On Sunday, the heads of state of Canada and the United States agreed on terms for a new trilateral deal with Mexico.  The agreement, now known as the United States-Mexico-Canada Agreement “USMCA,” provides several new updates to its NAFTA predecessor.  The deal’s terms, including those established in August in an agreement between the U.S. and Mexico, are contained in 34 chapters of various topics from Agriculture to Macroeconomic Policies and Exchange Rate Matters.   In addition, the agreement contains country-specific annexes and “Side Letters”.

The “Side Letters” accompanying the deal include, among other topics, promises that the U.S. will not impose tariff or import restrictions under Section 232 on Canada or Mexico for 60 days as the countries continue to negotiate on the topic.  The Side Letters also provide for the exclusion of several products from measures under Section 232.  In particular, the U.S. agreed to exclude light trucks and 2.6 million passenger vehicles per year from both Canada and Mexico.  In addition, the U.S. will exclude $32.4 billion and $108 billion in declared customs value of auto parts per year from Canada and Mexico, respectively.

Among other noteworthy updates, the agreement establishes new provisions for rules of origin.  The deal requires that 75 percent of auto content be made in North America and that 40-45 percent of auto content be made by workers earning at least $16 an hour.  Updated provisions and procedures for rules of origin were also included to help prevent duty evasion.

The new agreement also prohibits customs duties on digital products and minimizes limits on where data may be stored to promote digital trade, and includes extensive environmental obligations to address a variety of concerns.  Several new industry-specific agreements were reached, including those relating to pharmaceuticals, medical devices, cosmetic products, and chemicals.

Congress is expected to vote on the deal in 2019.

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