Canada, the United States and Mexico are two years away from a mandatory six-year review of the renegotiated North American Free Trade Agreement (NAFTA), now known as the Canada-U.S.-Mexico Agreement (CUSMA)1. That may seem a long way off, but preparations for the potentially contentious review are already afoot in all three countries.
The Canadian federal government and large business associations appear to be united in the view that Canada should seek a smooth rollover of the agreement rather than risk another high-profile showdown with Washington.2 This scenario seems unlikely, given corporate and political pressure on the U.S. government to reconsider CUSMA rules in areas such as dairy market access, energy, agriculture and food policy, automotive rules-of-origin, and digital trade. “The whole point [of the review] is to maintain a certain level of discomfort,” said United States Trade Representative Katherine Tai in March 2024.3
A simple reapproval of CUSMA may also be a lost opportunity given shifts in thinking about trade governance since the treaty was negotiated. All three North American governments have embraced “inclusive trade” provisions to respond to concerns about the unequal benefits of trade for women, racialized workers, and Indigenous Peoples, as well as trade’s contribution to biodiversity loss and climate change. The geopolitics of trade, subsidies and industrial policy have also shifted since CUSMA came into force in July 2020.
“The way we see our relationships with each other in many respects is going to be a function of how we see our place in the world. That is very different in 2023 than it was in 2018. And I would expect it would be very different in 2026 than it is in 2023.” Aaron Fowler, senior Global Affairs Canada trade official, September 2023
While most of Canada’s free trade agreements contain provisions allowing the treaty to be amended, these are almost never used. In effect, and by design, the economic liberalization, privatization and deregulation encouraged and facilitated by free trade has been a one-way street, no matter the impacts on people’s livelihoods, the quality of public services, industrial development options, or the environment.
The inclusion of a six-year review clause in CUSMA, while not without significant risks to Canada and Mexico, forces governments to rethink whether the treaty is delivering substantive, widely shared benefits—or whether it may be undermining “inclusive trade” goals. A senior Canadian trade official acknowledged the utility of a CUSMA review in September 2023: “The way we see our relationships with each other in many respects is going to be a function of how we see our place in the world. That is very different in 2023 than it was in 2018. And I would expect it would be very different in 2026 than it is in 2023.”4
Canada should prepare for the review as if a partial renegotiation of CUSMA were inevitable whether there is a Democrat or Republican in the White House. Sending Team Canada missions to the United States—to convince federal and state-level leaders of the importance of Canada-U.S. trade—may help prime the pump for a hoped-for CUSMA rollover.5 But this effort will be of limited use if the next U.S. administration decides to turn the screws on Canada and Mexico to gain further concessions.
This report assesses the functioning of CUSMA to date and suggests ways to expand on the rights-based and worker-centred novelties in the agreement that improved upon the original NAFTA. Though national elections will transform governments in all three countries between now and the 2026 review, the worker-centred trade policy of the current U.S. administration will likely live on. For political, geoeconomic and national security reasons, a bipartisan consensus has emerged on the need to renew North America’s manufacturing base and better protect workers from subsidized—financially or through weaker labour and environmental standards—foreign competition.
This report therefore highlights reform proposals related to CUSMA’s labour rights provisions, the agreement’s innovative rapid-response labour mechanism, the chapter on rules-of-origin in the important auto sector, and the environment chapter. Other aspects of the agreement could also be made more inclusive and worker-centric under the right circumstances and with sufficient political will. The CUSMA review is an opportunity to discuss priority areas for possible reform in the agreement’s digital trade, gender and inclusive trade provisions, and its dispute settlement mechanisms.
In particular, CUSMA leaders should find the courage to completely dismantle the vestiges of investor-state dispute settlement (ISDS) between Mexico and the United States, in line with a bipartisan shift in the U.S. on international investment arbitration. The ISDS regime is clearly incompatible with the achievement of human rights, including Indigenous Peoples’ rights, the protection of biodiversity, or the achievement of Paris Climate Agreement goals. Leaving it intact even in a limited form creates unacceptable risks for Mexico and an unacceptable power imbalance in the treaty.
Progress in any of these areas will depend on the political configuration of the continent in the lead-up to the review. Still, Canada would be wise to come to the table with a solid list of proposals as leverage in a potentially stressful negotiation. Canada and its CUSMA partners should in any case use the review period productively, acknowledging that trade agreements could and must respond to shifting social, economic and environmental priorities.
Any trinational review should contain ample opportunities for consultation with civil society stakeholders in the three countries and should not be left to trade negotiators or corporate lobbyists. We hope this document will serve as a launching pad for trinational civil society discussions on the CUSMA record and alternatives for North American economic relations that will benefit the human and non-human inhabitants of all three countries.
Recommendations
Expand the application of the CUSMA Facility-specific Rapid Response Labour Mechanism (RRM) to include labour rights violations in Canada and the U.S.Confirm and expand economic sectors to which the RRM applies beyond those involved in manufacturing goods, supplying services, or mining to include energy, the broader service sector, agriculture and migrant workers.
Expand the definition of a “denial of rights” under the RRM from just freedom of association and collective bargaining rights to include discrimination on the basis of gender or sexual orientation or gender expression, gender-based violence, child labour, health and safety, and minimum standards of work.
Clarify Annex 31-B (the Canada-specific rapid-response mechanism) to confirm that the RRM applies to a denial of rights at any covered facility covered by any domestic legislation.
Clarify and promulgate more specific criteria and requirements for remediation agreements that resolve RRM complaints, including content (damages, etc.), timelines, and requirements for consultation with stakeholders.
Create a Canadian consultative body, similar to the Independent Mexico Labour Expert Board in the United States, to provide a dedicated contact point and expert independent advice and guidance to the Canadian government in respect of CUSMA labour matters.
Engage in co-operative capacity building under the CUSMA labour chapter to strengthen law enforcement and inspection systems in Mexico and assist with funding and capacity for an arms’ length oversight committee with a mandate to collect data and offer training in respect of labour law enforcement.
Implement meaningful Canadian enforcement measures to comply with the prohibition on the importation of goods produced using forced or compulsory labour found in Article 23.6 of CUSMA.
Establish a new, harmonized North American most-favoured-nation (MFN) tariff rate for vehicles and parts that encourages compliance with CUSMA’s rules-of-origin and guards against a surge of Chinese auto imports.
Update CUSMA’s list of core automotive components to better reflect the advanced technologies in future vehicles, including electric vehicles (EVs).
Update CUSMA’s labour value content requirement and create a mechanism that automatically adjusts this rate based on inflation.
Require the Canada Border Services Agency to release annual compliance reports for each automaker to enhance public and consumer awareness of regional content levels for all vehicles sold in North America.
Revise the CUSMA environment chapter to provide more rapid responses and enforcement of CUSMA environmental obligations inspired by the RRM in the labour chapter.
Negotiate a climate peace clause that shields measures aimed at reducing emissions or responding to the climate emergency from CUSMA state-to-state and investor-state dispute settlement.
Revise rules in the CUSMA digital trade chapter on cross-border data flows, data localization, and source code and algorithms to give North American countries the flexibility to adequately regulate emerging digital technologies, protect privacy (especially in the workplace), and otherwise limit data flows outside of national boundaries where there is a public interest reason to do so.
Create an equal playing field across North America with respect to investment by completely eliminating investor-state dispute settlement in Mexico as it has been for Canada and the United States.
Propose to remove access to the ISDS process in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) for Canadian investors in Mexico and Mexican investors in Canada.
Conduct a thorough equity review and gender-based analysis of CUSMA, and consider ways in which an intersectional analysis could lead to better inclusion of provisions designed to address how trade may have negative impacts on women, racialized people and other disadvantaged groups.
Include women’s and LGBTQI+ organizations from the three countries in the CUSMA six-year review process.
Include a gender chapter and develop ways in which the provisions of the chapter can be subjected to dispute resolution.
Remove footnote 15 of the labour chapter, which indicates that the United States has no responsibilities with regard to the language on discrimination in the workplace.
Include the violation of commitments to eliminate discrimination of employment and occupation as grounds for triggering a rapid-response labour mechanism complaint.
Include consideration of the right to equal pay for work of equal value in the labour chapter.
Provide financial support for the gender elements in the Mexican labour reform and for Mexican labour activists’ efforts to organize women workers and provide capacity-building, training and other measures.
Broadly engage North American Indigenous communities including First Nations, Inuit and Métis in the Canadian preparations for the six-year CUSMA review.
