USTR Invites Comments On U.S.-Mexico-Canada Agreement

Last Wednesday, September 17, the Office of the U.S. Trade Representative (USTR) published in the Federal Register a notice inviting comment on the United States-Mexico-Canada Agreement (USMCA), the successor to the North American Free Trade Agreement, which entered into force on July 1, 2020 and is up for review on July 1, 2026. The deadline for written comments is November 3. USTR will convene a public hearing on USMCA on November 17.

USTR's request for comments is tied to text in the USMCA (art. 34.7.2) providing that on the sixth anniversary following entry into force, the government-to-government commission overseeing the Agreement's implementation "shall meet to conduct a 'joint review' of the operation of th[e] Agreement, review any recommendations for action submitted by a Party, and decide on any appropriate actions." The joint review also is the occasion for each of the three USMCA Parties to state whether it wishes the Agreement to remain in force beyond its initial 16-year term. USMCA (art. 34.7.1) provides for its own termination "16 years after the date of its entry into force, unless each Party confirms it wishes to continue this Agreement for a new 16-year term." In other words, unless all three Parties affirm their commitment to keep the USMCA in force, the agreement is due to terminate on July 1, 2036.

The six-year review has the potential to be quite consequential, especially as it will take place against the backdrop of game-changing, unilateral tariff actions by the United States. It could result in continuation of USMCA as is, amendment of key provisions, or the beginning of a gradual wind-down ending with a return to a state in which there is no agreement governing trade relations in North America (apart from the World Trade Organization agreements that apply to trade among most economies in the world).

USTR's invitation to comment is broad. Interested parties may address topics including, among others, "[a]ny aspect of the operation or implementation of the USMCA" and "[a]ny issues of compliance with the Agreement." Among the broad array of topics potentially on the table, certain topics are likely to come under intense scrutiny. These include, for example:

1. Relationship between USMCA and tariffs imposed by the United States on national security grounds: Since January of this year, the Trump Administration has issued multiple orders imposing tariffs on imports pursuant to national security authorities set forth in the International Emergency Economic Powers Act (IEEPA) and section 232 of the Trade Expansion Act of 1962. In certain cases, the orders have provided a carve-out for goods that qualify as "originating" under USMCA. But such carve-outs have been inconsistent. For example, automobiles treated as originating under USMCA are subject to the 25% automobiles tariff imposed under section 232 only with respect to their non-U.S. content; auto parts treated as originating under USMCA are exempt from the 25% auto parts tariff under section 232 (for now); steel and aluminum products are subject to section 232 tariffs regardless of whether they are USMCA originating products. In the six-year review, trade officials could take up the relationship between USMCA and national security tariffs, seeking to put in place rules governing when and how such tariffs apply to goods that otherwise would be entitled to duty-free treatment under the Agreement.

2. Rules of origin: The USMCA contains detailed rules prescribing conditions a good must meet to be entitled to duty-free importation under the Agreement. Typically these rules of origin require that a good either be produced entirely in the territory of a USMCA country or, if the materials used to make the good come from a third country, that they be substantially transformed in a USMCA country. In some cases (e.g., automobiles) the rules are more complicated, including conditions that apply not just to the finished goods, but also to individual components and materials.

As detailed as the USMCA rules are, there have been some expressions of concern about "leakage" of agreement benefits – that is, USMCA benefits accruing indirectly to third country nationals. To stem that leakage, trade officials may use the six-year review to develop and impose tighter rules of origin. Although no concrete proposals have surfaced, one can imagine, for example, rules that increase the "regional value content" that must be attributable to one of the three USMCA Parties. One also can imagine rules that exclude a good (or some portion of the value of the good) from USMCA treatment if it contains content above a specified threshold from specified countries of concern. Another possibility is a rule that excludes a good from USMCA treatment if, despite production in the territory of a USMCA party, ownership or control of a producer by persons of countries of concern, such as China, exceeds specified thresholds.

To be clear, we are not aware of any of the USMCA Parties proposing rules of origin like those described in the preceding paragraph. But based on recent public statements by the Trump Administration about tightening or strengthening rules of origin, it would not be surprising to see modifications along these lines come up for discussion.

Another thing to watch for is the development of new rules of origin for electric vehicles (referred to in USMCA as "advanced technology vehicles"). At the time USMCA was concluded in 2020, the Parties expressly deferred the adoption of specialized rules to deal with such goods.

3. Rapid response mechanism: One of USMCA's innovations was the establishment of a specialized mechanism (known as the rapid response mechanism or RRM) to address allegations that workers at a given factory or other facility are being denied certain core rights with respect to free association and collective bargaining. In principle, the RRM is available for allegations related to facilities in the territory of any of the three Parties, but in practice it is addressed primarily to Mexico. The RRM allows a Party to deny USMCA's benefits to exports from an individual facility credibly found to be denying core labor rights until the conduct at issue is corrected. Moreover, the right to deny benefits may be triggered relatively quickly, in contrast to the norm of years-long processes under ordinary trade agreement dispute settlement.

As of last September, the RRM had been invoked 27 times since USMCA's July 2020 entry into force. Based on that experience, one might expect the Parties to review the RRM's operation and possible improvements. For example, currently the RRM is available only for a facility in a "priority sector" – defined as a sector "that produces manufactured goods, supplies services, or involves mining." Although that definition may seem broad, an illustrative list in a footnote identifies manufactured goods as including "aerospace products and components, autos and auto parts, cosmetic products, industrial baked goods, steel and aluminum, glass, pottery, plastic, forgings, and cement." Stakeholders may seek to expand that list. They also may seek to expand the list of labor rights whose non-enforcement or lax enforcement may trigger the RRM. Likewise, it is possible that Mexico will seek to expand the RRM's potential applicability to the United States and Canada.

The above areas are not the only areas on which stakeholders may be expected to comment. We highlight them because they illustrate the kinds of considerations likely to frame the six-year review, and because they have been the subject of substantial discussion among policy makers and observers. That said, anyone whose economic interests are affected by USMCA should consider submitting comments in response to USTR's invitation.

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