On 30th November, 2018, after a whole year of negotiations, the presidents of the USA and Mexico and the prime minister of Canada signed the new trade treaty titled United States Mexico Canada Agreement (USMCA) at the G20 Summit in Argentina. The ratification of the treaty is expected in the first semester of 2019.
Unlike NAFTA, USMCA should be considered as a new-generation treaty. It includes changes in digital commerce, where unnecessary obstacles are eliminated, guaranteeing the provision of a safe environment for consumers and certainty for investors.
Moreover, the paragraph on pharmaceuticals and medical devices has been revised, committing the parties to promoting healthcare and to providing incentives for research into and development of pharmaceutical products. Changes to the chemistry sector are also applied to make trading in the said pharmaceuticals more effective.
Key Revision 1 – Competitiveness
This paragraph, proposed by Mexico, seeks to recognise the need for an integrated and coordinated focus to improve competitiveness (within USMCA and with other countries throughout the world).
- A committee consisting of governmental representatives of the parties is to be responsible for providing incentives to production and the circulation of goods and services.
- This paragraph recognises Mexico as a platform for trade with other countries, allowing for the autonomy of the party to handle international trade with limited USMCA jurisdiction.
Key Revisions 2 – Environment
Promising content: it guarantees the application of environmental legislation in the territories of the parties through evaluation procedures, and more specifically:
- commitment to prevent and reduce sea waste; promote sustainable forest practices; avoid whale poaching for commercial means; establish international trafficking of protected species as a serious felony.
Key Revisions 3 – Significant Sector Changes in the Automotive Industry
A Regional Content Value (RCV) rate has been defined based on the net cost of the vehicle, resulting in the following percentages:
- They will have to incorporate value of labor content (VLC):
- 40% of the vehicle’s value: wages of 16 USD per hour
- 70% steel and aluminum origin of the region
- Limitations to the elaboration of the vehicle (except the United States):
- Company certification
- Parallel letter
- Vehicles up to 2.6 million units
- Car parts up to 108 billion USD
- Percentages diverse light-transport and heavy-transport
USMCA is a response to emerging global issues, including those in healthcare, environment and technology, say the experts at Ecovis. USMCA has an initial term of 16 years, with a renewal of 16 years, and so forth consecutively. It may be subject to revision until its sixth year, with an option to leave at six months’ notice.
At the office in Mexico, ECOVIS Quibrera Saldaña, we provide consulting to international and national corporations handling trade within and outside the USMCA.
Benjamín Segura García, Tax Consultant, ECOVIS Quibrera Saldaña, Santa Fe, Mexico