On July 1, 2026, the United States formally declined to renew the United States-Mexico-Canada Agreement (USMCA, T-MEC, CUSMA, or the Agreement) during the Agreement’s first mandatory joint review meeting. Mexico and Canada had formally indicated their intention to renew the Agreement in the weeks leading up to the meeting. The US decision does not terminate the Agreement. Rather, it triggers the Agreement’s annual review mechanism, under which the parties will meet each year to determine whether the Agreement should be extended before its scheduled expiration in July 2036. Following the meeting, the Canada-US Trade Minister and Mexico’s Economy Secretary requested clarity from the Office of the US Trade Representative on a proposed timeline for the annual review mechanism. The US has yet to outline the proposed structure and timeline.
What North American Businesses Need to Know
- There is no immediate impact on the flow of USMCA/T-MEC/CUSMA-qualifying goods for North American businesses. USMCA/T-MEC/CUSMA preferential tariff treatment remains available for originating goods.
- Section 232 tariffs on certain Canadian and Mexican origin goods (e.g. steel, aluminum, certain derivative steel/aluminum products, forest products, copper) remain in effect, including on USMCA/T-MEC/CUSMA-qualifying goods.
- Canadian surtaxes on US steel and aluminum remain in effect. Canadian remission processes were recently extended until July 1, 2027. Mexico has not implemented retaliatory tariffs.
- Investment uncertainty remains. The US decision signals months of further bilateral and trilateral negotiations, which may result in substantive amendments to the text of the Agreement.
Background
The Agreement entered into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). The Agreement was negotiated during President Trump’s first term and was intended to modernize North American trade rules by addressing digital trade, intellectual property, labor standards, environmental obligations, and automotive rules of origin. The Agreement governs trade among the United States, Canada, and Mexico, which collectively account for more than $1.6 trillion in annual trade and nearly one-third of global GDP.
Unlike its predecessor, the Agreement contains a unique sunset mechanism requiring a joint review six years after entry into force. If all three parties agree, the Agreement is automatically extended for another 16 years. If any party declines renewal, the Agreement remains in force but becomes subject to annual reviews until its scheduled expiration in July 2036, unless the parties agree on an extension before that date. The renewal decision is the first time this review mechanism has been tested.
Effect of the Decision
Because the Agreement was not renewed, annual reviews will now occur over the next ten years. Any time before July 2036, the three countries may agree to renew or revise the Agreement. If no agreement is reached, the Agreement will expire in 2036 under the Agreement’s sunset mechanism.
The Trump administration stated that it was not prepared to “rubber stamp” the agreement in its current form, citing concerns that the Agreement has failed to reduce US trade deficits with Canada and Mexico, concerns regarding Chinese investment and transshipment through Mexico, and dissatisfaction with current rules of origin and market-access.
US officials also indicated that strengthening domestic manufacturing and increasing US content requirements (in automotive rules of origin) are key objectives for future negotiations. Future negotiations are expected to focus on stricter rules of origin, greater North American and US-specific content requirements, measures addressing Chinese investment and transshipment concerns, and market-access disputes involving sectors such as dairy, energy, steel, aluminum, agriculture, labor, environmental protection, and intellectual property. The decision not to renew gives the United States a negotiating lever to pursue these objectives.
Bilateral Negotiations
The Trump administration has indicated that it prefers separate bilateral negotiations and has openly discussed entering into bilateral agreements with Mexico and Canada. The Trump administration has scheduled a separate negotiating schedule with Mexico, engaging in a second round of negotiations in June and a third round of US-Mexico negotiations is scheduled for the week of July 20 in Mexico City. To date, negotiations with Mexico have focused on tightening automotive rules of origin, extending rules-of-origin disciplines to additional industrial goods, and potential US-content requirements aimed at discouraging transshipment of non-North American (particularly Chinese) production through Mexico.
Negotiations between the United States and Canada are more strained. While US Trade Representative Jamieson Greer and Canada-US Trade Minister Dominic LeBlanc have held high-level discussions, a formal joint review process with Canada has not yet been launched. Following the July 1 meeting, the Deputy US Trade Representative reached out to Canada’s chief negotiator to discuss an agenda for forthcoming bilateral discussions. Canada has indicated it will press for relief from US sectoral tariffs on Canadian steel, aluminum, automobiles, and lumber as part of any discussions.
Despite the US’ bilateral approach to negotiations, the preference of both Canada and Mexico is to preserve the existing trilateral structure of the Agreement.
Impacts on North American Business, Importers, and Exporters
For the immediate future, importers may continue to claim USMCA/T-MEC/CUSMA preferential tariff treatment for qualifying goods. Existing customs procedures, certification requirements, and rules of origin remain unchanged. Companies are therefore not required to alter current import/export compliance programs or sourcing arrangements solely as a result of the US non-renewal decision.
Increased compliance and investment uncertainty pose a more serious risk to importers and exporters. The Trump administration has signaled that future negotiations may result in stricter rules of origin, higher regional-value-content requirements, and potential US content thresholds, particularly for the automotive, steel, aluminum, and manufacturing sectors. If adopted, such changes could require importers and exporters to revisit sourcing strategies, supplier certifications, and origin-tracing processes.
Additionally, if negotiations evolve toward separate bilateral arrangements with Canada and Mexico, importers could face diverging rules governing products sourced from each country. Such fragmentation would increase compliance complexity and may require businesses to maintain multiple origin and customs strategies across North America rather than relying on a single regional framework.
The annual review process creates a prolonged period of uncertainty that could continue until 2036 unless the parties reach an earlier agreement. North American businesses should continue to monitor negotiations and assess potential impacts of proposals concerning rules of origin, content thresholds, labor standards, and trade remedies. For North American businesses making long-term investment decisions, the key objective should be flexibility. Businesses that understand their supply-chain dependencies, maintain robust origin documentation, and prepare for alternative sourcing and tariff scenarios will be better positioned to respond if future negotiations result in a revised the USMCA/T-MEC/CUSMA framework or divergent trade rules across the region.
Baker McKenzie’s integrated North American trade and customs teams located in Mexico, the US and Canada are closely following the continued negotiations.
