After months of negotiations, posturing, and rhetoric, North American negotiators finally have a new trade deal in place. Barring the unexpected, once ratified the USMCA will replace NAFTA as North America’s governing trade pact.
Media on both sides of the border have, unsurprisingly, focused on big-ticket provisions like rules for automakers and dairy farmers. But other, less talked-about elements of the USMCA will have more of an impact on North America’s Flexible and Hybrid Electronics (FHE) sector – so much so, that we couldn’t get to everything in this article (we’ve included a list of items at the end that were beyond our scope).
Negotiators agreed to various new provisions and “modernizations” on digital trade, e-commerce, and intellectual property, among other things. And though the electronics industry wasn’t directly addressed in the agreement, several elements of the USMCA will no doubt affect the industry and its companies in significant ways.
Here are the top four ways the USMCA will affect intelliFLEX members:
- No changes to market access or tariffs. Take a deep breath and relax, because there are no planned changes to tariffs or market access regarding electronics once the USMCA is ratified and implemented. “The tariff outcome is essentially the same as the original NAFTA,” said Global Affairs Senior Trade Policy Officer Nicola Waterfield in an interview, adding that this statement applies to several industries, including electronics. But be sure to check for multiple classification options, such as when traditionally non-electronics products like textiles suddenly contain circuits.
- Elimination of technical trade barriers. It’s widely agreed that the USMCA should make things technically easier, in terms of non-tariff trade barriers, for companies exporting goods within the USMCA region. Senior Trade Policy Officer Benjamin Magnus said the USMCA has strong regulatory transparency and alignment provisions, along with taking a much more detailed approach to technical trade barriers.“The original NAFTA was very high level and vague” in this regard, said Mr. Magnus. “(These chapters) don’t have specific outcomes for electronics, but they will generally help if anyone runs into barriers such as technical regulations, standards, and so on.”
- New rules on digital trade and data localization. It’s not surprising digital trade wasn’t covered in the original NAFTA, since it didn’t even exist at the time. New commitments on digital trade in the USMCA, which closely mirror those in the Comprehensive And Progressive Agreement For Trans-Pacific Partnership (CPTPP), will ensure SaaS providers and others who sell digital products won’t have tariffs applied, according to Senior Trade Policy Officer Nolan Wiebe. Provisions around data localization, on the other hand, fall under two articles: the first stipulating companies in all three countries can continue to transmit information across borders as business requires; and the second confirming that none of the parties will require the localization of computing facilities. “If you have Canadian members who have operations in the US or Mexico, these countries will not force them to store all their information within their territory,” says Wiebe. This is clearly good news for members whose solutions include cloud-based data analytics services connected to ordinary objects through FHE electronics.
- Changes to Intellectual Property (IP) rules. This is one of the most notable changes for technology companies who also happen to be patent and copyright holders, as copyright protection was extended to 70 years after the copyright holder’s passing (from the previous 50). The agreement also extends patent term restoration in the case of an “unreasonable delay” in application processing, and requires a scheme for “pre-established” trademark violation damages. According to Loris Marella from Global Affairs’ IP Trade Policy Division, IP provisions in the USMCA have two main functions: 1) to provide transparency into each others’ markets; and 2) to protect patent holders, no matter where they’re from. “It’s really all about the patent holders,” he said. “It’s those who have patents and who are commercializing them who benefit from these rules. For us it’s important to have clear rules in place, so follow-on innovation can take place.”
Flexible and Hybrid Electronics (FHE) can be added to a wide range of products such as packaging, retail displays, automotive parts, apparel, and medical devices. It’s worth noting our investigation didn’t extend to vertical market applications where there may have been other, more specific rules agreed upon. We have also not received any indication on how FHE input materials and/or equipment may be impacted.
Each company is encouraged to consult with Global Affairs Canada if they have specific questions on their industry or products.
Although the USMCA has been drafted, it’s still a long way from the finish line. Mexican President Enrique Pena Nieto must sign the deal before handing power to his successor on Dec. 1, and the U.S. Congress must study the deal for 60 days before that country can sign off.
As for Canadian ratification, the deal must be tabled in Parliament for 21 sitting days of discussion. The government then needs to table implementation legislation, which must work its way through both chambers of Parliament. It’s not expected to come into force until 2019.