USMCA Passes Senate; Canadian Ratification Could Come in February

The Senate overwhelmingly passed the new NAFTA, though it wasn't by quite as wide a margin as in the House, where more than 95 percent of votes were for the trade pact. The vote, which happened just before the reading of the impeachment articles against President Donald Trump on Jan. 16, was 89-10, with only one Republican voting no. Most of the Democrats who voted no did so because the U.S.-Canada-Mexico Agreement doesn't address climate change.

Trump is expected to sign the implementing bill next week, but Canada's parliament is not expected to vote to ratify it until after it reconvenes Jan. 27.

Once that's done, the first change is to de minimis levels for exports to Canada and Mexico. Those take effect on the first day of the third month after Canada tells the U.S. it has ratified the deal. There also will be no need for standard Certificates of Origin for USMCA duty-free shipments on that first day, according to NAFTA expert Dan Ujczo, a partner at Dickinson Wright.

That first day of the third month also starts a clock for transition periods -- for instance in textile and apparel rules of origin, there are transition periods of 12 to 30 months. The rule for narrow elastic fabrics takes effect 18 months from the date of entry into force of the agreement; the rule for sewing thread takes effect 12 months from entry into force; and the rule for pocket bag fabric takes effect 18 months from the entry into force for apparel other than woven garments of blue denim, for which the rule will take effect in 30 months. For heavy trucks, there's a transition of seven years. Outside of textiles, cars, light trucks and heavy trucks, there are no transition periods for changes to rules of origin.

For dairy exporters, the pact requires elimination of Canadian class 6 and class 7 milk pricing within six months of implementation, which should help skim milk powder exporters in all markets and help ultra-filtered milk processors who used to export to Canada.

The biggest changes for importers and exporters will come a few years from now, as car makers start to follow the more strict auto rules of origin (see 191226002). The Congressional Budget Office estimates that there will be an increase of $450 million annually in duties collected as a result of the changes in the auto rules of origin after the five-year transition period for the auto industry is over.

Even though many of the changes in North American trade will take years, President Donald Trump will notch this as a major campaign promise fulfilled, since he said NAFTA was the worst trade deal ever made.