The Agreement Formerly Known As NAFTA

  • February 26, 2019

By Michelle Hoffman


On November 30, 2018 the leaders of Canada, Mexico and the United States signed the trade agreement that will replace the North American Free Trade Agreement (NAFTA) once ratified by all three states. What that agreement is called depends on who is speaking – in treaty law, it’s customary to list your own country first. In Canada, the Agreement is known as the CUSMA (and in French, “l’ACÉUM”), whereas in the US it’s the USMCA, and in Mexico the (catchiest, in my opinion) “T-MEC”. The titles our respective political masters decided on were a surprise for most negotiators until the text went public on September 30th, 2018, and many continue to refer to it as simply “NAFTA 2.0”, as it was known for the year and half that the negotiators took it apart and put it back together.

With CUSMA, Canada has committed to change its legal regime in several ways. For example, in the Intellectual Property chapter, we agreed to extend our term of copyright protection in domestic law from “life + 50 years” to “life + 70 years” for copyrighted works, and up to 75 years for performances and sound recordings, benefiting creators for a longer period of time. Or, in the Broadcasting Annex of the Cross-Border Trade in Services chapter, Canada agreed to rescind a decision on simultaneous substitution of broadcast signals that the CRTC had adopted in 2015, and that had been upheld as lawful by our domestic courts (bottom line: when the Agreement comes  into  force,  you  will  no longer see American Super Bowl ads when viewing the game on signals that are retransmitted in Canada).

If either the US or Mexico believes that Canada is not living up to its treaty commitments, they can bring a State-to-State dispute settlement claim (jointly or individually) under Chapter 31, seeking removal of the offending measure. If an independent and impartial arbitral tribunal finds that Canada is in violation of the agreement, either Canada  can  lift  the  measure  or  the complaining Party can retaliate with trade measures of equivalent effect.

Contrary to what the critics may say, Canada signing on to  this treaty is no Faustian bargain. Canada has committed to comply with the terms of the Agreement under international law, and the United States and Mexico have committed to do the same. Canada’s commitment to the international legal order is perhaps most evident in the Trade Remedies chapter (Chapter 19 under the NAFTA, or Chapter 10 of the CUSMA). Throughout the negotiations, it was a redline for Canada to preserve Trade Remedies, which ensures that if one country flouts its anti-dumping and countervailing duty commitments under the Agreement, another Party can bring a challenge before a specialized binational review panel with experts from both countries, rather than resorting to the domestic courts of the challenged Party.

In the Investment chapter, Canada has committed — for a time — to allow claims against it by Mexican and American investors. Under the controversial Chapter 11 investor-State dispute settlement (ISDS) system in the original NAFTA, Canada could be subject to claims by foreign investors for changes to domestic measures that related to those investors and their investments in Canada. In the CUSMA, Canada has agreed to an additional 3-year period after entry into force, in which an investor with a “legacy investment” may bring a claim for a breach of the investment obligations under the NAFTA — after which Canada’s consent to arbitrate is no longer valid. Canada has not agreed to arbitrate any investment claims under the substantive provisions of the CUSMA.

Perhaps  more  interesting than examining Canada’s international legal obligations under the CUSMA is an examination of the ways in which  governments  tailor  their  treaty  obligations to  give themselves policy space. Another broader approach is to set out ways  that  they  can do something that would otherwise arguably violate the Agreement  in  order   to   take a measure important for the public interest, particularly with respect to health, safety and national security. There are various means through which this is done, and the Exceptions & General Provisions chapter contains some specific broad and flexible provisions:

National Security: This provision gives broad flexibility to a Party to take measures that it considers necessary for national security. The CUSMA version of this is broader than many Canadian agreements (but in line with some, such as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)) — notably, it is broader than a similar provision at the World Trade Organization, where Canada (and many other countries) are challenging US action supposedly taken on this basis when they imposed tariffs on steel and aluminum;

Taxation: Preserves flexibility for domestic tax authorities to develop future tax policies, as well as to maintain their existing regimes;

Indigenous Peoples' Rights: A first for any trade agreement, and a key element of the current government’s “inclusive trade agenda”, this exception confirms that Canada’s legal obligations under this Agreement will not impact its ability to adopt or maintain measures to fulfil its legal obligations to Indigenous Peoples — an interesting legal question is the extent to which this simply confirms what other flexibilities in the treaty would already provide;

Cultural Industries: A critically important exception for Canada (and Canadian content-creators), allowing Canada to take measures to protect Canadian artistic expression. Canada fought for this exception in  the  Canada-US  Free Trade Agreement in the late 1980s, maintained it   in the NAFTA, and was willing to walk away if it was not preserved in CUSMA as well. Notably, however, unlike the other exceptions, if a country relies on this exception the other Party can immediately “retaliate” proportionately, without having to go to a panel first.

It’s impossible to summarize all the developments, omissions and oversights in a short piece. The details will emerge over the next several years as the particular provisions are elaborated on (including potentially through statements by governments), explored in more detail, and perhaps challenged before international tribunals.

Many commentators have criticized the fact that CUSMA largely replicates NAFTA. This is true. What the pundits don’t know is what an accomplishment this is. For the first time in our trade negotiating history, Canada’s negotiators were fighting not just to advance contemporary policy objectives, but also to preserve the fundamental elements of free trade that have shaped the North American economy for over two decades. Around the world, states are either moving towards   increased multilateralism and trade diversification (such as those states that recently ratified the CPTPP), or calling for increased protectionism. With a crisis potentially looming in the international trading system, preserving the status quo with two of our biggest trading partners does not seem like much of a concession at all.