USMCA: Implementation and Considerations for Congress

USMCA: Implementation and Considerations for Congress

Legal Sidebar

USMCA: Implementation and Considerations
for Congress
January 30, 2020
On January 29, 2020, the President signed into law the United States-Mexico-Canada Agreement
(USMCA) Implementation Act, H.R. 5430, which approves and implements USMCA. Once USMCA
enters into force, the obligations in that Agreement will replace the Parties’ obligations under the North
American Free Trade Agreement (NAFTA). This Sidebar discusses how USMCA’s obligations and other
provisions become binding on the United States; explains how USMCA will supersede NAFTA; and
identifies several considerations for Congress.
When Does USMCA Enter into Force?
USMCA’s obligations become legally binding after the Agreement enters into force (with some
exceptions, as discussed below). Before USMCA may enter into force, the Parties must comply with
several steps. First, under paragraph 2 of the USMCA Protocol, each Party must submit a written
notification to the other Parties to show that it has completed all processes required by its domestic laws
to approve the Agreement. USMCA will enter into force “on the first day of the third month” after the
third Party submits its notification. The precise date of entry into force therefore remains in flux, as it
depends on the ability of each Party to complete all required approval and implementation procedures.
Before the United States may submit its notification to the other USMCA Parties, the President and
Congress must complete several steps. First, under the Bipartisan Congressional Trade Priorities and
Accountability Act (TPA), Congress must approve and the President must sign the implementing
legislation, a process that is now complete. Second, under the USMCA Implementation Act, at least thirty
days prior to the Agreement’s entry into force, the President must notify Congress that he “has determined
that [the other Parties have] taken measures necessary to comply with those provisions of the
[A]greement that are to take effect on the date on which the [A]greement enters into force.” After
completion of these steps, USMCA may enter into force for the United States, and after all Parties
complete their domestic processes, the Agreement’s obligations legally bind them under international law.
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What Must the United States Do After Congressional
Approval but Prior to USMCA’s Entry into Force?
Several USMCA obligations apply prior to the Agreement’s entry into force due to norms imposed by
international law as well as language in the Agreement. Respecting these obligations may require
congressional or executive action before the date that USMCA enters into force. Although it may be
difficult for a Party to enforce these norms and obligations prior to USMCA’s entry into force, a breach of
such norms and obligations could delay the effective date of the Agreement.
Under principles of customary international law, after signing the USMCA, the United States is obligated
not to act in ways that may “defeat the object and purpose of” the Agreement. This obligation finds its
basis in the concept of “good faith,” or the protection of legitimate expectations of the Parties to a
proposed agreement. For example, where the United States’ USMCA tariff schedule indicates it will
eliminate tariffs on the date that USMCA enters into force (see Annex 2-B), to raise them prior to such
date may potentially breach the obligation not to defeat the purpose of the Agreement. In other words, the
international obligation not to defeat the object and purpose of a proposed agreement often imposes an
obligation to refrain from certain actions (as opposed to requiring affirmative legislative enactments). The
United States may not face enforcement actions for breach of USMCA pre-ratification, although it may
face political consequences (e.g., the other USMCA Parties may insist on renegotiation of, or refuse to
approve, USMCA).
The text of USMCA also imposes positive obligations on the Parties to undertake certain acts prior to its
entry into force. For instance, Article 5.16 requires the Parties, “by entry into force of this Agreement, [to]
adopt or maintain through their respective laws or regulations, Uniform Regulations regarding the
interpretation, application, and administration” of the Agreement’s Chapters on Rules of Origin, Origin
Procedures, Textile and Apparel Goods, and Customs Administration and Trade Facilitation. This
provision implies that the Parties may need to amend or review their laws and regulations to ensure that
they have such “Uniform Regulations” before USMCA enters into force. Similarly, the Parties must create
a roster of individuals eligible to serve as panelists for State-to-State disputes under USMCA Chapter 31
“by the date of entry into force” (Article 31.8), indicating that the Parties must take steps to designate
such individuals prior to when USMCA becomes legally binding. (For more on the USMCA’s dispute
settlement mechanism, see this CRS In Focus.) To this end, the Statement of Administrative Action
accompanying the USMCA implementing legislation states that the U.S. Trade Representative (USTR)
intends to consult with Congress while it considers nominees to add to the roster before USMCA enters
into force.
It is unclear whether those USMCA obligations that must be satisfied “by the date of entry into force”
could ultimately force a delay of USMCA’s entry into force. For example, although Article 31.8 appears
to require designation of a roster prior to entry into force, USMCA also states that failure to complete a
roster may not prevent a Party from requesting establishment of a panel to resolve disputes under Chapter
31. Such a provision suggests the Parties might point to an incomplete roster to delay the Agreement’s
entry into force, but they might also agree to permit USMCA to enter into force despite this deficiency.
As a practical matter, by passing the USMCA Implementation Act, the United States has authorized most
of the necessary legislative changes and authorized the Executive to take the actions required to
implement the USMCA obligations that must take effect when it enters into force (i.e., those obligations
that do not have a phase-in period). To address any additional legislative changes required to implement
USMCA, the USMCA Implementation Act requires USTR to submit a report to Congress within 180 days
after the Agreement’s approval (i.e., 180 days after January 29, 2020) detailing any remaining “technical
or conforming amendments” that Congress must make.

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What Must the United States Do After USMCA Enters
into Force?
Once USMCA enters into force, all provisions become legally binding upon the Parties as a matter of
international law. Some obligations, however, are subject to a phase-in period, and the Parties need not
bring their legislation or regulations into conformity until the end of such period. For example, a new rule
of origin for certain goods applies “[b]eginning on January 1, 2023 or three years after entry into force of
this Agreement, whichever is later.” Additionally, the Annex to the Digital Trade Chapter states that
Article 19.17 “shall not apply with respect to Mexico until the date of three years after entry into force of
this Agreement.” Despite the delayed application of these provisions, they are legally binding as of the
date of USMCA’s entry into force to the extent that the precise date of their applicability is contingent on
the date of entry into force. Prior to the date of applicability, however, no Party may challenge another
Party’s alleged failure to fulfill those obligations before a dispute settlement panel.
To satisfy the USMCA’s obligations that are subject to a phase-in period, the United States may need to
enact, modify, or maintain laws and regulations consistent with such obligations and refrain from enacting
or amending its laws and regulations or applying them in a manner inconsistent with such obligations. To
this end, the USMCA Implementation Act provides for implementing actions to satisfy obligations that
apply only after USMCA enters into force, while also specifying that, “to the maximum extent feasible,”
such actions must “be prescribed within 1 year after such effective date.” Further, the President may
proclaim certain actions to ensure that the United States complies with its obligations. For example, the
President may modify or continue tariff duty rates or proclaim rules of origin as part of the Harmonized
Tariff Schedule of the United States.
Despite the USMCA’s obligations on the United States, as indicated in the USMCA Implementation Act,
“No provision of the USMCA, nor the application of any such provision to any person or circumstance,
which is inconsistent with any law of the United States, shall have effect.” In other words, USMCA’s
provisions cannot be enforced domestically if they conflict with U.S. law. Moreover, because USMCA
does not affect Congress’s constitutional authority to legislate, Congress may legislate in a manner that
may lead to measures inconsistent with USMCA obligations. If Congress were to pass laws that are
inconsistent with USMCA, however, the other USMCA Parties may ultimately be permitted to deny the
Agreement’s benefits to the United States, such as by imposing higher tariffs or other penalties.
Transitioning from NAFTA to USMCA
If USMCA enters into force, it will supersede NAFTA as stated in the USMCA Protocol and P.L. 116-113,
§ 601. However, USMCA allows certain NAFTA provisions to apply to specified claims brought under
NAFTA for a limited period after USMCA enters into force. First, with respect to State-to-State disputes
relating to antidumping or countervailing duty investigations carried out by one NAFTA Party on goods
imported from another NAFTA Party, Article 34.1.4 allows Chapter 19 of NAFTA to govern such disputes
provided that a Party’s administrative authority issues a final determination in a trade remedies case
before USMCA enters into force. Second, for entities or individuals that claim preferential tariff treatment
under NAFTA, Article 34.1.6 indicates that the relevant NAFTA provisions (Chapter 5) may apply to such
claims after USMCA enters into force. Finally, for certain claims brought by investors against a NAFTA
Party involving investments established or acquired while NAFTA was in force and that still exist when
USMCA enters into force, Article 14-C.1 permits the relevant NAFTA provisions to apply for three years
after NAFTA is terminated. (This rule does not apply with respect to investors from Mexico and the
United States with regard to claims involving government contracts that investors may bring under the
USMCA investor-State dispute settlement mechanism.)

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Finally, as part of a transition from NAFTA to USMCA, one of the NAFTA side agreements—the North
American Agreement on Labor Cooperation—will be terminated upon USMCA’s entry into force, and
will be replaced by the USMCA’s Labor Chapter. The other side agreement—the North American
Agreement on Environmental Cooperation (NAAEC)—will remain partially in place, as the new side
agreement on environmental cooperation builds on and modifies the NAAEC by express reference to its
substance and entities (e.g., the Commission for Environmental Cooperation, which administers and
enforces the side agreement).
Considerations for Congress
Within 180 days after January 29, 2020, USTR must submit a report to Congress that describes the
“technical and conforming amendments to” U.S. law that are necessary to bring U.S. law into conformity
with the USMCA Implementation Act. Upon receipt and review of such a report, Congress may consider
whether it agrees with the proposed amendments and make inquiries to USTR or any relevant agencies
(e.g., through hearings or consultations) before deciding whether to approve such amendments. If
Congress decides to adopt any amendments, it may also consider whether direct legislative enactment of
such amendments or delegation to an agency would most effectively achieve the relevant implementation
objective.
After USMCA enters into force, Congress may consider whether any of its legislative proposals may
bring the United States out of compliance with the United States’ USMCA obligations. As noted,
approval of USMCA does not deprive Congress of its constitutional authority to legislate. However, if
Congress legislates in a manner that is inconsistent with U.S. obligations under USMCA, a dispute
settlement panel may ultimately permit the other USMCA Parties to deny certain USMCA benefits to the
United States.
Should Congress believe that a legislative proposal may potentially be inconsistent with a
USMCA obligation, it may consider several options: (1) refrain from enacting such proposal;
(2) amend the proposal to conform with USMCA; (3) request the Executive Branch to raise the
issue with the other USMCA Parties to seek a side letter or other appropriate agreement among
the Parties stating that the legislative proposal is not incompatible with the Agreement; or
(4) request the Executive Branch to seek a new reservation or amendment to USMCA that would
permit adoption of the proposal. The final option may be the most difficult to achieve, as
requesting late reservations or amendments requires the Parties to reapprove the Agreement.

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