Canada: NAFTA Rebranded And Updated: Maintaining, Protecting And Preserving Free Trade

NAFTA's replacement (rebranded as the US-Mexico-Canada Agreement or USMCA), was announced late Sunday. It includes some significant updates to the 25-year-old trade agreement between the three countries, but for the most part, it maintains, protects and preserves North American free trade and, in particular, Canadian trade with the United States, which was Canada's main objective. Of note:

  • Chapter 19 dispute resolution provisions of importance to Canada were preserved;
  • the investor-state dispute resolution system between Canada and the US was dissolved;
  • Canada made concessions on dairy and agriculture;
  • Canada, Mexico and the US compromised on rules of origin for the auto sector, among other things;
  • he USMCA does not deal with the future of US tariffs on imports of Canadian steel and aluminium products imposed under the national security provisions of the US Trade Expansion Act of 1962 (TEA), nor does it address the Canadian counter-measures.

Here is a breakdown of the key aspects of USMCA:

Chapter 19 Dispute Resolution

The dispute resolution provisions formerly contained in Chapter 19 of NAFTA have been incorporated into Chapter 10: Trade Remedies of the USMCA. Canada pushed to preserve these provisions, which provide for review of antidumping or countervailing duties by an independent, binational panel of trade experts rather than by the national court of the alleged offending country. Canada has used these provisions in the past to challenge US actions in relation to aircraft and softwood lumber. Under the USMCA, this dispute settlement mechanism will be available only as between the US and Canada.

Investor-State Dispute Resolution

The investor-state dispute resolution provisions of Chapter 11 of NAFTA (also known as ISDS) will not be maintained as between the US and Canada, though the USMCA will include provisions for the arbitration of certain types of investment disputes to apply as between Mexico and the US. The NAFTA parties' consent to the arbitration of "legacy investment" claims will expire three years after NAFTA is terminated.

Pursuant to the provisions of the former Chapter 11, an investor could submit a breach of the NAFTA investment provisions to an impartial arbitration tribunal through Chapter 11's ISDS provisions. For example, an enterprise constituted in the US or a branch located in the US and carrying on business in the US that invested in or sought to invest in Canada (including commitments of capital or other resources for economic activity) could bring a claim against Canada for breach of Chapter 11 before a neutral arbitral tribunal.

While some important investment obligations will be maintained as between all three countries (e.g. national treatment, Most Favoured Nation treatment, minimum standard of treatment, expropriation, and performance requirements), with the removal of ISDS as between Canada and the United States, individual investors from those countries will have limited enforcement mechanisms available to them. The investment obligations themselves are also qualified in new ways as compared to the protections that existed under Chapter 11. More information on the changes to the ISDS provisions can be found in a related legal update.

Dairy and Agriculture

While generally maintaining its supply management system, Canada has made a number of concessions on dairy pursuant to the new agreement. Specifically, Canada agreed to increase US dairy imports in a number of product categories and to eliminate certain milk class prices.

With respect to the US dairy imports, under the USMCA, Canada has agreed to increased access for US dairy products in the form of tariff rate quotas (TRQs) for certain US-origin dairy products, to be implemented over six years. For example, the following products will eventually be allowed to enter Canada duty-free in the prescribed quantities:

  • Milk: 50,000 metric tonnes (85% of which is for milk in bulk to be processed into dairy products used as ingredients for further processing);
  • Cream: 10,500 metric tonnes (85% of which will be dedicated to cream for further processing);
  • Skim milk powders: 7,500 metric tonnes;
  • Butter and cream powder: 4,500 metric tonnes (50% of which shall ultimately be for further processing);
  • Cheese for industrial use: 6,250 metric tonnes; and
  • Cheese of all types: 6,250 metric tonnes.

Comparatively, under the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), Canada established TRQs for cheese of 16,000 metric tonnes and for industrial cheese of 1,700 metric tonnes.

Pursuant to the USMCA, Canada will also implement increased TRQs for US-origin yogurt and buttermilk, whey powder, concentrated milk, milk powders, powdered buttermilk, products of natural milk constituents, ice cream and ice cream mixes, other dairy, chicken, turkey, egg and egg products, and broiler hatching eggs and chicks.

With respect to special milk classes, Canada committed to eliminating milk classes 6 and 7, and their associated milk class prices, six months after entry into force of the USMCA. Canada also agreed to ensure that the milk class prices of those products and ingredients "shall be established appropriately based on end use." The Canadian Dairy Commission introduced class 7 in February of last year. The class includes milk components, milk products and dairy ingredients for utilization in the production and processing of milk and dairy products, such as milk protein concentrate and skim-milk powder. Ontario had previously established a class 6 covering similar products. From its inception, class 7 was a major negotiating point for the United States because US producers believed the low prices imposed pursuant to the class 7 designation adversely impacted US imports of these products into Canada.

Automobile Sector

Canada, the US, and Mexico were able to reach a compromise on rules of origin for the auto sector in the USMCA, following many months of US threats related to imports of automobiles. Specifically, the regional value content for vehicles under the new agreement will be increased from 62.5% under NAFTA to 75%. In order to be considered originating under the USMCA, passenger vehicles will ultimately require that 40% of content be made in plants with a production wage rate of at least USD 16 per hour, a provision likely meant to uphold the integrated North American auto sector while responding to concerns regarding the loss of jobs to Mexican plants with lower labour costs.

Additionally, pursuant to the US-Canada 232 Side Letter, Canada negotiated an exception for Canadian auto exports to any future US actions under section 232. Specifically, if the US imposes a measure pursuant to section 232 with respect to passenger vehicles, light trucks, or auto parts, the US has committed to exclude a specified quantity of Canadian auto products from such measures (2,600,000 passenger vehicles; light trucks; and a quantity of auto parts amounting to USD 32.4 billion annually).

Still Unresolved - Steel and Aluminium

In March 2018, President Trump imposed tariffs on steel and aluminum products under section 232 of the US TEA. The USMCA does not deal specifically with these tariffs. The question as to whether the US will lift these steel and aluminum tariffs vis-à-vis Canada and Mexico, effectively allowing Canada to remove its counter-measures, will need to be resolved in separate negotiations. On Monday, Minister Freeland indicated that Canada hoped to take advantage of the momentum reached with the USMCA to reach an agreement with the US regarding the future of these tariffs.

The USMCA does establish a process for the establishment of future tariffs under section 232 of the US TEA. Under the US-Canada 232 Process Side Letter, Canada will have 60 days to negotiate with the US prior to any new measures under section 232 becoming applicable to Canada.

Other Features of the USMCA

Canada does not appear to have conceded to US demands for a "dollar to dollar" equivalent with respect to procurement liberalization under the agreement. The current text of the USMCA available online indicates that it applies only as between Mexico and the US. It is therefore unclear whether Canada will benefit from the procurement chapter of the USMCA. If it does not, then Canadian suppliers will need to rely on the procurement provisions of other trade agreements as they relate to government contracts in the US. Even if the USMCA procurement provisions are available to Canadian suppliers, it does not appear that the USMCA will extend to state, provincial or local entities in any significant way. This means that "Made in America" or other local content requirements imposed by state or local governments in relation to government projects will remain largely unaffected by the USMCA.

Other features of the revised agreement include:

  • maintenance of an exemption for measures adopted or maintained by Canada with respect to its cultural industries;
  • a new anticorruption chapter in which the parties affirm their resolve to prevent and combat bribery and corruption in international trade and investment;
  • a labour chapter that obliges the parties to adopt and maintain certain internationally agreed rights, including freedom of association and the elimination of all forms of forced or compulsory labour, as well as statutes and regulations governing acceptable conditions of work with respect to minimum wages, hours of work, and occupational health and safety;
  • new thresholds for the imposition of customs duties ($150) and taxes ($40) on Canadian consumers with respect to shipments of online purchases into Canada; and
  • a new chapter on digital trade likely meant to modernize the 25-year-old agreement.

Conclusion

The success of the NAFTA renegotiations ultimately lies in what Canada was able to preserve in the face of often unprecedented US demands for concessions. While the USMCA includes important concessions by Canada, the trade agreement maintains many of the aspects of NAFTA that were critical to free trade in North America, including tariff-free access to the US market, protection of the Canadian auto sector, preservation of Canadian cultural industries, and the maintenance of the Chapter 19 dispute resolution process.


About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.

Law around the world
nortonrosefulbright.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions