USMCA Joint Review Process: Legal Framework, Scenarios and Challenges Ahead

By Juan Carlos Machorro, Partner of Santamarina + Steta

The United States-Mexico-Canada Agreement (USMCA), which entered into force on July 1, 2020, replaced the North American Free Trade Agreement (NAFTA) as the governing framework for trade relations among the three North American nations. One of the most significant institutional innovations introduced by the USMCA, absent from its predecessor, is the mandatory joint review mechanism set forth in Article 34.7 of the Agreement. This provision establishes that the Agreement has an initial term of sixteen years, subject to a joint review by the three Parties no later than the sixth anniversary of its entry into force (by July 1, 2026).

The inclusion of this sunset and review clause was largely driven by the United States during the renegotiation of NAFTA. The rationale advanced by U.S. negotiators was that a periodic review mechanism would ensure that the Agreement remained current, responsive to evolving economic conditions, and aligned with the interests of all three Parties, rather than becoming an entrenched arrangement that could not adapt to changing circumstances. From a legal standpoint, the mechanism represents a departure from traditional trade agreements, which typically remain in force unless a Party withdraws. Under the USMCA framework, the Parties are compelled to affirmatively engage in a review process, thereby embedding a form of structured accountability into the treaty architecture itself.

The concept of the joint review was also a political compromise. While the United States initially proposed a strict five-year sunset clause (under which the Agreement would simply expire unless affirmatively renewed) Canada and Mexico resisted this approach, arguing that automatic termination would generate unacceptable uncertainty for long-term investment and cross-border supply chains. The resulting Article 34.7 reflects a middle ground, rather than automatic expiration, it provides for a joint review that leads either to confirmation of extension or to annual reviews thereafter, preserving the Agreement while still requiring periodic political engagement.

Article 34.7 of the USMCA contemplates two outcomes arising from the joint review process. First, if each Party confirms its wish to extend the term of the Agreement, the USMCA is automatically renewed for an additional sixteen-year period, and the next joint review would occur six years following such confirmation. This is the optimal scenario, as it provides long-term certainty and stability for trade, investment, and economic planning across the region.

Second, if one or more Parties decline to confirm the extension of the Agreement at the six-year joint review, the USMCA does not immediately terminate. Instead, the Agreement continues in force, but the Parties are required to conduct a joint review every year thereafter for the remaining ten years of the original sixteen-year term. At any point during those subsequent annual reviews, if all three Parties confirm extension, the Agreement is renewed for a fresh sixteen-year period. However, if no confirmation is reached during the remaining annual reviews, the Agreement would expire at the end of the original sixteen-year term (July 1, 2036).

This tiered mechanism is designed to incentivize good-faith engagement and negotiation while avoiding abrupt disruption. Even in the absence of an immediate confirmation, the continued operation of the Agreement during the annual review period allows the Parties to address outstanding concerns and work toward consensus, providing a structured runway rather than a cliff-edge termination.

The USMCA and its predecessor NAFTA have been foundational pillars of economic integration in North America for over three decades. Since NAFTA's entry into force on January 1, 1994, trilateral trade among the United States, Mexico, and Canada has grown exponentially, from approximately USD 290 billion in 1993 to well over USD 1.5 trillion annually in recent years. North America has become one of the most deeply integrated economic regions in the world, with complex cross-border supply chains spanning the automotive, aerospace, agricultural, energy, and manufacturing sectors.

The consolidation of efficient regional supply chains has been one of the most transformative outcomes of this trade framework. The automotive sector is a paradigmatic example. A single vehicle assembled in North America may cross national borders multiple times during its production process, with components manufactured in Mexico, the United States, and Canada being traded and assembled in a seamlessly integrated production network. This deep integration has undoubtfully enhanced the competitiveness of North American manufacturers on the global stage, particularly vis-à-vis competitors in Asia and Europe.

The USMCA modernized and strengthened this framework by incorporating updated provisions on digital trade, intellectual property, labor standards, environmental protections, and rules of origin (particularly the more stringent automotive rules of origin requiring higher regional value content and the use of steel and aluminum originating in North America). These updates have reinforced the incentive structure for companies to invest in and source from within the region, further deepening supply chain integration.

Given the depth of economic interdependence among the three countries, the ratification of the USMCA's continued operation at the 2026 joint review is strongly in the interest of all Parties. For the United States, the Agreement secures market access for its agricultural and services exports, strengthens intellectual property protections, and supports the reshoring of manufacturing capacity through robust rules of origin. For Canada, it preserves essential access to the U.S. market for its energy, lumber, and automotive exports while providing a rules-based framework for resolving disputes. For Mexico, the USMCA underpins its position as a premier destination for foreign direct investment and nearshoring, anchoring the country's integration into high-value global supply chains and supporting millions of jobs linked to export-oriented manufacturing.

The broader geopolitical context further reinforces the case for renewal. In an era of intensifying strategic competition with China and growing emphasis on supply chain resilience, a strong and stable North American trade framework serves the shared interest of all three nations in reducing dependence on distant and potentially adversarial suppliers. The nearshoring trend, accelerated in the aftermath of the COVID-19 pandemic and by rising U.S.-China trade tensions, has already driven significant new investment into Mexico and, by extension, into integrated North American production networks. Allowing the USMCA to enter a period of annual reviews (or, worse, to drift toward expiration) would undermine investor confidence precisely at a moment when the region stands to gain the most from deepened integration.

From the perspective of the United States specifically, ratifying the USMCA's extension is not merely a matter of preserving existing trade flows but a strategic imperative in the context of its escalating economic and technological rivalry with China. The United States has pursued an increasingly assertive posture toward China through tariffs, export controls on advanced semiconductors and other critical technologies, and restrictions on outbound investment in sensitive sectors. However, these measures are only effective if the United States can rely on a competitive, secure, and allied production base as an alternative to Chinese supply chains. North America, anchored by the USMCA, provides precisely that alternative. Mexico and Canada together represent the largest source of U.S. imports and a deeply integrated manufacturing ecosystem that can absorb and complement the reshoring and friend-shoring strategies that U.S. policymakers have actively promoted. Without the stability and predictability afforded by a confirmed USMCA, the United States risks fragmenting the very regional bloc it needs to counterbalance China's dominance in global manufacturing. Moreover, key sectors where the United States seeks to reduce dependence on China (including electric vehicle batteries, critical minerals, semiconductors, and advanced manufacturing) require the kind of long-term cross-border investment commitments that are only viable under a stable trade framework. A USMCA subject to annual reviews and potential expiration would introduce precisely the type of uncertainty that discourages the capital-intensive investments needed to build resilient North American supply chains in these strategic industries. In this sense, the joint review is not only a trade policy decision but a pillar of the broader U.S. strategy to compete with China as a region rather than as a single nation.

Despite the strong strategic rationale for renewal, Mexico faces significant challenges heading into the 2026 joint review. The United States has raised a series of concerns regarding Mexico's compliance with the USMCA, and these disputes could complicate the review process.

One of the most prominent areas of contention involves Mexico's energy policies. The United States initiated state-to-state dispute settlement consultations under the USMCA, raising concerns that Mexico's energy reforms (particularly measures favoring the state-owned enterprises Pemex and the Comisión Federal de Electricidad -CFE) at the expense of private and foreign investors were inconsistent with Mexico's obligations under the Agreement, including its commitments on national treatment, market access, and the protection of covered investments. Mexico's subsequent legislative and regulatory actions in the energy sector have continued to attract scrutiny from U.S. officials and industry stakeholders.

Additionally, the United States has raised concerns regarding Mexico's treatment of agricultural biotechnology products, particularly genetically modified (GM) corn. Mexico's presidential decree restricting the use of GM corn for human consumption, and the broader regulatory uncertainty surrounding biotechnology approvals, prompted the United States to request dispute settlement consultations under the USMCA. A dispute settlement panel was subsequently established to examine whether Mexico's measures were consistent with its obligations under the Agreement's Sanitary and Phytosanitary (SPS) chapter, and the United States has continued to press for full compliance with the Agreement's commitments in this area.

The Office of the United States Trade Representative (USTR) has consistently documented these and other concerns in its annual reports on the implementation and enforcement of the USMCA, as well as in the National Trade Estimate Report on Foreign Trade Barriers. These reports have identified a range of non-tariff barriers imposed by Mexico, including regulatory opacity, delays in the granting of permits and approvals, alleged favoritism toward state-owned enterprises, and restrictions in the telecommunications and financial services sectors. The USTR has also highlighted concerns regarding the enforcement of labor obligations under the USMCA's Rapid Response Labor Mechanism, which has been invoked on multiple occasions with respect to specific facilities in Mexico.

The cumulative effect of these disputes and reports is that Mexico enters the 2026 joint review under considerable pressure to demonstrate its commitment to full compliance with the Agreement. The review process, while not a formal renegotiation, provides a platform for the Parties to assess the state of implementation and to signal their level of satisfaction (or dissatisfaction) with each other's conduct. For Mexico, this means that addressing outstanding compliance concerns will be essential not only to securing a smooth confirmation of the Agreement's extension but also to preserving the broader credibility of the USMCA as a rules-based framework that delivers tangible benefits for all three nations.

The joint review mechanism, scheduled for July 2026, represents a pivotal moment for North American economic integration.

The economic case for renewal is compelling as three decades of integration under NAFTA and the USMCA have produced one of the most competitive and deeply interconnected trading regions in the world, and the current geopolitical environment only strengthens the rationale for continued cooperation.

However, the review will not be without friction. Mexico must navigate a complex landscape of compliance disputes, USTR criticism and allegations of non-tariff barriers, as well as ongoing demands for a stricter control of immigration and organized crime activities south of the border.

How effectively the three governments manage these challenges in the coming months will determine not only the outcome of the 2026 review but also the trajectory of North American trade relations for the next generation.