx/cms/uploads/attachment/file/793873/MdE_MX-EUA_Movilidad_Laboral.pdf Labor-Related Technical Assistance Projects in Mexico USMCA implementing legislation included $210 million to the Department of Labor’s Bureau of 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, 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 $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 $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 the necessary expenses of additional full-time employees for the Interagency Committee and
labor attachés in Mexico.labor attachés in Mexico.~~105~~90 Table 21 lists lists ~~four~~ILAB technical assistance projects that began after technical assistance projects that began after
USMCA’s entry into force. USMCA’s entry into force.
Table 21. Select Technical Assistance Projects in Mexico
( (~~After~~after USMCA’s Entry Into Force) USMCA’s Entry Into Force)
Project/Grantee
Amount
Description
Dates
Mexico Auto Employers Mexico Auto Employers/
$3,000,000 Bring automotive sector employers into compliance $3,000,000 Bring automotive sector employers into compliance
11/01/2020 – 11/01/2020 –
Pan American Pan American
with the country’s labor law reforms, improve with the country’s labor law reforms, improve
06/30/2025 06/30/2025
Development Foundation Development Foundation
working conditions in the automotive supply sector working conditions in the automotive supply sector
by raising awareness, supporting employers to by raising awareness, supporting employers to
implement provisions, proactively adopting policies implement provisions, proactively adopting policies
for compliance, and strengthening relations for compliance, and strengthening relations
between employers and workers. between employers and workers.
90 U.S. Department of Labor, Bureau of International Labor Affairs, 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 36 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Project/Grantee Amount Description Dates Strengthening Workers’ Strengthening Workers’
$10,000,000 Build the capacity of workers, support worker $10,000,000 Build the capacity of workers, support worker
12/31/2020 – 12/31/2020 –
Ability to Exercise their Ability to Exercise their
engagement and organizing, strengthen democratic engagement and organizing, strengthen democratic
06/30/2025 06/30/2025
Labor Rights in Mexico Labor Rights in Mexico/
worker organizations in the aerospace, mining, and worker organizations in the aerospace, mining, and
American Center for American Center for
call center industries through technical assistance, call center industries through technical assistance,
International Labor International Labor
~~skills~~skil s development, and pro bono advisory and legal development, and pro bono advisory and legal
Solidarity (Solidarity Solidarity (Solidarity
services. The project services. The project ~~will~~ wil also create space for also create space for
Center) Center)
analysis and exchange of ideas to improve labor law analysis and exchange of ideas to improve labor law
reform implementation. reform implementation.
Improving Workers’ Improving Workers’
$5,000,000 Improve the occupational safety and health of $5,000,000 Improve the occupational safety and health of
01/01/2021 – 01/01/2021 –
Occupational Safety and Occupational Safety and
workers in selected supply chains with a focus on workers in selected supply chains with a focus on
12/31/2024 12/31/2024
Health in Selected Supply Health in Selected Supply
COVID-19, female workers, and workers in COVID-19, female workers, and workers in
Chains in Mexico Chains in Mexico/
vulnerable conditions. Help Mexico meet its labor vulnerable conditions. Help Mexico meet its labor
International Labor International Labor
obligations under the USMCA. obligations under the USMCA.
Organization/Vision Zero Organization/Vision Zero
Fund Fund
Mexico Awareness Mexico Awareness
$10,000,000 Support the government of Mexico to design, $10,000,000 Support the government of Mexico to design,
01/01/2021 – 01/01/2021 –
Raising Raising/
execute, and sustain effective communication execute, and sustain effective communication
06/30/2025 06/30/2025
Partners of the Americas Partners of the Americas
strategies that inform workers, unions, and strategies that inform workers, unions, and
employers of the legal ramifications of the country’s employers of the legal ramifications of the country’s
labor law reforms. 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~~

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~~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~~ Enhancing Labor $10,000,000 Project aims to support the state-level conciliation 12/15/2021 – Conciliation in Mexico institutions established by the 2019 reform to help 06/14/2026 (ENLACE)/ workers, unions, and employers prevent and American Institutes for resolve labor disputes in a transparent and efficient Research manner. Gender Equity in the $10,000,000 Project works to empower women to gain 12/15/2021 – Mexican Workplace/ representation in union leadership in order to 06/14/2026 Partners of the Americas strengthen protections, address discrimination and harassment at work, and augment wages. Building a Comprehensive $13,000,000 Project aims to enhance the effectiveness of the 04/01/2022 – Government of Mexico Mexican government to combat child labor and 10/31/2026 Approach to Combating forced labor at the federal level and support specific Child Labor and Forced interventions in three southern states of Mexico. Labor/ International Labor Organization Building an Independent $10,000,000 Purpose of the project is to strengthen the capacity 07/19/2022 – and Democratic Labor of unions to organize by legitimizing col ective 07/18/2024 Movement to Protect bargaining agreements, supporting leadership Worker Rights in Mexico/ elections, providing legal support and training for Solidarity Center lawyers, among other efforts. Una Cosecha Justa: $7,000,000 Project aims to increase protections for workers 08/02/2022 – Project to Reduce Child and reduce the risk of child labor, forced labor, and 02/01/2027 Labor, Forced Labor, and other labor rights violations among indigenous and Other Forms of Labor migrant workers in the chili pepper and tomato Exploitation in the Chili sectors. Pepper and Tomato Sectors in Mexico/ World Vision Congressional Research Service 37 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Project/Grantee Amount Description Dates Strengthening Mexican $2,500,000 Project aims to improve government systems for 08/25/2022 – Inspectorate for Labor labor law enforcement through improved 02/24/2027 Enforcement enforcement of labor laws by federal and state (CAMINOS)/ labor inspectorate, better administration of American Institutes for inspections, and enhanced engagement with supply Research chain actors in targeted USMCA sectors. Project to Expand and $2,500,000 Project addresses the need for stronger labor and 12/30/2022 – Assess the Fair Food human rights protections and increased 12/29/2025 Program (FFP) Model for enforcement of laws addressing child labor, forced Promotion of Human labor, and other labor abuses in global agriculture Rights and Labor Rights supply chains (includes farms in Mexico, Chile, and Protections in South Africa). International Agricultural Supply Chains/ Fair Food Standards Council Towards Effective Courts $10,000,000 Project aims to support independent state labor 01/23/2023 – and Coordinated Labor courts created by Mexico’s 2019 Labor Law Reform 07/23/2027 Justice (TECLAB)/ to administer labor justice in an effective, efficient, The Ergo Group and consistent manner. 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 improving 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. Issues for Congress Key issues for Congress include how well USMCA is meeting expectations, the enforceability of USMCA commitments, particularly labor provisions, the role of the Congress and the President in trade negotiations, and how the agreement may affect broader U.S. relations with Canada and Mexico. Now that the agreement has been in force for over three years, other issues of interest to Congress may include evaluating implementation of the agreement and ongoing disputes, assessing USMCA in the context of North American competitiveness, and assessing broader economic relations in the Western Hemisphere. Congressional Oversight Role 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 the implications of these changes more closely. It may examine whether USMCA met the congressional objectives and requirements under TPA-15 and whether the change in trade policy under USMCA will be used in future trade negotiations.91 Although numerous policymakers contend that USMCA 91 For more information on Trade Promotion Authority and the role of Congress in trade policy, see CRS In Focus (continued...) Congressional Research Service 38 link to page 43 link to page 36 NAFTA and the United States-Mexico-Canada Agreement (USMCA) contains groundbreaking provisions, others believe that USMCA rolls back some liberalization commitments, such as the rules of origin in the motor vehicle industry, that it could negatively affect certain industries and U.S. businesses, and that it should not become a template for future trade agreements.92 Congress may consider whether to expand its oversight role on implementation of new USMCA provisions and in enforcement of ongoing trade issues (see “Agreement Compliance” below). It may examine whether new provisions pertaining to labor are raising labor standards as intended. 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.”93 New provisions regarding more restrictive rules of origin (ROO) in the motor vehicle industry may also be of interest to Congress. USMCA’s auto ROO are likely the most stringent in any U.S. FTA and the only ones that have a wage requirement. Some studies show that these rules will likely raise administrative and production expenses for auto manufacturers in order to benefit from duty-free treatment under the USMCA.94 The cost of compliance may result in unintended consequences if manufacturers find it more beneficial to pay duties rather than pay the additional cost of complying to the new rules. If manufacturers decide to pay tariffs rather than adhere to the regional value content requirements, it could lead to less North American content and more content from third countries, including China, in U.S. auto production. Policymakers may monitor the full effects of these new rules as they are fully implemented. According to a July 2023 report by the U.S. International Trade Commission, the full effect of the ROOs will likely not be apparent until the agreement is fully implemented in 2027 or later.95 As noted above, USMCA removed 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, the issue of the value of more open government procurement versus Buy American policies may come to the fore.96 Disagreement over the value and content of ISDS and whether it should be included in future trade agreements likely will persist, despite the new restrictions in USMCA. Agreement Compliance After three years under USMCA, policymakers and others have raised concerns regarding the enforcement of USMCA commitments by Mexico and Canada. Some policymakers and labor advocates underscore issues related to labor enforcement (see “Implementation of Labor IF10038, Trade Promotion Authority (TPA), by Christopher A. Casey and Cathleen D. Cimino-Isaacs, CRS Report R47679, Congressional and Executive Authority Over Foreign Trade Agreements, by Christopher T. Zirpoli, and CRS In Focus IF12327, U.S. Trade Policy: Future Direction and Key Economic Debates, by Andres B. Schwarzenberg. 92 See for example, Senator Pat Toomey, “I'll Vote Against This Antitrade Agreement,” Op-Ed, Wall Street Journal, December 19, 2019. 93 Anne Kim, “The Truth About USMCA’s Labor Provisions, Domestic policy reforms can more effectively help American workers,” Washington Monthly, December 21, 2019. 94 See for example, William Alan Reinsch, “USMCA Automotive Rules of Origin: Economic Impacts, Competitiveness Effects, and Relevance,” Statement before the United States International Trade Commission, November 3, 2022. 95 United States International Trade Commission, USMCA Automotive Rules of Origin: Economic Impact and Operation, 2023 Report, Publication Number 5443, July 2023. 96 Isabelle Icso, “USTR backs U.S. withdrawal from WTO procurement agreement,” World Trade Online, February 26, 2020. Congressional Research Service 39 link to page 36 NAFTA and the United States-Mexico-Canada Agreement (USMCA) Provisions”), while others, including trade associations and business groups are bringing attention to other non-compliance issues such as those in Mexico’s energy sector or those in Canada’s dairy policies. In July 2022, the United States initiated consultations with Mexico under USMCA to address key concerns that recent changes in Mexico’s energy policy favored Mexican state-owned energy companies and could be in violation of USMCA commitments. Mexico’s 2013 constitutional reforms to the energy sector resulted in significant foreign investment flows from private energy companies. Since Mexican President López Obrador entered into office in December 2018, however, he has been seeking to change these reforms and shift control of Mexico’s energy market back to the government. A dispute panel under USMCA has not been formed. On July 20, 2023, a bipartisan, bicameral group of U.S. legislators sent a letter to U.S. Trade Representative Katherine Tai asking that USTR establish a USMCA dispute settlement panel to address Mexico’s discriminatory policies.97 An earlier letter from March 2023 from U.S. energy companies stated that the Mexican government’s policies are discriminatory against U.S. companies, undermine North American integration, and risk North American regional competitiveness with regard to China.98 Energy companies reportedly are also supporting the request for the establishment of a dispute resolution panel.99 U.S. investment in Mexico’s energy sector is reportedly worth more than $30 billion.100 On August 17, 2023, the Office of the USTR announced it was moving to establish a USMCA dispute settlement panel to adjudicate a long-running disagreement with Mexico regarding its policies on genetically engineered corn after bilateral consultations failed to resolve the matter. The United States contends that a February 2023 decree by Mexican President López Obrador that specifically bans the use of biotech corn is not based on science and undermines the market access provisions under USMCA that Mexico agreed to provide.101 Leaders of the National Corn Growers Association announced that they are supportive of the move. They stated that Mexico’s decree runs counter to scientific findings and violates the USMCA.102 With regard to Canada, U.S. and Canadian officials continue to express differing views on long-standing disputes related to Canada’s dairy and softwood lumber industries. USMCA did not end the supply management system Canada uses to support its dairy, poultry, and egg sectors, although Canada did commit to provide greater access to these markets through limited increases in tariff-rate quotas.103 The United States is currently disputing Canada’s TRQ system. A USMCA panel in 2021 found that Canada had unfairly allocated its dairy TRQs. In January 2022, the United States launched a second dispute, again claiming that Canada’s system violated its USMCA commitments. Another U.S.-Canada trade dispute in softwood lumber is ongoing. Since 97 Letter from Senator John Barraso, M.D., Representative Jodey Arrington, and Senator John Cornyn, et al. to The Honorable Katherine Tai, U.S. Trade Representative, July 20, 2023. 98 Letter from The American Clean Power Association, The American Petroleum Institute, and The National Association of Manufacturers to The Honorable Katherine Tai, U.S. Trade Representative, March 10, 2023. 99 Representative Jodey Arrington, “Arrington, Barrasso Lead Bipartisan, Bicameral Letter to U.S. Trade Representative Katherine Tai on Mexico Undermining USMCA Energy Commitments,” press release, July 20, 2023, https://arrington.house.gov/news/documentsingle.aspx?DocumentID=1054. 100 Dave Graham and Stephen Eisenhammer, “U.S. Ironing Out Energy Sector Disputes with Mexico Worth $30 Billion,” Reuters, June 14, 2023. 101 Office of the United States Trade Representative, United States Establishes USMCA Dispute Panel on Mexico's Agricultural Biotechnology Measures, August 17, 2023. 102 National Corn Growers Association, NCGA Applauds USTR for Requesting USMCA Panel Formation over Trade Dispute, August 17, 2023. 103 See CRS In Focus IF11149, Dairy Provisions in USMCA, by Joel L. Greene. Congressional Research Service 40 NAFTA and the United States-Mexico-Canada Agreement (USMCA) the expiration in 2015 of the 2006 Softwood Lumber Agreement, the United States has imposed antidumping and countervailing duties on U.S. imports of Canadian softwood lumber. Canada has filed legal challenges against these duties under USMCA; such challenges remain ongoing.104 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 free under NAFTA. The USMCA maintains
NAFTA’s tariff and non-tariff barrier eliminations. Many economists and other observers believe 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 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 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.a measurable effect on the U.S. trade deficit.~~131~~105 The U.S. International Trade Commission (ITC) The U.S. International Trade Commission (ITC)
conducted an investigation into the likely economic impacts of USMCA, a required element of conducted an investigation into the likely economic impacts of USMCA, a required element of
~~the Trade Promotion Authority (TPA)~~the TPA process. process.~~132~~ The ITC study, published in April 2019, stated 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 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. 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 USMCA’s new international data transfer provisions, absent in NAFTA, are expected to
positively impact industries that rely on such data transfers. The newpositively impact industries that rely on such data transfers. The new, more restrictive, auto rules more restrictive, auto rules
of origin may result in an increase in U.S. production, but also lead to a small increase in prices 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 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~~
the ITC report, USMCA is expected to have a minimal, but positive effect on the U.S. economy.106 Sixth Anniversary Review of USMCA Article 34.7 of USMCA states that the agreement shall terminate 16 years after its entry into force, “unless each party confirms it wishes to continue this Agreement for a new 16-year term,” in accordance to USMCA procedures.107 These procedures state that in July 2026, the sixth anniversary of USMCA’s entry into force, the USMCA Free Trade Commission shall meet to review the agreement and any recommendations submitted by USMCA parties, and decide on any appropriate actions. Policymakers may monitor the role of Congress in the outcome of the July 2026 meeting, any recommended actions, and the effect of any recommendations on overall economic and political relations with Canada and Mexico. North America has a highly integrated manufacturing sector and any changes to USMCA could affect regional competitiveness. 104 For more information, see section on Commercial Relations in CRS Report R47620, Canada: Background and U.S. Relations, coordinated by Peter J. Meyer. 105 John Brinkley, “USMCA is not the Magnificent Trade Deal Trump Says It Is,” Forbes.com, October 8, 2018. 106 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. 107 USMCA, Article 34.7 of Chapter 34 on Final Provisions. Congressional Research Service 41 Appendix. Rapid Response Cases Figure A-1. Rapid Response Cases CRS-42 CRS-43 NAFTA and the United States-Mexico-Canada Agreement (USMCA)

Author Information

M. Angeles Villarreal M. Angeles Villarreal

Specialist in International Trade and Finance Specialist in International Trade and Finance

Acknowledgments
A special acknowledgment goes to Ian F. Fergusson, former CRS Specialist in International Trade and A special acknowledgment goes to Ian F. Fergusson, former CRS Specialist in International Trade and
Finance, who provided significant contributions and Finance, who provided significant contributions and ~~co-authored~~coauthored the original version of this report. 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~~ CRS Research Assistants Angela Molina, Alexa Apodaca, and Rileigh Greutert contributed data collection, data analysis, graphics, research, and writing to this report. Amber Hope Wilhelm, CRS Visual Information Specialist, contributed graphics. .

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~~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.~~
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