The Agreement between the United States of America, the United Mexican States, and Canada (USMCA) is a free trade agreement among the United States, Mexico, and Canada, in effect from July 1, 2020. It replaced the North American Free Trade Agreement (NAFTA) implemented in 1994. It is sometimes characterized as "NAFTA 2.0", or "New NAFTA", since it largely maintains or updates the provisions of its predecessor. The USMCA encompasses one of the world's largest free trade zones, with a total population of more than 510 million and an economy of US$30.997 trillion in nominal GDP—nearly 30 percent of the global economy, and the largest of any trade bloc in the world.
The formal process to renegotiate NAFTA was initiated by the U.S. on May 18, 2017. Rounds of negotiations persisted until all sides came to a formal agreement on October 1, 2018. The following month, U.S. president Donald Trump proposed USMCA during the G20 Summit, where he, Mexican president Enrique Peña Nieto, and Canadian prime minister Justin Trudeau signed it; a revised version reflecting additional consultations was signed on December 10, 2019. USMCA was ratified by all three countries by March 13, 2020 and came into effect on July 1, 2020.
USMCA is primarily a modernization of NAFTA, namely concerning intellectual property and digital trade. It borrows language from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which Canada and Mexico are signatories. Key changes from its predecessor include increased environmental and working regulations; greater incentives for automobile production in the U.S. (with quotas for Canadian and Mexican automotive production); more access to Canada's dairy market; and an increased duty-free limit for Canadians who buy U.S. goods online. The treaty contains a provision for review and adjustment in 2026.
On June 1, 2026, with the mandatory July 1 deadline for the trilateral joint review approaching, Canada formally asked the United States and Mexico to renew the agreement for another 16 years. On July 1, 2026, the United States announced it would not renew the agreement. The signatories will now engage in an annual review, for the next 10 years, until the agreement expires on July 1, 2036 or one gives six months' notice of withdrawal.
Background and nomenclature
The United States–Mexico–Canada Agreement is based substantially on the North American Free Trade Agreement (NAFTA), which came into effect on January 1, 1994. The present agreement was the result of more than a year of negotiations including possible tariffs by the United States against Canada in addition to the possibility of separate bilateral deals instead.
During the 2016 U.S. presidential election, Donald Trump's campaign included the promise to renegotiate NAFTA or cancel it if renegotiations were to fail. Upon election, Trump proceeded to make a number of changes affecting trade relations with other countries—withdrawing from the Paris Agreement, ceasing to be part of negotiations for the Trans-Pacific Partnership, and significantly increasing tariffs with China—reinforcing that he was serious about seeking changes to NAFTA, while drawing wide criticism as well. One journal article noted that much of the debate surrounding the virtues and faults of the USMCA is similar to that surrounding all free trade agreements (FTAs); for instance, the nature of FTAs as public goods, potential infringements of national sovereignty, and the role of business, labor, environmental, and consumer interests in shaping the language of trade deals.
The agreement is referred to differently by each signatory—in the United States, it is called the United States–Mexico–Canada Agreement (USMCA); in Canada, it is officially known as the Canada–United States–Mexico Agreement (CUSMA) in English and the Accord Canada–États-Unis–Mexique (ACEUM) in French; and in Mexico, it is called Tratado entre México, Estados Unidos y Canadá (T-MEC). The agreement is sometimes referred to as "New NAFTA", referring to the previous trilateral agreement it is meant to supersede, the North American Free Trade Agreement (NAFTA).
Country comparison
† Including Guam, Puerto Rico, and the U.S. Virgin Islands.
‡ Including Puerto Rico.
Negotiations
The formal process to renegotiate NAFTA began on May 18, 2017, when U.S. Trade Representative Robert Lighthizer notified Congress of the U.S. intent to initiate talks within 90 days. Under Trade Promotion Authority statutes, the USTR released its key negotiating objectives on July 7, 2017. Negotiations officially commenced on August 16, 2017, with eight formal rounds of talks held until April 8, 2018. By May 2, 2018, no resolution had been reached. Lighthizer warned that talks would pause until 2019 if no deal were finalized by the end of May, citing concerns over Mexico's incoming president, Andrés Manuel López Obrador, who opposed parts of the negotiated terms.
Separately, U.S. House Speaker Paul Ryan set a May 17, 2018, deadline for Congressional action, but this was ignored. A U.S.–Mexico deal was finally reached on August 27, 2018, though Canada still had not agreed. With Mexico's outgoing president, Enrique Peña Nieto, leaving office on December 1, 2018, and a mandatory 60-day review period required, the deadline to finalize the text was September 30. Negotiators worked intensely and completed the draft just before midnight on September 30, 2018. The USMCA text was published as finalized on October 1, 2018, with Lighthizer crediting Jared Kushner for salvaging the deal multiple times.
The agreement was signed by all three countries' leaders on November 30, 2018, during the G20 summit in Buenos Aires. The English, Spanish, and French versions were declared equally authentic. Ratification required the passage of enabling legislation in each country. U.S. Ambassador to Canada Kelly Craft played a critical role in bridging U.S.–Canada differences, boosting her standing within the Trump administration. Behind the scenes, Blackstone CEO Stephen Schwarzman—retained by Trump – reportedly urged Canadian Prime Minister Justin Trudeau to compromise on dairy market protections during a January 2017 meeting with Canada's Liberal Cabinet at a Calgary retreat, where civil servants were absent. Schwarzman claimed Trudeau feared a recession ahead of the 2019 Canadian election.
On December 9, 2019, Fox News reported a breakthrough: negotiators agreed to enforce a $16/hour minimum wage for Mexican auto workers via a neutral third party. Mexico, which imports all its aluminum, opposed U.S. steel/aluminum content rules for vehicles but conceded to finalize ratification by year's end.
Provisions
Provisions of the agreement cover a wide range, including agricultural produce, homelessness, manufactured products, labor conditions, and digital trade, among others. Some of the more prominent aspects of the agreement include giving U.S. dairy farmers greater access to the Canadian market, guidelines to have a higher proportion of automobiles manufactured among the three nations rather than imported from elsewhere, and retention of the dispute resolution system similar to that included in NAFTA.
Dairy
The dairy provisions give the U.S. tariff-free access to 3.6%, up from 3.25% under the never-ratified Trans-Pacific Partnership, of the $15.2 billion (as of 2016) Canadian dairy market. Canada agreed to eliminate Class 7 pricing provisions on certain dairy products, while Canada's domestic supply management system remains in place.
Automobiles
Automobile rules of origin (ROO) requirements mandate that a certain portion of an automobile's value must come from within the governed region. In NAFTA, the required portion was 62.5 percent. The USMCA increases this requirement to 75 percent of the automobile's value. The initial proposal from the Trump administration was to increase this to 85 percent and add a stipulation that 50 percent of the automotive content be made by U.S. carmakers, but in the end, the deal's text did not include this version of the provision. There is concern that the increased domestic sourcing requirements, aimed at promoting U.S. employment, will cause higher input costs and disruptions to supply chains deriving outside of certain developing or once more industrious zones, for example the "Rust" Belt.
De minimis
To facilitate cross-border trade, Mexico and Canada agreed to raise their de minimis exemption thresholds for the application of taxes and customs duties. (In 2016, the United States raised its de minimis threshold for all countries to US$800 (from US$200) per person per day to save on enforcement costs.) For goods transported to Canada by courier from the United States or Mexico, Canada increased the threshold from C$20 (approximately US$16) to C$40 for taxes (GST, HST, PST), and to C$150 for customs duties (tariffs).
Some goods do not have an exemption, such as alcohol and tobacco.
Mexico maintained its de minimis threshold at US$50 for taxes, and it agreed to provide duty-free shipments up to the equivalent of US$117.
Labor
USMCA Annex 23-A requires Mexico to pass legislation that improves the collective bargaining capabilities of labor unions. The specific standards Mexico is required to comply with are detailed in the International Labour Organization's Convention 98 on freedom of association and collective bargaining. The administration of Mexico's president, Andrés Manuel López Obrador, introduced legislation in late 2018 that pursues compliance with these international standards.
Other labor-related measures include a minimum wage requirement in the automotive industry. Specifically, 40 to 45 percent of the automobiles manufactured in North America must be made in a factory that pays a minimum of US$16 per hour. This measure will be phased in during the first five years after USMCA ratification.
Intellectual property
The USMCA extends the copyright length in Canada to life plus 70 years, and 75 years for sound recordings. Furthermore, biotechnological firms would have at least 10 years exclusivity period for agricultural chemicals (double the current 5), and industrial designs' period would "jump" from current 10 to 15 years. Compared to NAFTA, USMCA would require criminal penalties and civil remedies to be available for both satellite and cable theft, reaffirm the Doha Declaration on the TRIPS agreement and public health, contain the strongest due process and transparency requirements for geographic indicator protection systems in any FTA, require criminal procedures and penalties for recording copyrighted movies in movie theaters, and require ex officio authority for customs officials to stop suspected counterfeit goods.
Pharmaceuticals
USMCA provides for a patent term extension where there is an "unreasonable curtailment" of a pharmaceutical's patent term stemming from delays in the regulatory or marketing approval process.
USMCA accounts for the data exclusivity of new pharmaceutical products. New pharmaceutical products are those that do not contain a chemical entity that has been previously approved by that party. Generic manufacturers are prohibited from relying on the innovator's previously undisclosed safety/efficacy testing for at least five years from the date marketing approval was first granted. Mexico agreed to extend its data protection of new pharmaceutical products. Canada's data protection regime already offered an eight-year exclusivity period for innovative drugs and thus was not required to make changes.
Initially, the parties contemplated creating an exclusivity period for new products containing biologics for at least ten years from the approval date. Biologics are defined as a product that is "produced using biotechnology processes and that is, or contains, a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, protein, or analogous product, for use in human beings for the prevention, treatment, or cure of a disease or condition". This period would have been longer than the exclusivity periods of both Canada and Mexico, but shorter than that of the United States. This provision was heavily criticized for its potential to limit access to biological medications and make them unaffordable. Thus, biologics were covered in the definition of "new pharmaceutical products" and are instead eligible for a minimum five-year protection period.
Elimination of foreign office and local presence requirements
The USMCA would eliminate the need for companies to establish headquarters in any other USMCA country. It will encourage cross-border business by excluding U.S. companies from the need to localize data and open a Canadian or Mexican HQ. For example, McDonald's Canada or Apple Canada could both cease to exist, and the surviving entities would be a North American McDonald's or Apple.
Dispute settlement mechanisms
There are three primary dispute settlement mechanisms contained in NAFTA. Chapter 20 is the country-to-country resolution mechanism. It is often regarded as the least contentious of the three mechanisms, and it was sustained in its original NAFTA form in USMCA. Such cases would involve complaints between USMCA member states that a term of the agreement had been violated. Chapter 19 disputes manage the justifications of anti-dumping or countervailing duties. Without Chapter 19, the legal recourse for managing these policies would be through the domestic legal system. Chapter 19 specifies that a USMCA Panel will hear the case and act as an International Trade Court in arbitrating the dispute. The Trump administration attempted to remove Chapter 19 from the new USMCA text, though it has thus far endured in the agreement.
Chapter 11 is the third mechanism, known as investor-state dispute settlement, wherein multinational corporations are enabled to sue participating governments over allegedly discriminatory policies. Chapter 11 is broadly considered the most controversial of the settlement mechanisms. The Canadian negotiators effectively removed themselves from Chapter 11 in the USMCA version of this measure, Chapter 14. Canada will have a full exemption from ISDS three years after NAFTA has been terminated.