On December 10, 2019, the Governments of Canada, the United States and Mexico executed the Protocol of Amendment to the Agreement between Canada, the United States of America, and the United Mexican States (the "Amending Protocol").
- Although the three country members originally announced the completion of negotiations toward the new trilateral trade agreement on September 30, 2018, after more than a year of contentious negotiations, certain further amendments were eventually renegotiated to secure support in the U.S. Congress.
- Such key amendments to the Canadian-United States-Mexico Agreement (as amended, the "CUSMA") as contemplated by the Amending Protocol relate to dispute settlement, labour, environment, intellectual property and the rules of origin.
- Once in force (i.e., on the first day of the third month following the mandatory notice from the last member country to complete its internal ratification), the CUSMA will finally replace the North American Free Trade Agreement (NAFTA), in effect since 1994.
- Both the United States and Mexico have already completed their internal ratification procedure while the Canadian government still needs Bill C-4 to pass the required Readings in both the House of Commons and the Senate before receiving Royal Assent. As of publication of this post, Bill C-4 has passed the Second Reading and has been referred to the Standing Committee on International Trade.
The dispute settlement process under the CUSMA provides for the automatic establishment of a panel upon request of a party after consultation. The panel shall be comprised of five members, unless the disputing parties agree to a panel comprised of three members. The revised provisions also include the creation of a roster of up to 30 individuals who are willing to serve as panelists. The amendment further clarifies the rules of procedure for the panel and provides the right for the disputing parties to submit anonymous testimony and redacted evidence in appropriate circumstances. Finally, the dispute settlement process shall no longer involve the Free Trade Commission of Ministers.
The new agreement makes it easier to demonstrate a failure to comply with an obligation under the labour rights section. Previously, the failure to comply had to be in a manner affecting trade or investment between the member countries. This is now presumed unless the responding party demonstrates otherwise.
Canada and the United States have both separately agreed to a "facility-specific rapid response labour mechanism" with Mexico regarding the denial of rights of free association and collective bargaining. The purpose of this mechanism is to ensure the remediation of such denial of rights and to ensure that remedies are lifted immediately once a denial of rights is remediated.
Similarly to the labour section, for purposes of dispute settlement, the failure to comply with an obligation under the Environment section in "a manner affecting trade or investment between the parties" shall now be presumed by a panel unless the responding party demonstrates otherwise. The Amending Protocol specifies that member countries are not precluded from taking a particular measure to comply with their respective obligations under other multilateral environmental agreements as long as the primary purpose of the measure is not to impose a disguised restriction on trade.
The Amending Protocol will no longer extend data protection on new biological drugs to 10 years from 8 years, as currently provided under Canadian law. This amendment is raising a lot criticism from the pharmaceutical industry, which is already facing new challenges launching new drugs due to the anticipated impacts of the recent amendments to the Patented Medicines Regulations.
Bill C-4 will amend the Food and Drugs Act to implement the remaining data protection provisions of the revised agreement. Furthermore, Canada is also expected to amend the Patent Act to integrate a patent term restoration system in conformity with section 20.44 of the CUSMA which allows recovery of time lost due to "unreasonable delays" in the issuance of a patent.
According to the Government statement on the amendment to the Intellectual Property Chapter, the member countries have also agreed to "remove a provision on the availability of patents for new uses, new methods or new processes of using a known product, as well as a provision on data protection for "new indications" of existing drugs"; and "include additional language on an exception related to regulatory reviews, and new language on how parties may meet obligations dealing with patent-term restoration, patent linkage and data protection for small molecule drugs."
Rules of origin for automotive
The chapter on the rules of origin was amended to specify that beginning seven years after the entry into force of the CUSMA, for steel to be considered as originating in the CUSMA region, all steel manufacturing process must occur in one or more of the parties' countries, except for metallurgical processes involving the refinement of steel additives. Such processes include the initial melting and mixing and continues through the coating stage. This requirement does not apply to raw materials used in the steel manufacturing process, including steel scrap, iron ore, pig iron, reduced, processed or pelletized iron ore, or raw alloys. Ten years after entry into force of the agreement, the member countries will have to review the appropriate requirements for aluminum to be considered as originating.
The CUSMA will come into force on the first day of the third month following the mandatory notice from the last country to complete its internal ratification procedures.
On December 19, 2019, the House of Representatives, controlled by the Democratic Party, approved the United States-Mexico-Canada Agreement Implementation Act (the "Implementation Act") by a vote of 385 to 41. The Implementation Act was then approved by a vote of 89-10 on January 16, 2020 by the Senate, controlled by the Republican Party. On January 29, 2020, President Donald Trump held a signing ceremony at the White House, finalising the United States implementation process.
The Senate of Mexico ratified the original agreement on June 20, 2019 with 144 votes for, 3 against, and 3 abstentions. On December 12, 2019, the Senate passed the amended agreement by a vote of 107-1. On January 21, 2020, the President announced ratification in the Federal Official Gazette through the Presidential Decree approving the Protocol Modifying the Treaty between the United Mexican States, the United States of America and Canada as well as two parallel agreements with the United States, thus completing Mexico's ratification procedure.
On January 29, 2020, the Canadian Government introduced Bill C-4 entitled An act to implement the Agreement between Canada, the United States of America and the United Mexican States ("Bill C-4"). Bill C-4 received its First Reading in the House of Commons the same day and received its Second Reading on January 30, 2020. It has now been referred to the Standing Committee on International Trade.
Holding a minority government, the Liberal Party needs the support of at least one of the other parties to pass Bill C-4. While the Conservatives could support the ratification of the CUSMA, the Bloc Québécois has openly stated that it plans to stand in the way of a fast-track adoption of Bill C-4. Its leader, Yves-François Blanchet, said the final deal does not provide the same protection for Quebec's aluminum industry as it does for the steel industry and Ontario's automobile manufacturing sector. New Democratic Party of Canada's leader, Jagmeet Singh, has so far refused to say whether his party will support Bill C-4 or not.
As we already indicated in the past, the CUSMA is an agreement that will have a significant impact to the North American investment landscape. As the CUSMA could potentially come into force in the next few months, the following steps should be taken right away by Canadian businesses:
- Consulting with counsel regarding how the changes in the CUSMA will impact their business, including new compliance requirements and the elimination of the investor-state dispute mechanism.
- Businesses should evaluate whether their current practices under NAFTA will allow them to remain compliant under the CUSMA once in force.
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