The year 2026 marks a pivotal moment for the USMCA, as its first mandated review approaches. The US-Mexico-Canada Agreement (USMCA) replaced the North American Free Trade Agreement (NAFTA) on July 1, 2020. The 2026 scheduled review is not just a mere check-in. It is a comprehensive evaluation with the potential to reshape the future of trade across North America.
From NAFTA to USMCA: a changing landscape
While the NAFTA era brought its share of success, it became clear that an update was necessary. The three countries attempted to open markets for North American products in the Asia-Pacific with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). However, this effort was interrupted by the U.S. withdrawal under the Trump administration, the renegotiation of NAFTA, and the subsequent birth of the USMCA.
At its core, the USMCA incorporates provisions that aim to modernize economic relationships in the digital age, strengthen labor laws, and revise rules around automotive manufacturing and environmental protection, among others.
US concerns and the Sunset Clause
During the USMCA renegotiation, the U.S. prioritized two key objectives:
- addressing the trade deficit with Mexico
- securing control over the agreement’s future
This reflected in the U.S. proposal for a “Sunset Clause”, stipulating a five-year review and potential termination unless all parties agree to continue. While ultimately not implemented, the Sunset Clause highlights a potential point of contention in the upcoming review.
The Review: implications
While the review doesn’t ultimately translate to renegotiation, the possibility of revisiting a specific aspect of the agreement is within realm of possibility. Article 34.7 reads:
“…on the sixth anniversary of the entry into force of this Agreement, the Commission shall meet to conduct a ‘joint review’ of the operation of this Agreement, review any recommendations for action submitted by a Party and decide on any appropriate action. Each Party may provide recommendations for action by the Commission at least one month before the joint review meeting of the Commission takes place…”
The Review: opportunities
The 2024 U.S. elections, coupled with ongoing trade disputes like Mexico’s energy policy and the Genetically Modified Corn Decree, further add complexity to the situation. Despite some challenges, the USMCA facilitates increased trade between the three nations. Mexico became the top trading partner in 2023. According to figures from the U.S. Census Bureau, Mexico exported goods to the U.S. for $475 billion dollars, representing a 4.6% growth. Mexican exports accounted for 15.4% of the total merchandise that the United States purchased from its trading partners.
The Review: risks
However, the 20 disputes filed within the USMCA’s first three years compared to NAFTA’s 26 year history also raise concerns. Additional to energy and GM corn, the U.S. has raised constant concern over labor conditions in Mexico. To date, there are more than 11 cases that have been filed against Mexico, most in the automotive sector. On the other hand, a panel ruled against the U.S. in regards to an erroneous interpretation of the methodology for calculating the Regional Content Value (RVC) in the automotive rules of origin. As of today, the U.S. has not adopted the panel’s ruling, nor has Mexico responded with retaliation. Recently, concerns have been growing over Chinese EV’s entering the U.S. market through a strategy that includes Mexico.
Elections: much at stake
It would seem then that the issues that could be “reviewed” in 2026 would be related to the irritants that have strained the U.S.-Mexico trade relationship. However, the review does not imply a renegotiation of the USMCA. An interpretation of “review” could be simply a process where all parties ratify (or not) their interest in continuing with the treaty as it stands. It could also mean a more lengthy process of negotiations.
The coin is in the air. Much depends on who is at the helm in the next administration in both Mexico and the United States.
About the author
Monica Lugo has experience in both the private and public sectors. She has worked for companies such as BMT Consulting and Euromonitor International coordinating projects, elaborating sectorial analysis, market studies, among others. In the public sector, she has worked in the international areas of the Ministry of Agriculture, Office of the President, and the Ministry of Public Function.
In 2012, she joined the Ministry of Economy in the Undersecretariat of Foreign Trade, where she led negotiations on Sanitary and Phytosanitary Measures, Competition, Trade Remedies, State-Owned Enterprises, Technical Barriers to Trade and Sectoral Annexes of several trade agreements such as the Comprehensive and Progressive Trans-Pacific Agreement (CPTPP), Pacific Alliance, USMCA, Mexico-European Union Free Trade Agreement, among others. She subsequently joined the Ministry of Foreign Affairs in April 2019 as Deputy General Director for Competitiveness and Innovation in the Under-Secretariat for North America, advising on the process of ratification of the USMCA and trade negotiations with the United States, also collaborating on trade promotion and innovation issues.
She has also collaborated giving courses and conferences on international trade negotiations in different institutions, organizations, and associations. She wrote as co-author an article regarding Mexico’s strategy in the negotiation of the USMCA with the United States and Trump’s policy which was published in February 2020, at the Journal of International Economic Law.
In January 2020 she joined Prodensa as Director of Institutional Relations. In June of this year, Forbes magazine included her in its list of the 100 most powerful women in Mexico. Ms. Lugo graduated from ITAM with a degree in International Relations.
