In this session, we will explore the issues regarding the USMCA and its application to cross-border energy trade among Canada, U.S., and Mexico.
As most of us appreciate, the USMCA replaced NAFTA as of July 1, 2020, retaining the tariff-free import provisions of NAFTA for a large portion of trade. However, the new Rules of Origin (ROO) for the motor vehicle industry only became effective in January 2021 and it’s still too early to appreciate the impacts of other new USMCA rules applicable to digital trade, intellectual property rights, labor policies, government procurement, access to agricultural markets, protection for biologics drugs, prohibitions of data localization, and changes to dispute resolution provisions. Significantly, unlike NAFTA, the USMCA does not include a separate chapter on Energy. This could become increasingly significant as the U.S., under new President Biden, enters an era of urgency focused on combating climate-change. How will USMCA rules interact with greater scrutiny by U.S. regulators of greenhouse gas (GHG) emissions (Scope 1, 2 and 3) from fossil fuel production, pipeline projects, transportation fuels, and power generation? New legislation is being drafted to require: (i) rapid decarbonization of every sector of the U.S. economy, (ii) use of renewable power generation and climate-neutral fuels, (iii) monetization of the cost of carbon emissions from all domestic sources, and (iv) imposition of carbon border adjustments on goods imported from countries not imposing similar decarbonization rules. Written during a time when “energy“ was essentially synonymous with fossil fuels, how will the USMCA address a world moving rapidly to combat climate change?