USMCA's Entry into Force Still Pending Amid COVID-19 Uncertainty, But Will Be July 1 or After
In accordance with the text of the United States-Mexico-Canada Agreement (USMCA), once all parties have notified each other in writing of the completion of their internal procedures required for the entry into force of the protocol, the agreement would enter into force on the first day of the third month following the last notification.
Although both Mexico and Canada have informed the other parties on the completion of their internal procedures required to implement the USCMA, the U.S. notification is still pending. Therefore, especially considering the additional challenges raised by the COVID-19 pandemic, the effective date of the USMCA won't be before July 1, 2020 – and is likely to be after that date, perhaps in August or September.1 The United States has made it clear that the USMCA will not enter into force until the U.S. has "certified" that Mexico has made all legal amendments to its national legal framework to comply with the agreement standards.2
Both Mexico and the U.S. have stated that, notwithstanding the COVID-19 restrictions in both countries, they continue to work to make sure they will be able to comply with the obligations that are to take effect at the time the USMCA enters into force (i.e., specific amendments to Mexican legislation, rules of origin specific regulations, lists of dispute settlement panelists, etc.) Nonetheless, given the suspension of all but essential travel and the suspension of Mexican legislative work, the conclusion of the certification process may be delayed until later in the year.3
In any event, if the U.S. and Mexico reach an agreement on the certification process during the month of April, the agreement could enter into force on July 1, 2020.4 In the worst foreseeable scenario, the USMCA's effective date could be delayed until Jan. 1, 2021, as some relevant stakeholders are asking for additional time to comply with new USMCA regulations.5
Some of the frequently overlooked positive effects of the USMCA will be the new requirements regarding labor, state-owned enterprises, digital trade and energy obligations, which will provide additional assurances to investors and traders in the region. Those new chapters of the USMCA will require Mexico to improve its labor standards significantly; regulate digital trade within specific boundaries similar to those of the United States; impose specific restrictions on Mexico's state-owned oil and electricity companies; and bring the Mexican energy reform to a standstill, granting investor-state protection in case the Mexican government breaches its obligations.6
The entry into force of the USMCA may not entail a significant increase in trade among the three North American economies, as the agreement replicates most of the existing trade regulations in the North American Free Trade Agreement (NAFTA). However, it almost certainly would be a very positive signal for the markets and investment, eliminating uncertainties as to the economic relations particularly between Mexico and the U.S.
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Notes1 See "USMCA may enter into force in August or September, notes Mexico Ministry of Economy," El Universal, April 7, 2020.
2 The U.S. implementing legislation states with regard to its entry into force: "Section 101(b) of the implementing bill authorizes the President to provide written notification to Canada and Mexico that the United States has completed its applicable legal procedures, if the President has determined that Canada and Mexico have taken measures necessary to comply with those of its obligations that are to take effect at the time the Agreement enters into force, and the President provides written notice of this determination to Congress in accordance with section 106(a)(1)(G) of the Trade Priorities Act." (See Page 3 of the U.S. implementing legislation.)
3 The U.S. Congress has already approved the USMCA, it is now left to President Donald Trump to inform of the completion of its internal procedures. When the suspension of legislative works is mentioned, it is referring to Mexico's Congress suspension of activities and the possibility of requirements to amend Mexican regulations to comply with the USMCA obligations, although Mexican Senate representatives are pressing to achieve the USMCA entry into forces as soon as possible. See "Mexican Senate seeks to advance the implementation of the USMCA: Monreal," El Financiero, March 31, 2020.
4 Some industries, particularly the automotive industry, have been pressing their authorities for a delayed entry into force of the agreement (until January 2021) to allow them to comply with the new rules of origin applicable to their industry, as well as navigate supply chain disruption caused by the coronavirus outbreak. See "Lighthizer eyes June for USMCA to enter into force," Politico, March 16, 2020.
5 The automotive industry has raised specific concerns, and COVID-19 is complicating this even more. See "Automotive industry will default on USMCA if it starts in June: Concamin," El Universal, March 25, 2020. Likewise, U.S. senators have asked the U.S. Trade Representative for a later entry into force. See "U.S. senators urge coronavirus delay to June 1 USMCA trade deal start date," Reuters, March 30, 2020
6 See Holland & Knight's previous alert, "Demystifying Energy Investment Disputes in Mexico through the New USMCA," April 30, 2019.