By Zaid Al-Nassir, Decision Resources Group (DRG)
[5/29/2019 Editor Note: This article has been updated to reflect Canada's recent actions and U.S. tariff changes]
On Nov. 30, 2018, US President Donald Trump, then-Mexican President Enrique Peña Nieto, and Canadian Prime Minister Justin Trudeau signed The United States–Mexico–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 not been ratified by each country’s legislature and has therefore not yet come into force.
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 — albeit a modest one — over 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.
USMCA Medtech Provisions: What is New?
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:
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.
Moreover, these provisions — specifically those eliminating duplicative regulatory requirements — will 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 “non-tariff barriers,” which will enhance the ability of US companies to offer devices in Canada and Mexico, and vice-versa.
The ITC Report: Positive Outlook for Medtech
In April 2019, the US International Trade Commission (ITC) released a report highlighting the USMCA’s expected impact on the US economy and certain industries — a 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 “exert a statistically significant, negative impact on medical device trade,” according to the report.
Additionally, the ITC notes that improved intellectual property rights (IPR) protections stipulated in the USMCA — which include extended copyright protection terms, patent term adjustments, and strong enforcement provisions — are expected to benefit medical device industry players throughout North America; the report finds “statistically significant positive relationships between trade flows and IPR protections” specifically in the medtech industry.
Notably, the ITC estimates that the USMCA’s 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.
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’s quality systems regulations are not recognized in Canada, which — in addition to forcing manufacturers to undergo separate regulatory pathways — constrains the import of high-end medical devices from the US and delays their availability to Canadian patients.
That all said, the USMCA’s 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.
Ratification: Not So Straightforward
The agreement, as previously noted, still requires ratification by each country’s legislature before coming into effect; however, domestic political developments in the US have hindered its approval thus far.
In particular, Democrats, who now hold a majority in the US House of Representatives, had 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’s senate did just that, and a few days later, Mexican President Andres Manuel Lopez Obrador prompted US lawmakers to ratify the new agreement. While this explicitly fulfills the House Democrats’ conditions to begin debating the USMCA, it remains unclear when the House will do so, as some Democratic figures have suggested that Mexico may not be able to implement these reforms effectively, signaling that Democrats may seek out further assurances from Mexico. That said, recent reports have indicated that the White House may be warming up to the idea of making some amendments, such as specific language in the legislative text, to secure congressional support for the deal.
In addition, it appeared in recent months that the persistence of the Trump Administration’s steel and aluminum tariffs on Canada and Mexico, originally imposed in 2018, would render ratification even more challenging. However, 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. In fact, a few days following this announcement, Canadian Foreign Minister Chrystia Freeland introduced a ways and means motion to the House of Commons, thereby initiating the process required to ratify the deal.
As it stands, our research leads us to believe that the USMCA will ultimately be ratified by Congress (potentially with some minor adjustments, specifically revolving around labor, environmental, and pharmaceutical provisions), as well as the legislatures in Canada and Mexico. Once this takes place, the agreement’s ratification 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.
About The Author
Zaid Al-Nassir is a senior product support analyst at Decision Resources Group. He holds a B.A. focused in Political Science, History, Writing & Rhetoric from the University of Toronto. Zaid can be contacted at email@example.com