The United States-Mexico-Canada Agreement (USMCA)

The United States-Mexico-Canada Agreement
SeptemberMay 29, 29, 20232024
(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 Trade and Finance 2020, replacing the North American Free Trade Agreement (NAFTA), which had been in Trade and Finance
effect since January 1, 1994. Congress, in both its legislative and oversight capacities, 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 provisions 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 trading 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 2.07%, 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 Mexico. 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. 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 how the new importing requirements Key issues for Congress in the implementation phase of USMCA include how the new importing requirements
under USMCA are being phased in; 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 how the North American motor vehicle industry is being affected by the more stringent
rules of origin 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

---

link to page 5 link to page link to page 5 link to page 65 link to page 8 link to page link to page 8 link to page 108 link to page link to page 1110 link to page link to page 1211 link to page link to page 1312 link to page link to page 1412 link to page link to page 1413 link to page link to page 1513 link to page link to page 1614 link to page link to page 1715 link to page link to page 1815 link to page link to page 1816 link to page link to page 1917 link to page link to page 2017 link to page link to page 2017 link to page link to page 2017 link to page link to page 2017 link to page link to page 2118 link to page link to page 2119 link to page link to page 2219 link to page link to page 2319 link to page link to page 2320 link to page link to page 2420 link to page link to page 2421 link to page link to page 2521 link to page link to page 2523 link to page link to page 2623 link to page link to page 2724 link to page link to page 2824 link to page link to page 2824 link to page link to page 2824 link to page link to page 2825 link to page link to page 2925 link to page link to page 2926 link to page link to page 3027 link to page link to page 3127 link to page link to page 3128 link to page link to page 3229 link to page link to page 3330 link to page link to page 3431 link to page link to page 3431 link to page link to page 3532 link to page link to page 3532 link to page link to page 36 NAFTA and the32 The United States-Mexico-Canada Agreement (USMCA)

Contents
Introduction ..................................................................................................................................... 1
NAFTA Overview ...5 Overview of NAFTA ........................................................................................................................ 2
Review of Key NAFTA Provisions 5 Economic Trends ........................................................................................... 4
Trade Trends .................................. 8 Trade Trends ............................................................................................ 6
Merchandise Trade in Selected Industries .......................................................................... 7
8 U.S. Investment with Canada and Mexico ................................................................................ 8 10
USMCA Negotiation Process and TPA ........................................................................................... 9
USMCA .................. 11 USMCA Provisions ....................................................................................................................... 1012
Rules of Origin ........................................................................................................................ 1012
Motor Vehicle Industry............................................................................................................. 11 13
Agriculture .............................................................................................................................. 1213
Customs and Trade Facilitation ............................................................................................... 1314
Energy ..................................................................................................................................... 1415
Government Procurement ....................................................................................................... 1415
Investment ............................................................................................................................... 1516
Minimum Standard of Treatment (MST) .......................................................................... 1617
Performance Requirements ............................................................................................... 1617
Denial of Benefits ............................................................................................................. 1617
Government Right to Regulate ......................................................................................... 1617
Investor-State Dispute Settlement (ISDS) ........................................................................ 17
Services ................................................................................................................................... 1718
Express Delivery ............................................................................................................... 1819
Temporary Entry for Business Purposes ........................................................................... 19
Financial Services ................................................................................................................... 19
Telecommunications................................................................................................................ 20
Digital Trade............................................................................................................................ 20
Intellectual Property Rights (IPR) ........................................................................................... 21
Patents ............................................................................................................................... 21
Copyrights ......................................................................................................................... 2223
Trademarks ....................................................................................................................... 23
Trade Secrets ..................................................................................................................... 24
Geographical Indications (GIs) ......................................................................................... 24
IPR Enforcement ............................................................................................................... 24
Cultural Exemption ........................................................................................................... 24
State-Owned Enterprises (SOEs) ............................................................................................ 25
Labor ....................................................................................................................................... 25
USMCA Protocol of Amendment: Labor Provisions ........................................................................... 26
Mexico’s Labor Reform Commitments ............................................................................ 27
Environment ............................................................................................................................ 27
USMCA Protocol of Amendment: Environmental Provisions ............................................................ 28
Dispute Settlement .................................................................................................................. 29
Binational Review Panels for Trade Remedies ................................................................. 30
Currency Manipulation ........................................................................................................... 3031
Regulatory Practices ................................................................................................................ 31
Trucking .................................................................................................................................. 31
32 Anticorruption ......................................................................................................................... 32
Congressional Research Service

---

link to page 36 link to page 36 link to page 37 link to page 40 link to page 42 link to page 42 link to page 43 link to page 45 link to page 45 link to page 7 link to page 8 link to page 11 link to page 11 link to page 12 link to page 13 link to page 46 link to page 40 link to page 46 link to page 48 NAFTA and the United States-Mexico-Canada Agreement (USMCA)

“Sunset” Provision in Review and Term Extension ................................................................ 32
Implementation of Labor Provisions ............................................................................................. 32
USMCA Rapid Response Cases .............................................................................................. 33
Labor-Related Technical Assistance Projects in Mexico ........................................................ 36“Sunset” Provision in Review and Term Extension ................................................................ 32 Congressional Research Service link to page 33 link to page 33 link to page 34 link to page 34 link to page 8 link to page 9 link to page 10 link to page 10 link to page 11 link to page 35 The United States-Mexico-Canada Agreement (USMCA)
Issues for Congress ........................................................................................................................ 3833
Congressional Oversight Role ................................................................................................. 38
Agreement Compliance ........................................................................................................... 3933
Economic and Broader Considerations ................................................................................... 4134
Sixth Anniversary Review of USMCA ................................................................................... 4134

Figures
Figure 1. Per Capita GDP Compared Among USMCA Countries .................................................. 38
Figure 2. Imports and Exports of Goods and Services (% GDP) Compared ....................................................................... 4 9
Figure 3. U.S. Merchandise Trade with USMCA Partners: 1993-2022 ..2023 ........................................ 710
Figure 4. U.S. Trade Balance with USMCA Partners: 1999-2022 ..2023 ................................................ 7
Figure 5. U.S. Trade with USMCA Partners in Selected Industries ................................................ 8
Figure 6. Foreign Direct Investment Positions Among NAFTA Partners: 1993-2022 .................... 9

Figure A-1. Rapid Response Cases ............................................................................................... 42

Tables
Table 1. Select Technical Assistance Projects in Mexico .............................................................. 36

Appendixes
Appendix. Rapid Response Cases ................................................................................................. 42

10 Figure 5. Foreign Direct Investment Positions Among NAFTA Partners: 1993-2022 ................... 11 Contacts
Author Information ........................................................................................................................ 4435


Congressional Research Service Congressional Research Service

---

NAFTA and theThe 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 United States, Mexico, and Canada that entered into force on July 1, 2020, replacing the 1994 North North
American Free Trade Agreement (NAFTA)American Free Trade Agreement (NAFTA) that had been in effect since January 1, 1994.1
.1 Congress, in both its legislative and oversight capacities, was active in issues related to Congress, in both its legislative and oversight capacities, was active in issues related to
renegotiation of NAFTA and continues to be active in the implementation of renegotiation of NAFTA and continues to be active in the implementation of USMCA and other trade and other trade
policy issues related to USMCA. Implementing legislation for USMCA was passed by the House policy issues related to 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 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 was signed into law on January 29, 2020 (P.L. 116-113). 89-10. The legislation was signed into law on January 29, 2020 (P.L. 116-113).
Key issues for Congress in Key issues for Congress in regard to
Third Meeting of the USMCA Free Trade
renegotiation of NAFTA and passage of
Commission (FTC)
USMCA included labor and environmental
On July 7, 2023, the United States, Canada, and Mexico
provisions, digital trade, intellectual
held the third meeting of the USMCA Free Trade
the debate surrounding the renegotiation of NAFTA and passage of USMCA included labor and environmental provisions, digital trade, intellectual property rights property rights (IPR) protection, changes to rules of origin in the motor vehicle industry, the economic effects of the agreement, as well as the constitutional authority of Congress over international (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 trade and its role in revising, approving, or withdrawing from an agreement. 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)

technology advances. The widespread use of the commercial internet, for example, dramatically
affected consumer habits and commercial activities, such as e-commerce, data flows, and supply
chain management. USMCA includes updated provisions in other areas, including IPR, labor, and
the 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
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.agreement.5
NAFTA Overview
NAFTA negotiations were first launched under President George H. W. Bush. President William
J. Clinton signed into law the NAFTA Implementation Act on December 8, 1993 (P.L. 103-182).
NAFTA entered into force on January 1, 1994. It is significant because it was the first FTA among
two wealthy countries and a lower-income country and because it established trade liberalization
commitments that led the way in setting new rules for future trade agreements on issues important
to the United States. These included provisions on intellectual property rights (IPR) protection,
services trade, agriculture, dispute settlement procedures, investment, labor, and the environment.
NAFTA addressed policy issues that were new to FTAs and was influential in concluding major
multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT) and its
successor, the World Trade Organization (WTO). The United States now has 14 FTAs with 20
countries.
NAFTA’s market-opening provisions gradually eliminated nearly all tariff and most nontariff
barriers on goods and services produced and traded within North America. At the start of NAFTA,
average applied U.S. duties on imports from Mexico were 2.07%; over 50% of U.S. imports from
Mexico entered duty free.6 In contrast, the U.S. goods and services faced higher tariff, nontariff,
and investment barriers in Mexico.7 Trade among NAFTA partners has more than tripled since the
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 Overview of NAFTA
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.
Key NAFTA provisions included the following: 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.122 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.133
• • Agriculture. NAFTA eliminated tariffs and tariff-rate quotas (TRQs) on most NAFTA eliminated tariffs and tariff-rate quotas (TRQs) on most
agricultural products. It maintained TRQs with high over-quota tariffs for U.S. agricultural products. It maintained TRQs with high over-quota tariffs for U.S.
exports of dairy, poultry, and egg products to Canada. NAFTA addressed sanitary exports of dairy, poultry, and egg products to Canada. NAFTA addressed sanitary
and phytosanitary (SPS) measures and other types of agricultural non-tariff and phytosanitary (SPS) measures and other types of agricultural non-tariff
barriers. SPS regulations are often regarded by agricultural exporters as one of barriers. SPS regulations are often regarded by agricultural exporters as one of

121 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. 2 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%.
133 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 Law to Promote
Mexican Investment and Regulate Foreign Investment.
Congressional Research Service Congressional Research Service

4

---

NAFTA and the5 The United States-Mexico-Canada Agreement (USMCA)

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.144
• • 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).155 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.166
• • Financial Services. Under NAFTA, Canada extended an exemption granted . Under NAFTA, Canada extended an exemption granted
to the United States, under the to the United States, under the CUSFTACanada-United States Free Trade Agreement (CUSFTA), to Mexico in which Mexican banks , 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 are services; connection to private lines that reflect economic costs and are
available on a flat-rate pricing basis; and the right to choose, purchase, or available on a flat-rate pricing basis; and the right to choose, purchase, or
lease terminal equipment best suited to their needs.lease terminal equipment best suited to their needs.177 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.188
• • Intellectual Property Rights (IPR) Protection. NAFTA was the first U.S. FTA . NAFTA was the first U.S. FTA
to include a chapter on IPR protection provisions. It built upon the then-ongoing to include a chapter on IPR protection provisions. It built upon the then-ongoing
Uruguay Round negotiations that would create the Trade Related Aspects of Uruguay Round negotiations that would create the Trade Related Aspects of
Intellectual Property Rights (TRIPS) agreement in the WTO and on various Intellectual Property Rights (TRIPS) agreement in the WTO and on various
existing international intellectual property treaties. The agreement set specific

14 4 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.
155 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.
166 Hufbauer and Schott, Hufbauer and Schott, NAFTA Revisited, ppp. 28. . 28.
177 GAO, GAO, Report to Congress, September 1993, pp. 38-39. September 1993, pp. 38-39.
188 Office of the United States Trade Representative (USTR), Office of the United States Trade Representative (USTR), Description of the Proposed North American Free Trade
Agreement, August 12, 1992, p. 29. , August 12, 1992, p. 29.
Congressional Research Service Congressional Research Service

5

---

link to page 11 link to page 11 NAFTA and the6 The United States-Mexico-Canada Agreement (USMCA)

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.199 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 to establish a new type of relationship among NAFTA viewed it as an opportunity to establish a new type of relationship among NAFTA
partners.partners.2010 Labor and environmental provisions, which were in separate side Labor and environmental provisions, which were in separate side
agreements, included language to promote cooperation on labor and 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. merchandise trade with NAFTA partners increased after the agreement entered into force,
with imports increasing more rapidly than exports. U.S. total merchandise exports to
NAFTA/USMCA partners increased from $165.1 billion in 1994 to $680.8 billion in 2022
(312%), while merchandise imports increased from $178.4 billion to $891.3 billion (400%)
during the same time period (see Figure 3).
In services, U.S. exports to NAFTA/USMCA partners increased from $38.1 billion in 1999 to
$109.0 billion in 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 since
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 NAFTA Background In 1992, the United States, Canada and Mexico signed the North American Free Trade Agreement (NAFTA), which had been negotiated by President George H. W. Bush and his counterparts in Canada and Mexico. In December 1993, President Wil iam J. Clinton signed the NAFTA Implementation Act into law (P.L. 103-182). The agreement entered into force on January 1, 1994. NAFTA was widely debated because it was the first U.S. FTA involving a lower-income country and because it established trade liberalization commitments that led the way in setting new rules for future trade agreements on issues important to the United States. These included provisions on intellectual property rights (IPR) protection, services trade, agriculture, dispute settlement procedures, investment, labor, and the environment. NAFTA also was influential in concluding major multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). NAFTA’s market-opening provisions gradually eliminated nearly all tariff and most nontariff barriers on goods and services produced and traded within North America. Prior to NAFTA, average applied U.S. duties on imports from Mexico averaged about 2.07% and over 50% of U.S. imports from Mexico entered duty free. In contrast, U.S. goods and services faced significantly higher tariff, nontariff, and investment barriers in Mexico. After the agreement entered into force, trade among NAFTA partners more than tripled, forming integrated production chains among all three countries. NAFTA expanded 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. Critics of NAFTA and subsequent U.S. FTAs contend that 9 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.
2010 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

6

---

link to page 12

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

Figure 3. U.S. Merchandise Trade with USMCA Partners: 1993-2022

Source: Compiled by CRS using trade data from the U.S. International Trade Commission’s Interactive Tariff
and Trade Data Web, at http://dataweb.usitc.gov.
Figure 4. U.S. Trade Balance with USMCA Partners: 1999-2022

Source: Compiled by CRS using data from the U.S. Bureau of Economic Analysis and USITC.
Merchandise Trade in Selected Industries
The elimination of trade and investment barriers under NAFTA were instrumental in expanding
North American manufacturing industries and the initial integration of the North American motor
vehicle industry. The motor vehicle sector experienced some of the most significant changes in
trade and ranks first among leading exports to and imports from NAFTA/USMCA countries (see
Figure 5). Agricultural trade also expanded after NAFTA, but to a lesser degree. The U.S. textiles
and apparel sectors experienced adjustment costs, with a significant expansion in U.S. imports in
the first ten years after the agreement entered into force. These trade trends indicate that NAFTA
achieved many of the trade and economic benefits that proponents claimed it would bring,
although there have been adjustment costs. However, it is difficult to isolate the effects of NAFTA
on trade in specific industries because other factors, such as economic growth and currency
fluctuations, also affect trade.
Congressional Research Service

7

---

link to page 13 link to page 13
NAFTA and the United States-Mexico-Canada Agreement (USMCA)

Figure 5. U.S. Trade with USMCA Partners in Selected Industries

Source: 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.
Notes: For motor vehicles and parts, data from 1997 to 2020 for motor vehicles and parts includes North
American Industry Classification System (NAICS) codes 3361, 3362, and 3363. For agriculture, data includes
“agricultural products” as defined by USDA.
Congressional Research Service 7 link to page 8 link to page 9 The United States-Mexico-Canada Agreement (USMCA) it resulted in adverse employment trends, downward pressure on U.S. wages, and that it did not do enough to improve labor standards and environmental conditions abroad. NAFTA accelerated ongoing trade and investment trends at the time of its negotiation. The U.S.-Canada Free Trade Agreement (CUSFTA) was already in effect and Mexico was undergoing significant liberalization efforts and shifting away from protectionist trade policies that had been in effect since the 1930s. Mexico’s former restrictive Law to Promote Mexican Investment and Regulate Foreign Investment restricted foreign participation in Mexico’s economy; about two-thirds of Mexican economic activity was not open to majority foreign ownership prior to NAFTA. U.S. businesses were prohibited from majority ownership in any investments under these restrictions, which failed to increase income levels or economic growth. NAFTA helped lock in Mexico’s efforts at the time to liberalize its economy. Note: For more information, see CRS Report R42965, The North American Free Trade Agreement (NAFTA), by M. Angeles Vil arreal. Economic Trends 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 20-23, nearly 30 years later, this percentage went down 17% ($13,927 in Mexico compared to $80,474 in the United States) (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. Trade Trends NAFTA 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 significantly, from 13% in 1994 to 36% in 2023 (see Figure 2). The U.S. economy relies far less on trade with exports of goods and services equaling only 11% of GDP in Congressional Research Service 8 link to page 10 link to page 10 The United States-Mexico-Canada Agreement (USMCA) 2023. While Canada relies more on trade, the changes between 1994 and 2022 have been minimal. Figure 2. Imports and Exports of Goods and Services (% GDP) Compared Source: Created by CRS with data from Economist Intelligence Unit Ltd. U.S. trade in goods with NAFTA partners increased after the agreement entered into force, with imports increasing more rapidly than exports. U.S. total exports of goods to NAFTA/USMCA partners increased from $165.1 billion in 1994 to $677.2 billion in 2023, while imports of goods increased from $178.4 billion to $896.7 billion during the same time period (see Figure 3). In services, U.S. exports to NAFTA/USMCA partners increased from $38.1 billion in 1999 to $120.8 billion in 2023, while U.S. services imports increased from $27.7 billion in 1999 to $94.2 billion in 2023. The United States has had a services trade surplus with Canada and Mexico since at least 1999.11 In 2023, the services trade surplus was $26.5 billion. By comparison, the U.S. goods trade deficit in 2023 reached a low of $219.5 billion (see Figure 4). 11 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 9 link to page 11 The United States-Mexico-Canada Agreement (USMCA) Figure 3. U.S. Merchandise Trade with USMCA Partners: 1993-2023 Source: Compiled by CRS using trade data from the U.S. International Trade Commission’s Interactive Tariff and Trade Data Web, at http://dataweb.usitc.gov. Figure 4. U.S. Trade Balance with USMCA Partners: 1999-2023 Source: Compiled by CRS using data from the U.S. Bureau of Economic Analysis and USITC. U.S. Investment with Canada and Mexico
Foreign direct investment (FDI) has been an integral part of the U.S. economic relationship with Foreign direct investment (FDI) has been an integral part of the U.S. economic relationship with
Canada and Mexico for many years. Two-way investment between Canada and the United States Canada and Mexico for many years. Two-way investment between Canada and the United States
has increased markedly, both in terms of the stock and flow of investment. The United States is has increased markedly, both in terms of the stock and flow of investment. The United States is
the largest single investor in Canada with stock of FDI the largest single investor in Canada with stock of FDI stock reaching $438.8 billion in 2022, up reaching $438.8 billion in 2022, up
from a stock of $96.6 billion in 1997 (from a stock of $96.6 billion in 1997 (seesee Figure 65). Investment from the United States represents . Investment from the United States represents
about about Congressional Research Service 10 link to page 11 The United States-Mexico-Canada Agreement (USMCA) half of the total stock of FDI in Canada from global investors. The United States was the half of the total stock of FDI in Canada from global investors. The United States was the
largest destination for Canada’s total FDI in 2022, with a stock of $683.8 billion, a significant largest destination for Canada’s total FDI in 2022, with a stock of $683.8 billion, a significant
increase from $78.6 billion in 1997 (by ultimate beneficial owner). increase from $78.6 billion in 1997 (by ultimate beneficial owner).
In Mexico, the United States is also the largest source of FDI. The stock of U.S. FDI in Mexico In Mexico, the United States is also the largest source of FDI. The stock of U.S. FDI in Mexico
increased from $24.1 billion in 1997 to $130.3 billion in 2022 (seeincreased from $24.1 billion in 1997 to $130.3 billion in 2022 (see Figure 65). Mexican FDI in the . Mexican FDI in the
United States, while substantially lower than U.S. investment in Mexico, has also increased 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 rapidly under NAFTA/USMCA, from $4.1 billion in 1997 to $54.0 billion in 2022 (by ultimate
beneficial owner).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)
12
Figure 65. Foreign Direct Investment Positions Among NAFTA Partners: 1993-2022
(historical-cost basis, by ultimate beneficial owner) (historical-cost basis, by ultimate beneficial owner)

Source: CRS based on CRS based on latest available data from U.S. Department of Commerce, Bureau of Economic Analysis. 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), which was authorized through July 1, 2021 (P.L. 114-Accountability Act of 2015 (TPA 2015), which was authorized through July 1, 2021 (P.L. 114-
26). 26).
Under TPA 2015, the President was required to consult with Congress before giving the required Under TPA 2015, the President was required to consult with Congress before giving the required
90-day notice of his intention to start negotiations.90-day notice of his intention to start negotiations.2313 The Trump Administration’s consultations The Trump Administration’s consultations
included meetings between then-U.S. Trade Representative Robert Lighthizer and Members of included meetings between then-U.S. Trade Representative Robert Lighthizer and Members of
the House Ways and Means Committee and Senate Finance Committee and with Members of the the House Ways and Means Committee and Senate Finance Committee and with Members of the
House and Senate Advisory Groups on Negotiations.House and Senate Advisory Groups on Negotiations.2414 The Office of the United States Trade 12 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. 13 CRS In Focus IF10038, Trade Promotion Authority (TPA), by Christopher A. Casey and Cathleen D. Cimino-Isaacs. 14 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. Congressional Research Service 11 The United States-Mexico-Canada Agreement (USMCA) The Office of the United States Trade
Representative (USTR) held public hearings prior to the release of the negotiating objectives and Representative (USTR) held public hearings prior to the release of the negotiating objectives and
received more than 12,000 public comments.received more than 12,000 public comments.2515
In order to use TPA expedited procedures, the President was required to notify and consult with In order to use TPA expedited procedures, the President was required to notify and consult with
Congress before initiating and during negotiations, and adhere to several reporting requirements Congress before initiating and during negotiations, and adhere to several reporting requirements
following the conclusion of any negotiations resulting in an agreement. The President also was 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 forth by Congress in 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 requirements were met. the 2015 TPA authority. See the box below for the dates on which these 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 bil introduced in the Senate (S. 3052). companion bil 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
Provisions USMCA, comprising 34 chapters and 12 side letters, retains most of NAFTA’s market-opening USMCA, comprising 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. It includes new provisions, including digital trade, state-owned procurement, and IPR. It includes new provisions, including digital trade, state-owned
enterprises, anticorruption, and currency misalignment. enterprises, anticorruption, and currency misalignment. On December 10, 2019, after the text of
the final agreement was released, USMCA parties agreed to a Protocol of Amendment to
USMCA. The protocol amended the original text to include modifications on dispute settlement,
labor and environmental provisions, intellectual property rights protection, and steel and
aluminum requirements in the motor vehicle industry rules of origin. The following selective The following selective
topics provide an overview of USMCA provisions.topics provide an overview of USMCA provisions. 2616
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
15 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. 16 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 12 link to page 13 The United States-Mexico-Canada Agreement (USMCA) 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.North American content in addition to undergoing a tariff shift. USMCA requires that the regional 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 promotion, and packing and shipping. Producers generally have the option to choose which 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 industrymethod they use, with some exceptions, such as the motor vehicle industry (see “Motor Vehicle Industry” below), which must use the , which must use the
net-cost method.net-cost method.2717 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. Most Favored Nation (MFN) tariff rates. An Annex to the rules of origin chapter in USMCA U.S. Most Favored Nation (MFN) tariff rates. An Annex to the rules of origin chapter in USMCA
has product-specific rules for different industries, including for motor vehicles and parts. has product-specific rules for different industries, including for motor vehicles and parts.
Motor Vehicle Industry
USMCA raised the regional value content requirements for the motor vehicle industry formerly USMCA raised the regional value content requirements for the motor vehicle industry formerly
required under NAFTA. required under NAFTA. Upon its entry into force in 1994, NAFTA phased out all U.S. tariffs on
motor vehicle imports from Mexico, as well as Mexican tariffs on U.S. and Canadian products, as
long as they met the rules of origin requirements ofNAFTA required 62.5% North American content for autos, 62.5% North American content for autos,
light trucks, engines and transmissions; and 60% for automotive parts.light trucks, engines and transmissions; and 60% for automotive 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
Mexican motor vehicle sector to trade with and investment from the United States.28
USMCA’s more restrictive rules of origin in the motor vehicle industry include USMCA’s more restrictive rules of origin in the motor vehicle industry include:
• product-specific rules requiring 75% North American content; • product-specific rules requiring 75% North American content;
• wage requirements stipulating 40%-45% of North American auto content be • wage requirements stipulating 40%-45% of North American auto content be
made by workers earning at least $16 per hour (for the first time in any U.S. trade made by workers earning at least $16 per hour (for the first time in any U.S. trade
agreement); agreement);
• a requirement that 70% of a vehicle’s steel and aluminum must originate (melted • a requirement that 70% of a vehicle’s steel and aluminum must originate (melted
and poured) in North America; and and poured) in North America; and
• a provision aiming to streamline the enforcement of manufacturers’ rules of • a provision aiming to streamline the enforcement of manufacturers’ rules of
origin certification requirements. origin certification requirements.
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
within North America may not be able to meet the new requirements and may be ineligible for
USMCA benefits.29 In 2019, the Congressional Budget Office (CBO) estimated that USMCA’s
stricter rules of origin for motor vehicles and new wage requirements will result in a decline in
duty-free imports of motor vehicles and parts into the United States.30 A portion of that decline
would be 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 requirements will pay approximately $3 billion in duties over the next decade.31

27Agriculture USMCA partners agreed to maintain NAFTA’s market opening provisions and add several other non-market access provisions in the agriculture and sanitary and phytosanitary standards (SPS) chapter.18 USMCA agriculture provisions include the following: • regulatory alignment among the parties; • protection for proprietary formulas for pre-packaged foods and food additives (limited to furthering “legitimate objective[s],” which is not defined); • SPS rules based on “relevant scientific principles;” and • greater transparency in SPS rules. Biotechnology provisions in USMCA affecting agriculture include the following: 17 For more information, see CRS In Focus IF10754, For more information, see CRS In Focus IF10754, Rules of Origin, by Liana Wong and CRS Report RL34524, , by Liana Wong and CRS Report RL34524,
International Trade: Rules of Origin, by Liana Wong., 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), CBO Estimate for H.R. 5430, the United States-Mexico-Canada Agreement
Implementation Act, Cost Estimate, December 16, 2019.
31 Ibid 18 For more information on USMCA and agriculture, see CRS Report R44875, The North American Free Trade Agreement (NAFTA) and U.S. Agriculture, by Renée Johnson. .
Congressional Research Service Congressional Research Service

11

---

NAFTA and the13 The United States-Mexico-Canada Agreement (USMCA) United States-Mexico-Canada Agreement (USMCA)

Agriculture32
USMCA partners agreed to maintain NAFTA’s market opening provisions and add several other
non-market access provisions in the agriculture and sanitary and phytosanitary standards (SPS)
chapter. NAFTA’s agriculture provisions included tariff and quota elimination, SPS measures,
rules of origin, and grade and quality standards.33
USMCA agriculture provisions include the following:
• regulatory alignment among the parties;
• protection for proprietary formulas for pre-packaged foods and food additives
(limited to furthering “legitimate objective[s],” which is not defined);
• SPS rules based on “relevant scientific principles;” and
• greater transparency in SPS rules.
Biotechnology provisions in USMCA affecting agriculture include the following:
• transparent and timely application and approval process for crops using • transparent and timely application and approval process for crops using
biotechnology; biotechnology;
• procedures for import shipments containing a low-level presence of an • procedures for import shipments containing a low-level presence of an
unapproved crop produced with biotechnology; and unapproved crop produced with biotechnology; and
• establishment of a working group on agricultural biotechnology. • establishment of a working group on agricultural biotechnology.
NAFTA and Agriculture NAFTA set out NAFTA set separate bilateral undertakings on cross-border trade in agriculture, one between 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,
CUSFTAU.S.-Canada FTA provisions continue to apply on trade with Canada. provisions continue to apply on trade with Canada.34 Under CUSFTA, Canada excluded Under CUSFTA, Canada excluded
dairy, poultry, and eggs for tariff elimination. In return, the United States excluded dairy, sugar, dairy, poultry, and eggs for tariff elimination. In return, the United States excluded dairy, sugar,
cotton, tobacco, peanuts, and peanut butter. cotton, tobacco, peanuts, and peanut butter. Although NAFTA resulted in tariff elimination for
most agricultural products and redefined import quotas for some commodities as tariff-rate quotas
(TRQs), some products continuedSome products continue to be subject to high above-quota tariffs, such as U.S. dairy and to be subject to high above-quota tariffs, such as U.S. dairy and
poultry exports to Canada.35 Canada maintains a supply-management system for these sectors that
effectively limits U.S. market access. These products were also exempt from Canada-Mexico
trade liberalization. USMCA maintains provisions on SPS measures and other types of nontariff
barriers. Some agricultural exporters continue to regard SPS regulations as challenging to trade
and disruptive to integrated supply chains.36
In conjunction with agricultural reforms underway in Mexico at the timepoultry exports to Canada. Regarding U.S.-Mexico agriculture trade, NAFTA eliminated , NAFTA eliminated
most nontariffmost non-tariff barriers in agricultural trade barriers in agricultural trade with Mexico, including import licensing requirements,
, either through their conversion through their conversion either to TRQs or to to tariff-rate quotas (TRQs) or ordinary tariffs. Tariffs were phased out over ordinary tariffs. Tariffs were phased out over a period of 15 15
years with sensitive productsyears with sensitive products, such as sugar and corn receiving the longest phase-out periods. such as sugar and corn receiving the longest phase-out periods.
USMCA maintains these market opening measures.

32 For more information on USMCA outcomes, see CRS In Focus IF10996, Agricultural Provisions of the Approximately one-half of U.S.-Mexico agricultural trade became duty-free when the agreement went into effect. Prior to NAFTA, However, approximately one-fourth of U.S. agricultural exports to Mexico (by value) were subjected to restrictive import licensing requirements. For more information on NAFTA and agriculture, see CRS Report R44875, The North American Free Trade Agreement (NAFTA) and U.S. Agriculture, by Renée Johnson.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, Description of the Proposed
North American Free Trade Agreement, August 12, 1992, p. 12.
35 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.
36 CRS In Focus IF10682, NAFTA Renegotiation: Issues for U.S. Agriculture, by Renée Johnson.
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. The World Trade Organization other important components of customs operations at the border. The World Trade Organization
(WTO) Trade Facilitation Agreement (TFA), the newest international trade agreement in the (WTO) Trade Facilitation Agreement (TFA), the newest international trade agreement in the
WTO, entered into force on February 22, 2017. Two-thirds of WTO members, including the WTO, entered into force on February 22, 2017. Two-thirds of WTO members, including the
United States, Canada, and Mexico, ratified the multilateral agreement.United States, Canada, and Mexico, ratified the multilateral agreement.3719 Trade facilitation Trade facilitation
measures in trade agreements aim to simplify and streamline customs procedures to allow the measures in trade agreements aim to simplify and streamline customs procedures to allow the
easier flow of trade across borders and thereby reduce the costs of trade. Trade facilitation can be easier flow of trade across borders and thereby reduce the costs of trade. Trade facilitation can be
defined narrowly as improving administrative procedures at the border or more broadly to also defined narrowly as improving administrative procedures at the border or more broadly to also
encompass behind-the-border measures and regulations. The TFA aims to address trade barriers, encompass behind-the-border measures and regulations. The TFA aims to address trade barriers,
such as lack of customs procedural transparency and overly burdensome documentation such as lack of customs procedural transparency and overly burdensome documentation
requirements.requirements.3820
Under USMCA, parties affirm their rights and obligations under the WTO TFA. USMCA Under USMCA, parties affirm their rights and obligations under the WTO TFA. 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 to facilitate for issuing written advance customs rulings, procedures for efficient release of goods to facilitate
trade between the parties, expedited customs procedures for express shipments, automated risk trade between the parties, expedited customs procedures for express shipments, automated risk
analysis and management procedures, creation of a single-access window system to enable analysis and management procedures, creation of a single-access window system to enable
electronic submission through a single entry point for importation into the territory of another
party, and transparency procedures. Given the magnitude and frequency of U.S. trade with
USMCA partners, the more updated customs provisions in USMCA could have a significant
impact on companies engaged in trilateral trade.39
The USMCA sets de minimis customs threshold for duty-free treatment at US$800 for the United
States, C$150 (about US$117) for Canada, and US$117 for Mexico. Shipment values up to these
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 de minimis
thresholds contend that these changes will facilitate North American trade by allowing low-value
parcels to be shipped across international borders tax and tariff free and with simple customs
forms.40 Some Members and other stakeholders raised concerns about a footnote that would have
allowed the United States to decrease its threshold to a reciprocal de minimis amount in an
amount no greater than the Canadian or Mexican threshold. They contended that lowering the
current 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 19 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.
38 Ibid.
39 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.
40 Gary Clyde Hufbauer and Euijin Jung, Higher De Minimis Thresholds: A Win in the USMCA, Peterson Institute for
International Economics, October 15, 2018.
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)
20 Ibid. Congressional Research Service 14 The United States-Mexico-Canada Agreement (USMCA) electronic submission through a single entry point for importation into the territory of another party, and transparency procedures. Given the magnitude and frequency of U.S. trade with USMCA partners, the more updated customs provisions in USMCA could have a significant impact on companies engaged in trilateral trade.21
Energy
USMCA does not have an energy chapter and moved some of NAFTA’s energy provisions to USMCA does not have an energy chapter and moved 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, aim to help protect private U.S. energy projects in Mexico. regard to Mexico’s energy sector, aim to help protect private U.S. energy projects in Mexico.
U.S. and Canadian investors in Mexico’s energy sector are protected by USMCA’s investment U.S. and Canadian investors in Mexico’s energy sector are protected by USMCA’s investment
provisions. Although there were some concerns during the negotiations about the need to protect 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 bound by its 2013 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 Congress approved constitutional energy reforms in the energy sector. In 2013, the Mexican Congress approved
constitutional reforms to restructure Mexico’s state-owned oil company, PEMEX, as a “state 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 competes in the productive company,” which means that despite being owned by the state, it competes in the
market like any private company.market like any private company.4222 It has operational autonomy, in addition to its own assets. It has operational autonomy, in addition to its own assets.
Mexican President Andrés Manuel López Obrador, however, has made efforts to reverse some of 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.the 2013 energy reforms, which could be a violation of its USMCA commitments.4323
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.4424
Government Procurement
FTA government procurement provisions set standards and parameters for government purchases FTA government procurement provisions set standards and parameters for government purchases
of goods and services.of goods and services.4525 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 commitments provides opportunities for firms of each nation to bid reciprocally The schedule of commitments provides opportunities for firms of each nation to bid reciprocally
on certain contracts for specified government agencies over a set monetary threshold. The United on certain contracts for specified government agencies over a set monetary threshold. The United
States and Canada also have made certain government procurement opportunities available States and Canada also have made certain government procurement opportunities available
through similar obligations in the plurilateral WTO Government Procurement Agreement (GPA). through similar obligations in the plurilateral WTO Government Procurement Agreement (GPA).
Mexico is currently not a member of the GPA. Mexico is currently not a member of the GPA.
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.
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
carries over much of the NAFTA government procurement chapter’s coverage for U.S.-Mexico
procurement. Core provisions include the following:

42 21 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. 22 Organisation for Economic Co-operation and Development (OECD), 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. , 2016, p. 11.
4323 On July 20, 2022, the United States requested consultations with Mexico under USMCA over a series of efforts by 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 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, 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. , Press Release, July 20, 2022.
4424 Canadian Labour Congress, “13 Facts You Need to Know About the United States-Mexico-Canada Agreement Canadian Labour Congress, “13 Facts You Need to Know About the United States-Mexico-Canada Agreement
(USMCA),” October 18, 2018. (USMCA),” October 18, 2018.
4525 For more information of U.S. government procurement and international trade, see CRS Report R47243, 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. , by Andres B. Schwarzenberg.
Congressional Research Service Congressional Research Service

1415

---

link to page link to page 2117 link to page link to page 21 NAFTA and the17 The United States-Mexico-Canada Agreement (USMCA) 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. 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 carries over much of the NAFTA government procurement chapter’s coverage for U.S.-Mexico procurement. Core provisions include the following: United States-Mexico-Canada Agreement (USMCA)

• Promote transparency in the tendering process through online tender information • Promote transparency in the tendering process through online tender information
and descriptions. and descriptions.
• Provide online application and documentation processes without cost to the • Provide online application and documentation processes without cost to the
applicant. applicant.
• Provide for publication of post-award explanations of procurement decisions. • Provide for publication of post-award explanations of procurement decisions.
• Exclude government procurement from the financial services chapter. • Exclude government procurement from the financial services chapter.
• Exclude textile and apparel procured by the Transportation Security • Exclude textile and apparel procured by the Transportation Security
Administration (TSA) under the “Kissell Amendment.” Administration (TSA) under the “Kissell Amendment.”
• Allow Mexico to set aside annual procurement contracts of $2.328 billion, • Allow Mexico to set aside annual procurement contracts of $2.328 billion,
annually adjusted for inflation, to Mexican suppliers. annually adjusted for inflation, to Mexican suppliers.
• Allow for coverage of build-operate-transfer (BOT) contracts. (As Mexico has • Allow for coverage of build-operate-transfer (BOT) contracts. (As Mexico has
taken an exception to this provision, the United States will extend this coverage taken an exception to this provision, the United States will extend this coverage
to Mexico when Mexico reciprocates.) to Mexico when Mexico reciprocates.)
The exclusion of Canada is a break from previous government procurement chapters in U.S. The exclusion of Canada is a break from previous government procurement chapters in U.S.
FTAs. As noted above, procurement opportunities in each country for U.S. and Canadian firms FTAs. As noted above, procurement opportunities in each country for U.S. and Canadian firms
will continue to be covered by the GPAwill continue to be covered by the GPA, which was revised and updated in 2014. The national . 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 provisions modernizing the agreement to provide for online tendering. provide for online tendering. The differences primarily
are with the schedules and the thresholds. In some areas, the GPA provides a more open
procurement market. For example, the GPA covers 75 U.S. government entities, including 35
U.S. states, whereas 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
and services ($180,000 v. $80,317), but a lower construction procurement threshold ($6.9 million
v. $10.4 million).46 In addition, while the USMCA uses a negative list approach for services (all
services included unless specifically excluded), Canada—though not the United States—
maintains a positive list (only services specifically enumerated are covered) for services in the
GPA. Government procurement between Canada and Mexico will continue to be covered by the Government procurement between Canada and Mexico will continue to be covered by the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11).Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11).4726
Investment
U.S. FTAs, including bilateral investment treaties (BITs), maintain core investor protections U.S. FTAs, including bilateral investment treaties (BITs), maintain core investor protections
reflecting U.S. law, such as obligations for governments to provide investors from FTA or BIT 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 countries with nondiscriminatory treatment, a minimum standard of treatment, and protections
against uncompensated expropriation, among other provisions.against uncompensated expropriation, among other provisions.48
27 USMCA provisions, in general, track those of NAFTA and other U.S. FTAs, with the exception of USMCA provisions, in general, track those of NAFTA and other U.S. FTAs, with the exception of
the elimination of some investor-state dispute settlement (ISDS) provisions (See the elimination of some investor-state dispute settlement (ISDS) provisions (See “Investor-State
Dispute Settlement (ISDS)”) below). USMCA clarifies language related to national treatment and most-. USMCA clarifies language related to national treatment and most-
favored-nation treatment. In determining whether an investment is afforded national treatment in 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 the context of expropriation, a “like circumstances” analysis can be used. Under the article, “like
circumstancescircumstances … depends on the totality of the circumstances including whether the … 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 See 26 See CRS In Focus IF12078, CPTPP: Overview and Issues for Congress, by Cathleen D. Cimino-Isaacs. 27 See CRS In Focus IF11167, USMCA: Investment Provisions, by Christopher A. Casey and M. Angeles Villarreal and CRS In Focus IF10052, 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.
Congressional Research Service Congressional Research Service

15

---

NAFTA and the16 The United States-Mexico-Canada Agreement (USMCA)

relevant treatment distinguishes between investors or investments on the basis of legitimate public welfare 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 ISDS provisions. The American Petroleum Institute
(API), for example, stated that strong ISDS provisions protect U.S. business interests and that
weakening or eliminating NAFTA’s ISDS would “undermine U.S. energy security, investment
protections and our global energy leadership.”50 On the other hand, some U.S. labor and civil
society groups welcomed the Administration’s more skeptical approach to ISDS. The 2015 TPA
called for “providing meaningful procedures for resolving investment disputes.”51
objectives.”28 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” customary international law MST of aliens, and that “fair and equitable treatment” (due process) and “full and “full
protection and security” protection and security” (police protection) do not create additional substantive rights. do not create additional substantive rights. However, the USMCA 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.
Government Right to Regulate
Unlike NAFTA, USMCA contains a provision stating that, except in rare circumstances, Unlike NAFTA, USMCA contains a provision stating that, except in rare circumstances,
nondiscriminatory regulatory action by a party to protect legitimate public welfare objectives nondiscriminatory regulatory action by a party to protect legitimate public welfare objectives
(e.g., in public health, safety, and the environment) do not constitute indirect expropriation. The (e.g., in public health, safety, and the environment) do not constitute indirect expropriation. The
USMCA includes a statement that nothing in the Investment Chapter shall be construed to prevent USMCA includes a statement that nothing in the Investment Chapter shall be construed to prevent

49 USMCA Article 14.5.4.
50 American Petroleum Institute (API), API Supports NAFTA Modernization that Retains Strong Protections for U.S.
Investors, February 20, 2017, http://www.api.org/news-policy-and-issues/news/2018/02/20/api-supports-nafta-
modernization-that-protect-us-investors.
51 P.L. 114-26, §102 (b)(4)(f).
Congressional Research Service

16

---

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

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 ISDS has beenwas a controversial aspect of the NAFTA investment chapter. It is a form of binding 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 then; it is also a core provision in U.S. nearly all other U.S. FTAs that have been enacted since then; it 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-
28 USMCA Article 14.5.4. Congressional Research Service 17 The United States-Mexico-Canada Agreement (USMCA) 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,FTAs, and current BITs that were actively sought by past Administrations. Significantly, USMCA ended ISDS ISDS
between Canada and the United States, and between Canada and Mexicobetween Canada and the United States, and between Canada and Mexico, ended under the new
agreement. U.S. and Mexican investors are not able to bring USMCA arbitration claims against . U.S. and Mexican investors are not able to bring USMCA arbitration claims against
Canada, nor are Canadian investors able to bring such claims against the United States or Mexico. Canada, nor are Canadian investors able to bring such claims against the United States or Mexico.
Canada and Mexico are maintaining ISDS among themselves through CPTPP. Canada and Mexico are maintaining ISDS among themselves through CPTPP.
For ISDS between the United States and Mexico, USMCA maintains similar provisions For ISDS between the United States and Mexico, USMCA maintains similar provisions
applicable under NAFTA regarding government contracts that belong to five covered sectors, applicable under NAFTA regarding government contracts that belong to five covered sectors,
including oil and gas, power generation, telecommunications, transportation, and infrastructure. including oil and gas, power generation, telecommunications, transportation, and infrastructure.
This use of ISDS is designed to protect investors in heavily regulated industries whose 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. 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. 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 Investors must first defend their claims in local courts before initiating arbitration. Direct
expropriation claims, including claims of violation of national treatment, will continue to be expropriation claims, including claims of violation of national treatment, will continue to be
eligible for arbitration for United States and Mexican investors under USMCA, provided that the eligible for arbitration for United States and Mexican investors under USMCA, provided that the
claimants exhaust domestic remedies first. Indirect expropriation, in which an action or series of claimants exhaust domestic remedies first. Indirect expropriation, in which an action or series of
actions by a party has an effect equivalent to direct expropriation without formal transfer of title actions by a party has an effect equivalent to direct expropriation without formal transfer of title
or outright seizure, is no longer covered. or outright seizure, is no longer covered.
Supporters argue that ISDS is important for protecting investors from discriminatory treatment
and are modeled after U.S. law. They also argue that trade agreements do not prevent
governments from regulating in the public interest, with clear exceptions for these actions, as well
as for national security and for prudential reasons. Critics counter that companies use ISDS to
restrict governments’ ability to regulate in the public interest (such as for environmental or health
reasons). The United States, to date, has never lost a claim brought against it under ISDS in a
U.S. investment agreement.
Services
The United States, whichServices The United States 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 liberalization a priority in its negotiations of FTAs, including NAFTA and USMCA. USMCA USMCA. USMCA
continues NAFTA’s inclusion of core obligations in services trade in a separate continues NAFTA’s inclusion of core obligations in services trade in a separate services trade chapter. chapter. Because
of the complexity of the issues, USMCA It also covers services trade in other related chapters, 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 the following: 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.
Congressional Research Service 18 The United States-Mexico-Canada Agreement (USMCA) • 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.5229 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
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 de minimis 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
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
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
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

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
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.53
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
security, create efficiencies and cost savings through economies of scale, and utilize internet
cloud services that are often provided by U.S. technology firms. Localization requirements
imposed by countries could require companies to have in-country servers and data centers to store
data. These types of regulations can create additional costs and may serve as a deterrent for firms
seeking to enter new markets or a disguised barrier to trade. Localization supporters, though,
claim they increase local control, privacy protection, and data security.
30 29 USMCA, Annex 15-A. 30 See USMCA Annex 17-A for a complete listing of insurance, banking, and other financial services covered by the cross-border trade in financial services disciplines. Congressional Research Service 19 The United States-Mexico-Canada Agreement (USMCA) 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.54 Canada has a one-year transition period to implement the data localization prohibition.
31 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 the following: 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 • Protecting source code and algorithms and prohibiting on forced technology forced technology
transfer transfer in the digital trade section. 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 Mexican government to its 2013 Constitutional reforms, The chapter has the effect of binding the Mexican government to its 2013 Constitutional reforms,
which established a telecommunications regulatory framework to encourage competition, which established a telecommunications regulatory framework to encourage competition,
investment and an independent regulatory regime, in addition to nondiscriminatory repurchase investment and an independent regulatory regime, in addition to nondiscriminatory repurchase
rates and interconnection obligations. USMCA does not affect Canadian restrictions on foreign rates and interconnection obligations. USMCA does not affect Canadian restrictions on foreign
ownership of telecommunications common carriers. 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
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
31 USMCA Article 17.18. Congressional Research Service 20 The United States-Mexico-Canada Agreement (USMCA) 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 flow restrictions and data localization requirements. • Prohibit cross-border data flow 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 was the model for the WTO Trade-NAFTA was the first FTA to contain an IPR chapter, which was the model for the WTO Trade-
Related Aspects of Intellectual Property Rights (TRIPs) Agreement that came into effect in Related Aspects of Intellectual Property Rights (TRIPs) Agreement that came into effect in
1995.1995.5532 IPR chapters in trade agreements include provisions on patents, copyrights, trademarks, IPR chapters in trade agreements include provisions on patents, copyrights, trademarks,
trade secrets, geographical indications (GIs), and enforcement. U.S. FTAs contain obligations in trade secrets, geographical indications (GIs), and enforcement. U.S. FTAs contain obligations in
general that have followed the TPA negotiating objective that agreements should reflect U.S. law. general that have followed the TPA negotiating objective that agreements should 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. USMCA provisions largely track with provisions in more technologies, and computer software. USMCA provisions largely track with provisions in more
recent U.S. FTAs: recent 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 an inventive step, or is capable of industrial
application. Patent protection for new uses, methods, or processes of a known
product were included in the USMCA, but were removed by the Protocol of
Amendment. 32 See CRS In Focus IF10033, Intellectual Property Rights (IPR) and International Trade, by Shayerah I. Akhtar and Liana Wong. Congressional Research Service 21 The United States-Mexico-Canada Agreement (USMCA) that an invention is new, involves an inventive step, or is capable of industrial application.
• • 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, Extends IPR enforcement,
and the procedures (e.g., judicial or and the procedures (e.g., judicial or
including for copyrights, to the digital environment. including for copyrights, to the digital environment.
administrative proceedings, and administrative proceedings, and
Trade secrets. Requires criminal procedures and Requires criminal procedures and
remedies, such as preliminary 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
protection requirements. assert their rights, as well as for a assert their rights, as well as for a
protection requirements.Internet Service Providers (ISPs). Requires
party to challenge the patent’s validity. party to challenge the patent’s validity.
Internet Service Providers (ISPs). Requires
“notice and takedown” to address ISP liability while “notice and takedown” to address ISP liability while
This provision was not in NAFTA, but This provision was not in NAFTA, but
allowing an alternative system to remain for Canada allowing an alternative system to remain for Canada
has been in more recent U.S. FTAs. has been in more recent U.S. FTAs.
(e.g., “notice and notice”). (e.g., “notice and notice”).
• • Protection of test data. Protects test Protects test
Trademarks. Extends trademark protection to Extends trademark protection to
data that patent holders submit for
sounds and to “col ective marks” and removes sounds and to “col ective marks” and removes
regulatory approvaldata that patent holders submit for for
administrative requirements to enable easier protection administrative requirements to enable easier protection
regulatory approval for and enforcement of trademarks. and enforcement of trademarks.
pharmaceuticals on which generics pharmaceuticals on which generics
Geographical indications (GIs). Requires Requires
may later rely. These provisions were may later rely. These provisions were
administrative procedures for recognizing and opposing administrative procedures for recognizing and opposing
not in NAFTA. USMCA provisions not in NAFTA. USMCA provisions
GIs, including guidelines for determining when a name GIs, including guidelines for determining when a name
are described below. are described below.
is common. Also, for GIs that a Party protects through is common. Also, for GIs that a Party protects through
•
international agreements, includes requirements on international agreements, includes requirements on
• Chemical-based (small-molecule)
transparency and opportunity to comment or oppose transparency and opportunity to comment or oppose
drugs. USMCA provides five USMCA provides five
GI recognition. GI recognition.
years of data exclusivity for new years of data exclusivity for new
drugs, and three years for new formulations of existing drugs. drugs, and three years for new formulations of existing drugs.
• • Biologics. The . The USMCA Protocol of Amendment removedfinal USMCA text does not have provisions on data exclusivity for biologic drugs. USMCA parties originally negotiated a ten-year period a ten-year period
of data exclusivity for biologic drugsof data exclusivity for biologic drugs originally negotiated in USMCA., but later removed these provisions due to concerns among some Members of Congress.33 U.S. U.S.
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 five-year exclusivity period for both chemicalchemicals and biologics. Some and biologics. 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 prescription drug prices to rise to unaffordable period would have caused prescription drug prices to rise to unaffordable
levels. Industry stakeholders claim that the changes to USMCA do not levels. Industry stakeholders claim that the changes to USMCA do not
protect U.S. protect U.S. 33 Rachel Cohrs, “Biologic Exclusivity Provision Stripped from Revised USMCA Deal,” Modern Healthcare, December 10, 2019. Congressional Research Service 22 The United States-Mexico-Canada Agreement (USMCA) intellectual property and could adversely affect U.S. jobs and intellectual property and could adversely affect U.S. jobs and
U.S. medical innovation.U.S. medical innovation.5634
Copyrights
Copyrights provide artistic and literary creators with the exclusive right to authorize or prohibit Copyrights provide artistic and literary creators with the exclusive right to authorize or prohibit
others from reproducing, communicating, or distributing their works. USMCA attempts to others from reproducing, communicating, or distributing their works. USMCA attempts to
balance copyright protections while protecting the free flow of information, and addresses digital balance copyright protections while protecting the free flow of information, and addresses digital
trade through the following: 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.year period. Extends to 75-years corporate works. Among the USMCA parties,
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 exceptions” to “certain Confines “limitations and exceptions” to “certain
special cases that do not conflict with the normal exploitation of the work special cases that do not conflict with the normal exploitation of the work…. … and 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
to achieve an appropriate balance” between users and rights holders in their
copyright systems, including digitally, through exceptions for legitimate purposes
(e.g., criticism, comment, news reporting, teaching, research). The “appropriate
balance” language speaks to “fair use,” exceptions in copyright law for media,
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
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:
• • 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.”5735
• • 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
34 Ibid. 35 For more information on these marks, see World Intellectual Property Organization (WIPO), “Collective Marks as a Tool for Development,” at https://www.wipo.int/collective-marks/en/, and https://www.wipo.int/sct/en/comments/pdf/sct21/cert_uk.pdf. Congressional Research Service 23 The United States-Mexico-Canada Agreement (USMCA) 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., Mexican Tequila, Canadian Whisky). In FTA negotiations, the United States has region (e.g., Mexican Tequila, Canadian Whisky). In FTA negotiations, the United States has
sought to limit GI protections that can improperly constrain U.S. agricultural market access in sought to limit GI protections that can improperly constrain U.S. agricultural market access in
other countries by protecting terms viewed as “common.” USMCA: other countries by protecting terms viewed as “common.” 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.
• 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 Congressional Research Service

24 24

---

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

State-Owned Enterprises (SOEs)
USMCA includes a new chapter on SOEs, requiring SOEs to act in accordance with commercial considerations and to provide nondiscriminatory treatment to other USCMA country firms. The provisions update NAFTA by ensuring that SOEs compete on a commercial basis, and that the advantages SOEs receive from their governments, such as subsidies, do not have an adverse impact on U.S. workers and businesses. The renegotiations addressed potential commercial disadvantages to private sector firms from state-supported competitors receiving preferential treatment.36 NAFTA included provisions on SOEs, but they were limited in scope.37NAFTA included provisions on SOEs, but they were limited in scope.58 They allowed parties to They allowed 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 obligations provincial, or state government must act in a manner consistent with that country’s obligations
when exercising regulatory, administrative, or other government authority, such as the granting of when exercising regulatory, administrative, or other government authority, such as the granting of
licenses. NAFTA committed parties to ensure that any SOEs accord nondiscriminatory treatment licenses. NAFTA committed parties to ensure that any SOEs accord nondiscriminatory treatment
in the sale of goods or services to another party’s investment in that territory. in the sale of goods or services to another party’s investment in that territory.
USMCA includes a new chapter on SOEs, requiring SOEs to act in accordance with commercial
considerations and to provide nondiscriminatory treatment to other USCMA country firms. The
provisions update NAFTA by ensuring that SOEs compete on a commercial basis, and that the
advantages SOEs receive from their governments, such as subsidies, do not have an adverse
impact on U.S. workers and businesses. The renegotiations addressed potential commercial
disadvantages to private sector firms from state-supported competitors receiving preferential
treatment.59
U.S. government and business stakeholders raised concerns during USMCA negotiations about U.S. government and business stakeholders raised concerns during USMCA 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
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.6038 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
The rationale for including labor provisions in U.S. FTAs is to help ensure that countries not The rationale for including labor provisions in U.S. FTAs is to help ensure that countries not
derogate from labor laws to attract trade and investment and that liberalized trade does not give a derogate from labor laws to attract trade and investment and that liberalized trade does not give a
competitive advantage to countries due to a lack of adequate standards. NAFTA marked the first 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.time that worker rights provisions were associated with an FTA.6139 It contained 11 “guiding It contained 11 “guiding
principles” pertaining to worker rights. Other provisions involved technical assistance, capacity principles” pertaining to worker rights. Other provisions involved technical assistance, capacity
building, and separate dispute procedures, along with a labor cooperation mechanism. building, and separate dispute procedures, along with a labor cooperation mechanism.
Worker rights provisions in U.S. trade agreements have evolved significantly since NAFTA. Worker rights provisions in U.S. trade agreements have evolved significantly since NAFTA.6240
More recent U.S. FTAs incorporated internationally recognized labor principles requiring parties 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 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 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 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 investment. These provisions are enforceable under the same dispute settlement procedures that

5836 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. 37 The definition of a State-Owned Enterprise in the agreement is an enterprise principally engaged in commercial The definition of a State-Owned Enterprise in the agreement is an enterprise principally engaged in commercial
activities and in which a party’s government directly or indirectly owns more than 50% of capital share, controls more activities and in which a party’s government directly or indirectly owns more than 50% of capital share, controls more
than 50% of voting rights, holds the power to control the enterprise through any other ownership interest including than 50% of voting rights, holds the power to control the enterprise through any other ownership interest including
indirect or minority ownership, or holds the power to selects a majority of board members. 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.
6038 Julie Bedard, David Herlihy, and Timothy G. Nelson, Julie Bedard, David Herlihy, and Timothy G. Nelson, The United States-Mexico-Canada Agreement Significantly
Curtails Foreign Investment Protection, Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates, October 2, 2018. Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates, October 2, 2018.
6139 NAFTA’s labor provisions were in a side agreement called the North American Agreement on Labor Cooperation NAFTA’s labor provisions were in a side agreement called the North American Agreement on Labor Cooperation
(NAALC). (NAALC).
6240 See CRS In Focus IF10046, See CRS In Focus IF10046, Worker Rights Provisions in Free Trade Agreements (FTAs), by Cathleen D. Cimino-, by Cathleen D. Cimino-
Isaacs and M. Angeles Villarreal. Isaacs and M. Angeles Villarreal.
Congressional Research Service Congressional Research Service

25 25

---

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

apply to other provisions of the FTA, and violations are subject to the same potential trade apply to other provisions of the FTA, and violations are subject to the same potential trade
sanctions. sanctions.
ILO Declaration on Fundamental Principles and Rights at Work (1998)
• •
Freedom of association. Freedom of association.
• •
Effective recognition of the right to col ective bargaining. Effective recognition of the right to col ective 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 the party’s statues or regulations. • Not waive or otherwise derogate from the party’s statues or regulations.
• Not fail to effectively enforce labor laws through a sustained or recurring course • Not fail to effectively enforce labor laws through a sustained or recurring course
of action or inaction in a manner affecting trade or investment between parties. of action or inaction in a manner affecting trade or investment between parties.
• Promote compliance with labor laws through appropriate government action such • Promote compliance with labor laws through appropriate government action such
as appointing and training inspectors or monitoring compliance and investigating as appointing and training inspectors or monitoring compliance and investigating
suspected violations. suspected violations.
• Prohibit imports of goods made by forced labor, and commit to protections • Prohibit imports of goods made by forced labor, and commit to protections
regarding violence against workers, migrant workers, and workplace regarding violence against workers, migrant workers, and workplace
discrimination. discrimination.
• Recognize the sovereign right of each party to establish its own levels of labor • Recognize the sovereign right of each party to establish its own levels of labor
law enforcement activities in the territory of another party. law enforcement activities in the territory of another party.
• Acknowledge a party’s right to exercise discretion with regard to labor • Acknowledge a party’s right to exercise discretion with regard to labor
obligations. obligations.
USMCA Protocol of Amendment: Labor Provisions
After USMCA negotiations had been completed, several Members of Congress remained 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 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 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 amendments to the agreement with Mexico and Canada. Key amendments included the
following: following:
• Prevention of panel blocking in the Dispute Settlement Chapter of USMCA. • Prevention of panel blocking in the Dispute Settlement Chapter of USMCA.
Ensures the formation of a panel in dispute cases where a party refuses to Ensures the formation of a panel in dispute cases where a party refuses to
participate in the selection of panelists. participate in the selection of panelists.
• “In a Manner Affecting Trade and Investment.” Shifts the burden of proof by • “In a Manner Affecting Trade and Investment.” Shifts the burden of proof by
stating that an alleged violation affects trade and investment, unless otherwise stating that an alleged violation affects trade and investment, unless otherwise
demonstrated. demonstrated.
Congressional Research Service Congressional Research Service

26 26

---

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

• Rapid Response Mechanism. Adds a new rapid response mechanism to provide • Rapid Response Mechanism. Adds a new rapid response mechanism to provide
for an independent panel investigation of denial of certain labor rights at for an independent panel investigation of denial of certain labor rights at
“covered facilities,” as opposed to a government inspection. “covered facilities,” as opposed to a government inspection.
Mexico’s Labor Reform Commitments
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 Mexican government’s May 2019 reforms. Specifically, Annex-23A its labor laws, similar to the Mexican government’s May 2019 reforms. Specifically, Annex-23A
commits Mexico tocommits Mexico to:
• Eliminate all forms of forced or compulsory labor. • Eliminate all forms of forced or compulsory labor.
• Protect the right of workers to organize, form, and join the union of their choice. • Protect the right of workers to organize, form, and join the union of their choice.
• Prohibit employer interference in union activities, discrimination, or coercion • Prohibit employer interference in union activities, discrimination, or coercion
against workers. against workers.
• Provide for the exercise of a personal, free, and secret vote of workers for union • Provide for the exercise of a personal, free, and secret vote of workers for union
elections and agreements. elections and agreements.
• Establish and maintain independent and impartial bodies to register union • Establish and maintain independent and impartial bodies to register union
elections and resolve disputes relating to collective bargaining agreements. elections and resolve disputes relating to collective bargaining agreements.
• Establish independent labor courts. • Establish independent labor courts.
USMCA implementing legislation creates a new interagency committee, labor attachés, and USMCA implementing legislation creates a new interagency committee, labor attachés, and
reporting requirements to Congress on Mexico’s implementation of labor reforms. 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 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 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 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 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 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 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. 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 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 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. 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 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-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.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-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)Isaacs; Gobierno de Mexico, “Contratos Colectivos de Trabajo (CCT)”,,” at https://centrolaboral.gob.mx/listado- at https://centrolaboral.gob.mx/listado-
cct-nuevos-reforma/. cct-nuevos-reforma/.
Environment
As with labor and worker rights, NAFTA was the first U.S. FTA associated with environmental As with labor and worker rights, NAFTA was the first U.S. FTA associated with environmental
protection. The North American Agreement on Environmental Cooperation (NAAEC) required protection. The North American Agreement on Environmental Cooperation (NAAEC) required
all parties to enforce their own environmental laws, and contained an enforcement mechanism all parties to enforce their own environmental laws, and contained an enforcement mechanism
applicable to a party’s failure to enforce these laws. NAAEC included a consultation 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. Subsequent FTAs included a for addressing disputes with a special dispute settlement procedure. Subsequent FTAs included a
similar environmental chapter within the main text of the agreement, including a country’s similar environmental chapter within the main text of the agreement, including a country’s
obligations to enforce their own laws. obligations to enforce their own laws.
Congressional Research Service Congressional Research Service

27 27

---

NAFTA and theThe 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. The USMCA FTAs to access the main dispute settlement provisions of the agreement. The USMCA
environment chapter obligates each party toenvironment 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 MEAs. It also includes USMCA directly or implicitly addresses obligations under major MEAs. It also includes
obligations and encouragements to protect the ozone layer, protect the marine environment from obligations and encouragements to protect the ozone layer, protect the marine environment from
ship pollution, encourage conservation and sustainable use of biodiversity, encourage sustainable ship pollution, encourage conservation and sustainable use of biodiversity, encourage sustainable
fisheries management and fisheries management and requiresrequire the control, reduction, and eventual elimination of subsidies the control, reduction, and eventual elimination of subsidies
that lead to overfishing or overcapacity. The USMCA does not contain language on climate that lead to overfishing or overcapacity. The USMCA does not contain language on climate
change. change.
USMCA Protocol of Amendment: Environmental Provisions
The Protocol of Amendment to USMCA clarified some of the existing environmental language in The Protocol of Amendment to USMCA clarified some of the existing environmental language in
the agreement and addressed some perceived shortcoming in the original USMCA text, such asthe agreement and addressed some perceived shortcoming in the original USMCA text, such as:
• 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
Congressional Research Service Congressional Research Service

28 28

---

link to page link to page 21 NAFTA and the17 The United States-Mexico-Canada Agreement (USMCA)

• • International Whaling Convention • Inter-American Tropical Tuna Convention Inter-American Tropical Tuna Convention
The USMCA, as originally signed, only made explicit reference to CITES, MARPOL, and the The USMCA, as originally signed, only made explicit reference to CITES, MARPOL, and the
Montreal Protocol. USMCA implementing legislation creates an Interagency Environment Montreal Protocol. USMCA implementing legislation creates an Interagency Environment
Committee for Monitoring and Enforcement, analogous to the labor chapter, and establishes Committee for Monitoring and Enforcement, analogous to the labor chapter, and establishes
environment-focused attachés in Mexico City to monitor compliance with the agreement. In environment-focused attachés in Mexico City to monitor compliance with the agreement. In
addition, the implementing legislation includes measures for authorizing grants under the U.S.-addition, the implementing legislation includes measures for authorizing grants under the U.S.-
Mexico Border Water Infrastructure Program, the Trade Enforcement Trust Fund and a Mexico Border Water Infrastructure Program, the Trade Enforcement Trust Fund and a
recapitalization of the North American Development Bank (NADB). recapitalization of the North American Development Bank (NADB).
Dispute Settlement
Dispute settlement provisions in U.S. FTAs, as well as the WTO, provide for the resolution of Dispute settlement provisions in 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 disputes arising under the agreement. These provisions are in addition to procedures with regard
to investor-state dispute resolution (seto investor-state dispute resolution (see “Investor-State Dispute Settlement”). Similar to NAFTA, ). Similar to NAFTA,
the USMCA dispute settlement provisions are designed to resolve disputes in a cooperative the USMCA dispute settlement 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 manner. A party first seeks redress of a grievance through a request for consultation with the other
party. These steps include 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).
41 • Establishment of a dispute settlement panel. • Establishment of a dispute settlement panel.
Panels are composed of five members; each side appoints two and a chair is appointed by mutual Panels are composed of five members; each side appoints two and a chair is appointed by mutual
consent of the parties. Failing that, the disputing party selected by lot makes the decision. After 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 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 USMCA panel), but choose the forum in which to bring the dispute (i.e., at the WTO or before a USMCA panel), but
cannot bring the dispute to multiple fora. cannot bring the dispute to multiple fora.
Under NAFTA, a party had the ability to block a panel chair—and, consequently, a panel—from 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 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 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) United States was able to block a panel chair, a fourth case (Restrictions on Sugar from Mexico)
was never considered.was never considered.6342 The Protocol of Amendment to USMCA addressed the panel blocking The Protocol of Amendment to USMCA addressed the panel blocking
issue by inserting language that would eliminate the ability of a responding party to block the issue by inserting language 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 establishment of a panel 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 revised the guidelines for 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, the right to test 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. testimony, and for the panel to 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 In order to speed up dispute 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 disputes.
Some USMCA chapters or sections are not subject to dispute settlement including the:
• Good Regulatory Practices chapter;

63 41 The expression “good offices” denotes conciliation and mediation before resorting to arbitration. For more information, see USMCA Chapter 31 on Dispute Settlement at https://ustr.gov/issue-areas/enforcement/dispute-settlement-proceedings/fta-dispute-settlement/usmca/chapter-31-disputes. 42 For more information, see CRS In Focus IF11418, 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, , 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. , by Christopher A. Casey and Cathleen D. Cimino-Isaacs.
Congressional Research Service Congressional Research Service

29 29

---

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

USMCA Free Trade Commission, which acts as a secretariat for the agreement, as an intermediate step to resolve disputes. Some USMCA chapters or sections are not subject to dispute settlement including the • Good Regulatory Practices chapter; • Competition Policy chapter; • Competition Policy chapter;
• Competitiveness chapter; • Competitiveness chapter;
• Small and Medium-Sized Enterprise chapter; • Small and Medium-Sized Enterprise chapter;
• Transparency and Procedural Fairness for Pharmaceutical Products and Medical • Transparency and Procedural Fairness for Pharmaceutical Products and Medical
Devices section of the Publications and Administration chapters; 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 determination on the goods of an exporting party.party’s AD or CVD final determination on the goods of an exporting party.6443 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.
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,6544 the aggrieved the aggrieved
partner may request a judgment from a binational panel rather than through the legal system of partner may request a judgment from a binational panel rather than through the legal system of
the defending party.the defending party.6645
The United States sought to eliminate the Chapter 19 dispute settlement mechanism during the The United States sought to eliminate the Chapter 19 dispute settlement mechanism during the
USMCA negotiations.USMCA negotiations.6746 By contrast, Canada and Mexico expressed support for retaining the By contrast, Canada and Mexico expressed support for retaining the
mechanism, with Canada drawing a “red line” firmly opposing its elimination.mechanism, with Canada drawing a “red line” firmly opposing its elimination.6847 At the end of the At the end of the
negotiations, the three countries decided to retain the system. NAFTA Chapter 19 is effectively negotiations, the three countries decided to retain the system. NAFTA Chapter 19 is effectively
replicated in the Trade Remedies Chapter of the USMCA. 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 43 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.
6544 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
force. The GATT was incorporated with revisions into the WTO agreements. force. The GATT was incorporated with revisions into the WTO agreements.
6645 CRS In Focus IF10645, CRS In Focus IF10645, Dispute Settlement in the WTO and U.S. Trade Agreements, by Ian F. Fergusson. , by Ian F. Fergusson.
6746 USTR, USTR, Summary of Objectives for the NAFTA Renegotiation, p. 14. p. 14.
6847 “Trudeau: Chapter 19, cultural exemptions are NAFTA red lines for Canada,” “Trudeau: Chapter 19, cultural exemptions are NAFTA red lines for Canada,” Inside U.S. Trade, September 4, 2018. , September 4, 2018.
Congressional Research Service Congressional Research Service

30 30

---

NAFTA and theThe United States-Mexico-Canada Agreement (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 regime,” and to “refrain from competitive devaluation, including through intervention in the regime,” and to “refrain from competitive devaluation, including through intervention in the
foreign exchange market.” However, only transparency and reporting requirements are subject to foreign exchange market.” However, only transparency and reporting requirements are subject to
dispute settlement procedures. dispute settlement 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, policymakers and precedent for including such provisions in future FTAs. Over the past decade, policymakers and
policy experts have been concerned that foreign countries may use exchange rate policies to gain policy experts have been concerned that foreign countries may use exchange rate policies to gain
an unfair trade advantage against the United States, or are “manipulating” their currencies. an unfair trade advantage against the United States, or are “manipulating” their currencies.
Specifically, the concern is that other countries may purposefully undervalue their currencies to Specifically, the concern is that other countries may purposefully undervalue their currencies to
boost exports, making it harder for other countries to compete in global markets. They argue that boost exports, making it harder for other countries to compete in global markets. They argue that
U.S. companies and jobs have been adversely affected by the exchange rate policies adopted by U.S. companies and jobs have been adversely affected by the exchange rate policies adopted by
China, Japan, and other countries “manipulating” their currencies.China, Japan, and other countries “manipulating” their currencies.6948 Some economists are Some economists are
skeptical about currency manipulation and whether it is a significant problem. They raise skeptical about currency manipulation and whether it is a significant problem. They raise
questions about whether government policies have long-term effects on exchange rates, whether questions about whether government policies have long-term effects on exchange rates, whether
it is possible to differentiate between “manipulation” and legitimate central bank activities, and 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.the net effect of alleged currency manipulation on the U.S. economy.7049
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 did not have a specific chapter on regulatory Financial Services, and Energy chapters, but did not have a specific chapter on regulatory
practices. USMCA has a new, separate chapter on regulatory practices with commitments to practices. USMCA has a new, separate chapter on regulatory practices with commitments to
promote regulatory quality through greater transparency, objective analysis, accountability, and promote regulatory quality through greater transparency, objective analysis, accountability, and
predictability to facilitate international trade, investment, and economic growth. The chapter predictability to facilitate international trade, investment, and economic growth. The chapter
states that the application of good regulatory practices can support the development of compatible states that the application of good regulatory practices can support the development of compatible
regulatory approaches among the parties, and reduce or eliminate unnecessarily burdensome, regulatory approaches among the parties, and reduce or eliminate unnecessarily burdensome,
duplicative, or divergent regulatory requirements. Such commitments could complement ongoing duplicative, or divergent regulatory requirements. Such commitments could complement ongoing
efforts and include increased transparency in the development and implementation of proposed efforts and include increased transparency in the development and implementation of proposed
regulations, opportunities for public comment in the development of regulations, and/or the use of regulations, opportunities for public comment in the development of regulations, and/or the use of
impact assessments and other methods to ensure regulations are evidence-based and current.impact assessments and other methods to ensure regulations are evidence-based and current.7150
NAFTA and USMCA provisions on regulatory practices may have influenced the United States, 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 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 endeavors such as the North American Leaders’ Summits, the North American Trusted Traveler
Program, the U.S.-Canada Beyond the Border Action Plan, and the U.S.-Mexico High Level Program, the U.S.-Canada Beyond the Border Action Plan, and the U.S.-Mexico High Level
Regulatory Cooperation Council. Regulatory Cooperation Council.
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 48 See CRS In Focus IF10049, See CRS In Focus IF10049, Exchange Rates and Currency Manipulation, by Rebecca M. Nelson, and CRS Report , by Rebecca M. Nelson, and CRS Report
R44717, R44717, International Trade and Finance: Overview and Issues for the 115th Congress, coordinated by Mary A. Irace , coordinated by Mary A. Irace
and Rebecca M. Nelson. and Rebecca M. Nelson.
7049 Ibid. Ibid.
7150 USTR, USTR, Summary of Objectives for the NAFTA Renegotiation, July 17, 2017, p. 7. , July 17, 2017, p. 7.
Congressional Research Service Congressional Research Service

31 31

---

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

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 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 finally been resolved. the trucking issue had finally been resolved.
USMCA generally retains NAFTA trucking provisions. It grants Mexican commercial trucks USMCA generally retains NAFTA trucking provisions. It grants Mexican commercial trucks
authority to operate in the United States, but does not allow trucks to operate between two points authority to operate in the United States, but does not allow trucks to 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 had hauling freight between two points within the United States. Mexican carriers that already had
authority under NAFTA to operate in the United States continue to be allowed to operate in the authority under NAFTA to operate in the United States continue to be allowed to operate in the
United States. 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.7251 NAFTA did not include a separate chapter related to transparency or anticorruption, NAFTA did not include a separate chapter related to transparency or anticorruption,
but it did include several provisions that were considered groundbreaking at the time, including but it did include several provisions that were considered groundbreaking at the time, including
binding rules and disciplines on, and removal of, barriers to foreign investment. It was not until binding rules and disciplines on, and removal of, barriers to foreign investment. It was not until
the proposed TPP that anticorruption provisions were specifically included as a U.S. FTA chapter. the proposed TPP that anticorruption provisions were specifically included as a U.S. FTA chapter.
Earlier agreements such as the U.S.-Chile FTA included anticorruption provisions related to 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.
USMCA has a new chapter on USMCA has a new chapter on anti-corruptionanticorruption in which the parties affirm their resolve to prevent 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 USMCA’s Final Provisions chapter USMCA, parties commit to a review of the agreement on In USMCA’s Final Provisions chapter 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 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.
Implementation of Labor Provisions
USMCA implementation is an area of focus for numerous U.S. policymakers and other
stakeholders. The implementation of the labor provisions, which include the novel rapid response

72 51 Transparency International, “Anti-Corruption and Transparency Provisions in Trade Agreements,” Anti-Corruption Helpdesk, 2017. Congressional Research Service 32 The United States-Mexico-Canada Agreement (USMCA) 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. 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.52 Although numerous policymakers contend that 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.53 Congress may consider whether to expand its oversight role on implementation of new USMCA provisions and in enforcement of ongoing trade issues. It 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
migrant worker women and a binational coalition of civil society organizations. Months later, the
United States began filing complaints against facilities in Mexico under USMCAs novel rapid-
response mechanism. The Rapid Response Labor Mechanism under USMCA allows for a
facility-specific, rapid labor dispute resolution process. The process can be initiated under
USMCA if a party believes in good faith that “workers at covered facilities are being denied the
right of free association and collective bargaining.”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 Sindicato Nacional Independiente de Trabajadores de Industrias y de Servicios Movimiento
(SNITIS), and Public Citizen filed a complaint against the Tridonex factory in Tamaulipas,
Mexico.74 The complaint purported that workers had been denied the right to organize with
SNITIS, a 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 workers at Teksid Hierro de Mexico facility in Frontera, State of Coahuila are being
denied the rights of free association and collective 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 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
International Labor Affairs (ILAB) for USMCA-implementation activities. Out of this amount,
$180 million would be used over four years for USMCA-related technical assistance projects and
$30 million over eight years for the capacity of ILAB to monitor USMCA compliance, including
the necessary expenses of additional full-time employees for the Interagency Committee and
labor attachés in Mexico.90 Table 1 lists ILAB technical assistance projects that began after
USMCA’s entry into force.
Table 1. Select Technical Assistance Projects in Mexico
(after USMCA’s Entry Into Force)
Project/Grantee
Amount
Description
Dates
Mexico Auto Employers/
$3,000,000 Bring automotive sector employers into compliance
11/01/2020 –
Pan American
with the country’s labor law reforms, improve
06/30/2025
Development Foundation
working conditions in the automotive supply sector
by raising awareness, supporting employers to
implement provisions, proactively adopting policies
for compliance, and strengthening relations
between employers and workers.

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’
$10,000,000 Build the capacity of workers, support worker
12/31/2020 –
Ability to Exercise their
engagement and organizing, strengthen democratic
06/30/2025
Labor Rights in Mexico/
worker organizations in the aerospace, mining, and
American Center for
call center industries through technical assistance,
International Labor
skil s development, and pro bono advisory and legal
Solidarity (Solidarity
services. The project wil also create space for
Center)
analysis and exchange of ideas to improve labor law
reform implementation.
Improving Workers’
$5,000,000 Improve the occupational safety and health of
01/01/2021 –
Occupational Safety and
workers in selected supply chains with a focus on
12/31/2024
Health in Selected Supply
COVID-19, female workers, and workers in
Chains in Mexico/
vulnerable conditions. Help Mexico meet its labor
International Labor
obligations under the USMCA.
Organization/Vision Zero
Fund
Mexico Awareness
$10,000,000 Support the government of Mexico to design,
01/01/2021 –
Raising/
execute, and sustain effective communication
06/30/2025
Partners of the Americas
strategies that inform workers, unions, and
employers of the legal ramifications of the country’s
labor law reforms.
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. 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 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 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 might be “the most direct, and most effective, way to improve workers’ lot, especially in
advanced countries like the United States.”advanced countries like the United States.”9354
New provisions regarding more restrictive rules of origin (ROO) in the motor vehicle industry 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. 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.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.9455 The cost of compliance may result in unintended The cost of compliance may result in unintended
consequences if manufacturers find it more beneficial to pay duties rather than pay the additional consequences if manufacturers find it more beneficial to pay duties rather than pay the additional
cost of complying cost of complying towith the new rules. If manufacturers decide to pay tariffs rather than adhere to the 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 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 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 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 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.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

56 52 For more information on Trade Promotion Authority and the role of Congress in trade policy, see CRS In Focus IF10038, IF10038, Trade Promotion Authority (TPA), by Christopher A. Casey and Cathleen D. Cimino-Isaacs, CRS Report , by Christopher A. Casey and Cathleen D. Cimino-Isaacs, CRS Report
R47679, R47679, Congressional and Executive Authority Over Foreign Trade Agreements, by Christopher T. Zirpoli, and CRS , by Christopher T. Zirpoli, and CRS
In Focus IF12327, In Focus IF12327, U.S. Trade Policy: Future Direction and Key Economic Debates, by Andres B. Schwarzenberg. , by Andres B. Schwarzenberg.
9253 See for example, Senator Pat Toomey, “I'll Vote Against This Antitrade Agreement,” Op-Ed, See for example, Senator Pat Toomey, “I'll Vote Against This Antitrade Agreement,” Op-Ed, Wall Street Journal,
December 19, 2019. December 19, 2019.
9354 Anne Kim, “The Truth About USMCA’s Labor Provisions, Domestic policy reforms can more effectively help Anne Kim, “The Truth About USMCA’s Labor Provisions, Domestic policy reforms can more effectively help
American workers,” American workers,” Washington Monthly, December 21, 2019. , 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.
9555 For more information on rules of origin in motor vehicles, see CRS In Focus IF12082, USMCA: Automotive Rules of Origin, by Liana Wong and Kyla H. Kitamura. 56 United States International Trade Commission, United States International Trade Commission, USMCA Automotive Rules of Origin: Economic Impact and
Operation, 2023 Report, Publication Number 5443, July 2023. , 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 Congressional Research Service

39

---

link to page 36 NAFTA and the33 The United States-Mexico-Canada Agreement (USMCA) 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.57 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. 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 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 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 requirements was already conducted duty- and barrier-free under NAFTA. The USMCA
maintains NAFTA’s tariff and non-tariff barrier eliminations. Many economists and other maintains NAFTA’s tariff and non-tariff barrier eliminations. Many economists and other
observers believe that USMCA is not expected to have a measurable effect on U.S. trade and observers believe that USMCA is not expected to have a measurable effect on U.S. trade and
investment with Mexico or Canada, jobs, wages, or overall economic growth, and that it would investment with Mexico or Canada, jobs, wages, or overall economic growth, and that it would
probably not have a measurable effect on the U.S. trade deficit.probably not have a measurable effect on the U.S. trade deficit.10558 The U.S. International Trade The U.S. International Trade
Commission (ITC) conducted an investigation into the likely economic impacts of USMCA, a Commission (ITC) conducted an investigation into the likely economic impacts of USMCA, a
required element of the TPA process. The ITC study, published in April 2019, stated that the required element of the TPA process. The ITC study, published in April 2019, stated that the
elements of USMCA that would have the most significant effects on the U.S. economy are those elements of USMCA that would have the most significant effects on the U.S. economy are those
related to digital trade and the new rules of origin applicable to the automotive sector. USMCA’s related to digital trade and the new rules of origin applicable to the automotive sector. USMCA’s
new international data transfer provisions, absent in NAFTA, are expected to positively impact new international data transfer provisions, absent in NAFTA, are expected to positively impact
industries that rely on such data transfers. The new, more restrictive, auto rules of origin may industries that rely on such data transfers. The new, more restrictive, auto rules of origin may
result in an increase in U.S. production, but also lead to a small increase in prices and a small 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 the ITC report, decrease in the consumption of vehicles in the United States. Overall, according to the ITC report,
USMCA is expected to have a minimal, but positive effect on the U.S. economy.USMCA is expected to have a minimal, but positive effect on the U.S. economy.10659
Sixth Anniversary Review of USMCA
Article 34.7 of USMCA states that the agreement shall terminate 16 years after its entry into 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,” force, “unless each party confirms it wishes to continue this Agreement for a new 16-year term,”
in accordance to USMCA procedures.in accordance to USMCA procedures.10760 These procedures state that in July 2026, the sixth These procedures state that in July 2026, the sixth
anniversary of USMCA’s entry into force, the USMCA Free Trade Commission shall meet to 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 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 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 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 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. 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.
10557 Isabelle Icso, “USTR backs U.S. withdrawal from WTO procurement agreement,” World Trade Online, February 26, 2020. 58 John Brinkley, “USMCA is not the Magnificent Trade Deal Trump Says It Is,” John Brinkley, “USMCA is not the Magnificent Trade Deal Trump Says It Is,” Forbes.com, October 8, 2018. , October 8, 2018.
10659 United States International Trade Commission, 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. , Publication Number: 4889, April 2019.
10760 USMCA, Article 34.7 of Chapter 34 on Final Provisions. USMCA, Article 34.7 of Chapter 34 on Final Provisions.
Congressional Research Service Congressional Research Service

41

---

Appendix. Rapid Response Cases
Figure A-1. Rapid Response Cases


CRS-42

---

CRS-43

---

NAFTA and the34 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 coauthored the original version of this report. Finance, who provided significant contributions and coauthored the original version of this report.
CRS Research Assistants Angela Molina, Alexa Apodaca, and Rileigh Greutert contributed data collection, 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 data analysis, graphics, research, and writing to this report. Amber Hope Wilhelm, CRS Visual Information
Specialist, contributed graphics. Specialist, contributed graphics.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material. copy or otherwise use copyrighted material.

Congressional Research Service Congressional Research Service
R44981 R44981 · VERSION 2224 · UPDATED
4435

---