On November 30, 2018, US President Donald Trump, then-Mexican President Enrique Pe\u00f1a Nieto, and Canadian Prime Minister Justin Trudeau signed The United States\u2013Mexico\u2013 Canada Agreement (USMCA), concluding over a year of negotiations surrounding the much-publicized successor to the North American Free Trade Agreement (NAFTA). Though signed and agreed to in principle, the new agreement has so far been ratified only by the US and Mexico, but not the Canadian legislature, and thus has not yet come into force.<\/p>\n
Despite the contentious nature of the negotiations, as well as criticism levelled at some of the new provisions, analysts appear to agree that the USMCA represents an upgrade\u2014albeit a modest one\u2014over NAFTA for all parties included. One facet of the new agreement surrounding medical devices marks clear progress for North American medtech markets, given that NAFTA did not include a section dealing exclusively with medical devices.<\/p>\n
Titled Annex 12-E, this addition has been hailed by AdvaMed as a significant improvement in the rules governing medical devices across North America. Included in this annex are a handful of provisions, summarized below, that the signatories must abide by once the agreement is ratified and in force:<\/p>\n
According to AdvaMed, these provisions are expected to enhance transparency and fairness throughout North America, and will afford patients in the region with broader access to novel medical technology under stable, clearly defined, and harmonized regulatory systems.<\/p>\n
Moreover, these provisions\u2014specifically those eliminating duplicative regulatory requirements\u2014will likely reduce costs for manufacturers bringing devices to market in North America, which may allow companies to bolster investment into R&D and the development of innovative solutions. More particularly, the new trade agreement diminishes so-called \u201cnon-tariff barriers,\u201d which will enhance the ability of US companies to offer devices in Canada and Mexico, and vice-versa.<\/p>\n
In April 2019, the US International Trade Commission (ITC) released a report highlighting the USMCA\u2019s expected impact on the US economy and certain industries\u2014a mandatory procedural step that paves the way for USMCA debates to begin in Congress. With regard to the medtech space, the ITC anticipates a largely positive impact, spurred by the provisions seeking to inhibit duplicative regulatory requirements and unnecessary trade barriers, which \u201cexert a statistically significant, negative impact on medical device trade,\u201d according to the report.<\/p>\n
Additionally, the ITC notes that improved intellectual property rights (IPR) protections stipulated in the USMCA\u2014 which include extended copyright protection terms, patent term adjustments, and strong enforcement provisions\u2014 are expected to benefit medical device industry players throughout North America; the report finds \u201cstatistically significant positive relationships between trade flows and IPR protections\u201d specifically in the medtech industry.<\/p>\n
Notably, the ITC estimates that the USMCA\u2019s IPR protections will reduce the cost of medical device trade in the Canada and Mexico by 8.21 percent and 11.22 percent, respectively, which is subsequently expected to bolster medical device imports from the US in those countries.<\/p>\n
The ITC also suggests that medical device trade in the region could be further improved by encouraging additional regulatory harmonization between the three parties in terms of import restrictions; in particular, the report highlights the fact that the FDA\u2019s quality systems regulations are not recognized in Canada, which\u2014in addition to forcing manufacturers to undergo separate regulatory pathways\u2014constrains the import of high-end medical devices from the US and delays their availability to Canadian patients.<\/p>\n
That all said, the USMCA\u2019s impact on medtech markets is expected to be somewhat modest, primarily because the three parties are already well-aligned in terms of medtech regulations and standards.<\/p>\n
The agreement, as previously noted, requires ratification by each country\u2019s legislature before coming into effect; however, domestic political developments in the US and Canada have hindered its approval.<\/p>\n
In particular, Democrats, who have since January 2019 held a majority in the US House of Representatives, had previously indicated they were unwilling to put the USMCA to a vote before Mexico passed labor reform laws that were tied to USMCA provisions; on April 29, 2019, Mexico\u2019s senate did just that, and a few days later, Mexican President Andres Manuel Lopez Obrador prompted US lawmakers to ratify the new agreement.<\/p>\n
Moreover, though it appeared in 2019 that the persistence of the Trump Administration\u2019s steel and aluminum tariffs on Canada and Mexico, originally imposed in 2018, would render ratification even more challenging, those tariffs (and the associated retaliatory tariffs) were lifted on May 17, 2019, effectively satisfying the conditions set out by Republican senators to begin debating the USMCA and removing a significant obstacle to ratification in both Canada and Mexico.<\/p>\n
In fact, on June 19, 2019, Mexico\u2019s senate successfully voted to pass the USMCA, becoming the first signatory to formally ratify the deal. Additionally, only a few days following the removal of the tariffs, Canadian Prime Minister Justin Trudeau introduced an implementation bill to the House of Commons, initiating the process required to ratify the deal.<\/p>\n
However, Canadian officials had indicated that ratification will advance in lockstep with Congress, and given that the Canadian parliament was suspended in September 2019 in preparation for federal elections, all USMCA bills must be brought to the House again when the new parliament is sworn in, a process that was initiated by the Liberals on January 28, 2020. Considering the substantial progress made by the previous parliament, there is little doubt regarding the deal\u2019s ultimate viability under the incoming parliament, and PM Trudeau indicated that his government plans to ratify the agreement as soon as possible; that said, however, it is expected that opposition parties may challenge certain aspects of the deal, which (given the Liberals\u2019 current minority government status) may delay ratification in Canada, perhaps for a few months.<\/p>\n
In the US, Following months of negotiations between Democrats and the White House, through which Democrats introduced purportedly more robust labor, pharmaceutical, environmental, and enforcement stipulations, the House of Representatives formally passed the agreement on December 19, 2019, and the Senate approved it nearly a month later, on January 22, 2020; the next week, on January 29, 2020, President Trump signed the deal into law, effectively making the US the second signatory to ratify the USMCA.<\/p>\n
As it stands, it is expected that the USMCA will be ratified in Canada within the first quarter of 2020 and will come into force across North America 90 days following the final signatory\u2019s ratification. Once this takes place, the agreement\u2019s implementation will be received warmly by medical device manufacturers and associations across North America, and will likely improve patient access to innovative medical devices in all three countries.<\/p>\n
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