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USMCA Watch: The Latest on the North American Trade Agreement

USMCA Watch: The Latest on the North American Trade Agreement

ATN BREAKING NEWS |

USMCA Watch: The Latest on the North American Trade Agreement

October 28, 2026 | ATN Trade & Finance

Six years after entering into force, the United States-Mexico-Canada Agreement is at its most uncertain moment since ratification. The first formal joint review occurred on July 1, 2026. The US declined to extend the agreement for a new 16-year term. The deal remains in force — but what "in force" means now is more complicated than it was a year ago, with a deteriorating US-Canada trade relationship, ongoing US-Mexico negotiations on unresolved core issues, and an auto tariff increase scheduled for January 1 that could reshape North American manufacturing economics.

What the July 1 Review Actually Decided

Under Article 34.7 of the agreement, the three parties were required to conduct a joint review on July 1, 2026, and either confirm a 16-year extension or allow the agreement to enter a year-by-year review cycle. Canada and Mexico both supported renewal. The US did not. USTR's official statement said the United States "did not agree to renew the USMCA in its current form" and that the deal "remains in force pending resolution of these issues or until the Agreement's termination."

The practical result: annual reviews now occur every year for the remainder of the agreement's original 16-year term, which runs to July 1, 2036. The rules of origin, certification requirements, and preferential tariff access all remain operational during these reviews. A full extension still requires all three heads of government to confirm it in writing. Withdrawal is a separate process — six months' written notice — and no withdrawal notice has been given. On October 2, USTR opened the public comment process for the 2027 joint review, with written comments due January 12, 2027.

US-Mexico: Four Rounds In, Major Issues Still Open

The US and Mexico launched formal bilateral review talks on May 28 and have since completed three rounds — in Mexico City (May 28-29), Washington (June 16-17), and Mexico City again (July 21-23). A fourth round was planned for Washington in September but has no confirmed date or published outcome as of late October.

Round 1 addressed automotive rules of origin, steel and aluminum, and economic security. Round 2 covered agriculture, regulatory cooperation, and energy — the last being a new addition driven by US concerns about Mexico's 2024 energy reform, which set a 54% domestic-generation share for the state utility CFE, a provision US investors and regulators view as discriminatory. Round 3 added labor, agriculture specifics, and electronic payment services, and Mexican Economy Secretary Marcelo Ebrard said most of the 54 initial US concerns had been addressed, though no formal outcomes have been published on the contentious items.

The headline sticking points remain automotive and metals. On autos, the US is pushing for a 50% US-specific content requirement on top of the existing 75% regional value content rule — reports have also cited a possible 82% combined threshold, though neither figure appears in published agreement text. Mexico's private sector has resisted, preferring the existing regional content standard. Section 232 tariffs on Mexican steel and aluminum remain at 50%, and Mexico is seeking reduction to roughly 10% — comparable to the rate applied to UK exports. Commerce Secretary Howard Lutnick reportedly opposed significant metals cuts in mid-October; Ebrard publicly disputed that characterization and said Mexico had provided "technical elements" and expected a US response before year-end.

Separately, the January 1, 2027 deadline is a pressure point for the auto sector: the US has indicated Section 232 auto and parts tariffs could increase from 25% to 50% on that date. Mexican and Canadian manufacturers are watching whether a framework agreement before year-end defuses that increase or lets it take effect.

US-Canada: A Suspended Negotiation

The US-Canada track has effectively collapsed. On August 22, the US imposed 50% Section 338 tariffs on more than 500 categories of Canadian goods — citing disputes over Canadian treatment of US alcohol, dairy, and motor vehicles — and the tariffs apply whether or not the goods qualify for USMCA preferential treatment. Canada retaliated with counter-tariffs of 15%, 25%, or 50% on US exports, and raised its Section 232 counter-tariffs on US steel and aluminum to 50% on September 8. Beginning September 29, the US went further, imposing an import ban on certain Canadian dairy, sugar, beverage, and alcohol products — CBP has described covered entries as "unconditionally rejected." A revised Section 338 product list takes effect October 30. Canada has said it will not re-engage in formal USMCA negotiations while the Section 338 tariffs remain in effect, and no talks between the two sides have been reported since August.

Canada's conditions for returning to the table are specific: Section 338 lifted, Section 232 on steel, aluminum, and copper addressed, and tariff-free treatment restored for USMCA-qualifying goods. None of those conditions has been met.

Automotive Rules of Origin: Unchanged, But Under Scrutiny

As of October 25, no change to the USMCA automotive rules of origin has taken legal effect. The existing framework — 75% regional value content, plus Labor Value Content and steel-and-aluminum purchasing requirements — remains operative. USMCA preference utilization hit 94.7% in 2025, suggesting manufacturers have optimized their supply chains around the current rules. The core uncertainty is whether a renegotiated auto chapter with higher US-content requirements would make some of that optimization economically unviable: for passenger vehicles carrying a 2.5% MFN tariff, qualifying costs already exceed the tariff threshold for some producers, and a stricter rule would expand that population.

The Rapid Response Labor Mechanism — the expedited enforcement tool for labor rights violations at specific facilities — remained active in October, with petitions filed against Yokohama Tire Mexico's Coahuila plant (September 25) and GLM Components in Puebla (October 8), both of which triggered suspension of liquidation on covered entries. Amphenol Optimize in Nogales resolved its petition on October 23.

What This Means: The USMCA's in-force status is not in question — the tariff preferences, rules of origin, and dispute resolution mechanisms are operational today. What is in question is the agreement's medium-term shape. USTR's stated intent to pursue "interim arrangements" with Mexico and potentially Canada by year-end points toward sector-specific deals that could change metals, auto, or agricultural terms without a comprehensive renegotiation. For importers and exporters, the operative guidance is: do not assume USMCA qualification protects against all US tariff measures — Section 232, Section 338, and antidumping duties all apply independently of USMCA origin. Audit your metal supplier declarations against the 70% steel and aluminum purchasing thresholds, which are the most likely target of any near-term change in the auto chapter. And build scenario models that account for a 50% auto parts tariff from January 1, since no framework agreement has been announced to prevent it.

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