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U.S., Mexico Announce Trade Agreement; Talks with Canada Expected Soon

Tuesday, August 28, 2018

The presidents of the U.S. and Mexico announced Aug. 27 a preliminary agreement in principle on a bilateral free trade agreement that President Trump indicated will replace NAFTA. The deal is expected to be signed in late November following a 90-day congressional review period. Trump said the U.S. will also begin “pretty much immediately” trade negotiations with Canada that will result in either a separate bilateral FTA or Canada’s addition to the U.S.-Mexico agreement.

Companies importing from Mexico should act now to assess the possible impact of these changes on their supply chains. Sandler, Travis & Rosenberg can help companies review their operations and import data to evaluate potential effects and responses.

Arguing that NAFTA has contributed to the growing U.S. goods trade deficit and includes many provisions that do not reflect modern standards, new technologies, or the 21st century global economy, the Office of the U.S. Trade Representative states that the U.S.-Mexico agreement includes the following provisions, among others.

Rules of Origin and Market Access

- 75 percent of auto content must be made in the U.S. and Mexico

- 40-45 percent of auto content must be made by workers earning at least $16 per hour

- stronger rules of origin, including for industrial products such as chemicals, steel-intensive products, glass, and optical fiber

- procedures that streamline certification and verification of rules of origin and new cooperation and enforcement provisions to help prevent duty evasion before it happens

- new provisions for transparency in import licensing and export licensing procedures

- prohibition on (a) requirements to use local distributors for importation, (b) restrictions on the importation of commercial goods that contain cryptography, and (c) import restrictions on used goods to remanufactured goods

- updated provisions for duty-free temporary admission of goods to cover shipping containers or other substantial holders used in the shipment of goods

- new provisions covering trade in specific manufacturing sectors, including information and communication technology, pharmaceuticals, medical devices, cosmetic products, and chemical substances

Textiles and Apparel

- limit on rules that allow for some use of non-NAFTA inputs in textile and apparel trade

- requirement that sewing thread, pocketing fabric, narrow elastic bands, and coated fabric, when incorporated in apparel and other finished products, be made in the region for those finished products to qualify for trade benefits

- textile-specific verification and customs cooperation provisions that provide new tools for strengthening customs enforcement and preventing fraud and circumvention

Agriculture

- agreement to not use export subsidies or World Trade Organization special agricultural safeguards for products exported to each other’s market

- improved commitments to increase transparency and consultation regarding the use of export restrictions for food security purposes

- when supporting producers, agreement to consider using domestic support measures that have minimal or no trade distorting or production effects

- improved transparency for import checks

- new provisions on geographical indications

- first-ever agreement to protect the confidentiality of proprietary formulas for food products in the same manner for domestic and imported products

IPR

- enforcement authorities must be able to stop goods suspected of being pirated or counterfeited at all areas of entry and exit

- enforcement against counterfeits and piracy occurring on a commercial scale

- first U.S. FTA to require all of the following to protect U.S. rights holders from trade secret theft, including by state-owned enterprises: civil remedies, criminal remedies, prohibition on impeding licensing of trade secrets, protections for trade secrets during the litigation process, and penalties for government officials who wrongfully disclose trade secrets

- full national treatment for copyright and related rights

- minimum copyright term extended to 75 years for works like song performances

- ten years of data protection for biologic drugs and expanded scope of products eligible for protection

Digital Trade

- prohibition on application of customs duties and other discriminatory measures to digital products distributed electronically (e-books, videos, music, software, games, etc.)

- limit on government ability to require disclosure of proprietary computer source code and algorithms

De Minimis

- Mexico will increase from $50 to $100 the value of shipments that may enter free of customs duties or taxes and with minimal formal entry procedures

Financial Services

- prohibition on local data storage requirements when a financial regulator has the access to data it needs to fulfill its regulatory and supervisory mandate

- updated provisions to allow for the cross-border transfer of data

- a separate annex on commitments relating to cross-border trade, including application of the national treatment and market access obligation to an expanded list of cross-border services

Labor

- all labor provisions brought into core of the agreement and made enforceable

- commitment by Mexico to specific legislative actions to provide for the effective recognition of the right to collective bargaining

- agreement to take measures to prohibit the importation of goods produced by forced labor, to address violence against workers exercising their labor rights, and to ensure that migrant workers are protected under labor laws

Environment

- all environment provisions brought into core of the agreement and made enforceable

- prohibition on some of the most harmful fisheries subsidies, such as those that benefit vessels or operators involved in illegal, unreported, and unregulated fishing

- new protections for marine species like whales and sea turtles, including a prohibition on shark-finning

- obligations to enhance the effectiveness of customs inspections of shipments containing wild fauna and flora at ports of entry and ensure strong enforcement to combat IUU fishing

- first-ever articles to improve air quality, prevent and reduce marine litter, support sustainable forest management, and ensure appropriate procedures for environmental impact assessments

For more information, please contact Nicole Bivens Collinson at (202) 730-4956.

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