LegiStorm

Summary:

On September 30, 2018, the Trump Administration announced the conclusion of the renegotiations of the North America Free Trade Agreement (NAFTA) and the proposed United States-Mexico-Canada Agreement (USMCA). If approved by Congress and ratified by Canada and Mexico, USMCA would modify and possibly replace NAFTA, which entered into force January 1, 1994. NAFTA provisions are structured as three separate bilateral agreements: one between Canada and the United States, a second between Mexico and the United States, and a third between Canada and Mexico. Under NAFTA, bilateral agricultural trade between the United States and Mexico was liberalized over a transition period of 14 years beginning in 1994. NAFTA provisions on agricultural trade between Canada and the United States are based on commitments under the Canada-U.S. Trade Agreement (CUSTA), which granted full market access for most agricultural products with the exception of certain products. The agricultural exceptions under NAFTA include Canadian imports from the United States of dairy products, poultry, eggs, and margarine and U.S. imports from Canada of dairy products, peanuts, peanut butter, cotton, sugar, and sugar-containing products. The proposed USMCA would expand market access for U.S. exports of dairy, poultry, and eggs to Canada and enhance NAFTA's Sanitary and Phytosanitary (SPS) provisions. It would also include new provisions for trade in agricultural biotechnology products, add provisions governing Geographical Indications (GIs), add protection for proprietary food formulas, and require USMCA countries to apply the same regulatory treatment to imported alcoholic beverages and wheat as those that govern their domestic products. Since 2002, Canada has been the United States' top agricultural export market, and Mexico was the second-largest export market until 2010, when it became the third-largest market as China became the second-largest agricultural export market for the United States. U.S. agricultural exporters are thus keen to keep and grow the existing export market in North America. If the United States were to potentially withdraw from NAFTA, as mentioned several times by President Trump, U.S. agricultural exporters could potentially lose at least a portion of their market share in Canada and Mexico if the proposed USMCA does not enter into force. If the United States withdraws from NAFTA, U.S. agricultural exports to Canada and Mexico would likely face World Trade Organization (WTO) most-favored-nation tariffs—the highest rate a country applies to WTO member countries. These tariffs are much higher than the zero tariffs that U.S. exporters currently enjoy under NAFTA for most agricultural exports to Canada and Mexico. The proposed USMCA would need to be approved by the U.S. Congress and ratified by Canada and Mexico before it could enter into force. Some Members of Congress have voiced concerns about issues such as labor provisions and intellectual property rights protection of pharmaceuticals. Other Members have indicated that an anticipated assessment by the U.S. International Trade Commission (USITC) will be key to their decisions on whether to support the agreement. Canada, Mexico, and some Members of Congress have expressed concern about other ongoing trade issues with Canada and Mexico, such as antidumping issues related to seasonal produce imports and the recent U.S. imposition of a 25% duty on all steel imports and a 10% duty on all aluminum imports. Both the Canadian and the Mexican governments have stated that USMCA ratification hinges in large part upon the Trump Administration lifting the Section 232 tariffs on imported steel and aluminum. Similarly, some Members of Congress have stated that the Administration should lift tariffs on steel and aluminum imports in order to secure the elimination of retaliatory tariffs on agricultural products before Congress would consider legislation to implement USMCA.