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United States-Mexico-Canada Agreement: Going Strong, For Now!
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The United States, Mexico and Canada have enjoyed near-complete free trade since the inception of the North American Free Trade Agreement (“NAFTA”) in 1994. In fact, Canada and the US have enjoyed “free trade” even longer than that, since the inception of the first Canada-US Free Trade Agreement in 1989. Unfortunately, free trade amongst the “three amigos” is not guaranteed!
In this blog we explore the mandatory Review and Term Extension Rules in the US-Mexico-Canada Agreement (“USMCA” – also known in Canada as the “CUSMA”), and what it is going to take in order to keep our vibrant North American trade relationship going!
Review & Term Extension Framework
Article 34.7 of the USMCA outlines the Review and Term Extension procedures under the USMCA. Basically, on the sixth anniversary of the USMCA, the Commission (established under Article 30.1, and comprising government representatives of the three countries at the level of Ministers or their designees) will meet to conduct a “joint review” of the trade agreement. As part of this joint review, each country can confirm, through its ultimate head of state, its wishes to renew the USMCA for an additional sixteen (16) years. If all countries agree, the USMCA automatically extends for another 16 years, with subsequent joint reviews every six (6) years to consider further extensions.
Where a country chooses NOT to extend, the Commission will then hold annual joint reviews for the remainder of the USMCA’s term to see if a further agreement can be reached. If no agreement can be reached, the USMCA is terminated on the conclusion of that first 16-year term.
Given that the USMCA entered into force in July 2020, the first “six (6) year” joint review is scheduled to take place in July 2026. Without an extension, the USMCA could theoretically end in July 2036.
Issues & Political Factors
Despite the advantages of free trade, the USMCA has not been without disputes and controversies. For example, Mexico’s unilateral decree to ban biotechnology corn in tortillas and dough, and its intention to phase out biotechnology corn in many products, has sparked concerns. Similarly, Canada's reluctance to open its dairy market has drawn open criticism. The US's stringent regulations mandating the use of North American parts for car manufacturers have also posed a significant challenge to the USMCA. Consequently, there have been calls for improved compliance and accountability within the USMCA, and that could be a “hot topic” for the first joint review.
Political elections in all three countries could also significantly impact the first joint review process, although enough said about that!
Takeaways
The USMCA has been running strong but cannot be taken for granted. Built in review periods are about to begin, and while there is nothing to worry about right now, expected political upheaval in Canada, the US and Mexico could impact local sentiments on the feasibility and desirability of the USMCA.
Cautious optimism is the lesson of the day!