February 5, 2020
Canada again begins Canada-US-Mexico Agreement (CUSMA) ratification
On 29 January 2020, the Canadian Government tabled Bill C-4, Canada-United States-Mexico Agreement Implementation Act. The bill must now pass the required readings in both the House of Commons and the Senate and then receive Royal Assent.
Implementing legislation for the Canada-United States-Mexico Agreement (CUSMA) was first introduced during the previous Parliament as Bill C-100. However, the bill failed to pass through all the required reading stages before dissolution of Parliament prior to the October 2019 general federal election and therefore did not become law. With the resumption of parliamentary business after the Holiday adjournment, the minority Liberal government has made it a priority to restart and swiftly conclude the ratification process of CUSMA.
The current version of CUSMA includes changes agreed to by the parties on 10 December 2019. Specifically, provisions relating to chapters covering state-to-state dispute settlement, labor, the environment, intellectual property, and rules of origin have been updated:
Alongside CUSMA, Canada and the US negotiated side letters on US Section 232 tariffs on autos and auto parts, future Section 232 measures, energy, wine, natural water resources, and research and development expenditures.
Given the increasing propensity of the US Administration to employ Section 232 tariff measures, the side letters on autos and auto parts and future Section 232 measures are a significant outcome for relevant Canadian industries. In the event the US applies Section 232 measures against imports of automobiles, Canada has secured a guaranteed annual exemption for 2.6 million Canadian-origin automobiles. Canadian light trucks are fully exempt from US Section 232 measures, and the US has also committed to provide a minimum 60-day exemption from any future Section 232 measures. This exemption will provide time for Canada and the US to agree on appropriate outcomes based on industry needs and historical trading patterns.
As Canada is the last of the CUSMA member states to ratify the agreement, the pace of the Canadian ratification process will largely determine when CUSMA will enter into force. Per Section 2 of the Protocol Replacing the North American Free Trade Agreement with the Agreement between Canada, the United States of America, and the United Mexican States, CUSMA enters into force on the first day of the third month following the last notification of ratification. Canada must complete the legislative process for Bill C-4 before notification can be executed under the relevant CUSMA provisions.
The current Liberal government has indicated that it will aim to ratify CUSMA as quickly as possible (i.e., the bill might receive royal assent before the end of February 2020). However, as the Liberal government is in a minority position, the support of at least one opposition party will be required to successfully pass the legislation. Although opposition parties have indicated a desire to debate the bill in Parliament, which may delay the ratification process somewhat, there is growing pressure among several industry sectors and public institutions to fast-track ratification of Bill C-4.1 If the bill is fast-tracked through the legislative process CUSMA could enter into force on 1 May 2020.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (Canada), Canadian Leader – Global Trade, Toronto
Ernst & Young LLP (Canada), Toronto
Ernst & Young LLP (Canada), Quebec
Ernst & Young LLP (Canada), Calgary