Factbox: How the North American trade deal will affect labor, environment, drugs

(Reuters) - New amendments to the U.S.-Mexico-Canada trade agreement (USMCA) focus heavily on stronger labor enforcement, outlining a detailed process to address any allegations that Mexican factories are violating workers’ rights.

FILE PHOTO: The flags of Canada, Mexico and the U.S. are seen on a lectern before a joint news conference on the closing of the seventh round of NAFTA talks in Mexico City, Mexico March 5, 2018. REUTERS/Edgard Garrido/File Photo

Based on a text here released on Wednesday, the following are some of the key changes to the pact that underpins the $1.2 trillion in regional trade and is due to replace the 26-year-old North American Free Trade Agreement. In addition to labor provisions, they include reduced patent protections for pharmaceuticals and a stricter definition for steel required in automotive production.


To ensure that Mexico implements higher labor standards that aim to allow Mexican workers to unionize and to drive up wages, the deal includes a new mechanism under which the United States and Canada can convene panels of international labor experts to complaints that Mexican factories are denying the freedom to organize and collectively bargain.

The change stops well short of initial U.S. demands to place foreign inspectors in Mexican plants.

But if such violations are found and remedial actions are not taken, it allows the complaining country to rescind tariff-free access for the offending facility’s products, among other penalties.

The text also creates presumptions that any labor or environmental violation affects trade and investment, a legally important distinction that makes it difficult for an offending country to ignore such disputes.


The deal does not include any provisions to limit climate change, disappointing environmental groups.

But the changes require each of the three countries to fulfill their obligations under the 1987 Montreal Protocol to eliminate ozone-depleting substances. Mexico is a member, but the United Nations has cited Mexico for violations as late as 2008.

The text also requires compliance with international agreements on endangered species, wetlands, Antarctic marine life, whaling and tuna fisheries.


The deal aims to hold down drug prices by limiting some patent protections for pharmaceuticals. Eliminated from the text is a required 10-year data exclusivity period for biotech medicines, which U.S. Democrats feared would prolong higher prices for some of the priciest drugs.

The deal also removes a provision that would require parties to confirm patents for new uses of known drugs, combating a process called “patent evergreening” that blocks generic competition.


The text will require 70% of steel used in North American-built cars and trucks to be fully produced in the three countries, closing the door to the use of semi-finished steel from China and elsewhere.

“Such processes include the initial melting and mixing and continues through the coating stage,” the text said, adding that the tighter standard does not apply to raw materials such as steel scrap, iron ore or raw alloys.

Mexico and Canada agreed to a seven-year phase-in of the new standard for steel. A U.S. demand for a similar standard for aluminum was dropped, but with the caveat that it would be reconsidered in 10 years.


U.S. Democrats lost their bid to remove a provision that grants big internet services providers liability protections for third-party content, House Speaker Nancy Pelosi said.

The Trump administration has agreed to drop language from U.S. legislation to implement USMCA that would have allowed it to lower the $800 value threshold under which shipments can enter the United States tax free without an act of Congress, people familiar with the decision said.

The so-called "de-minimis" level benefits small business owners, but some Trump administration officials claim that it provides an unfair subsidy to Chinese firms selling goods to U.S. consumers through Inc AMZN.O, Ebay Inc EBAY.O and other online platforms.

Reporting by David Lawder in Washington and Daina Beth Solomon in Mexico City; Additional reporting by Andrea Shalal in Washington; Editing by Lisa Shumaker