Round 6 of the renegotiation of the North American Free Trade Agreement (NAFTA), the pact between Mexico, Canada and the US took place in Montreal, Canada from January 21st to the 29th. No progress was made on the key issues through the first five rounds and the Montreal meetings have been billed as the final round of discussions. It remains to be seen whether the three countries can agree on terms that will update and keep NAFTA in place for future generations. Complicating the renegotiations are the consistent overtures made by US President Donald Trump that he will withdraw from the NAFTA deal if the other two countries do not concede to some of the United States’ hardline demands. While a NAFTA withdrawal will unleash many known and unknown economic consequences for the three member countries, there will also be immigration consequences, both known and largely unknown, for individuals who are working in Canada and the US on NAFTA-based work permits.
The purpose of this article is to review the current immigration provisions of NAFTA and to explore whether NAFTA work permit holders will be able to continue to live and work in the US and in Canada if the US withdraws from the agreement.
NAFTA was entered into force on January 1, 1994 and created one of the largest free trade zones in the world between the US, Canada and Mexico. The treaty covers many industries and sectors and aimed at the following objectives:
1) Eliminating tariffs for certain projects
2) Eliminating certain non-tariff barriers
3) Establishing standards in areas such as health, safety and industry
4) Expanding the telecommunications trade
5) Reducing textile and apparel barriers
6) Expanding free trade in agriculture
7) Expanding trade in financial services
8) Opening insurance markets
9) Increasing investment opportunities
10) Increasing protection of intellectual property rights
11) Expanding the rights of American firms to bid on Mexican and Canadian government procurement contracts.
a) NAFTA Immigration Provisions for the United States
In order to facilitate trade expansions and the free movements of goods, NAFTA also contains immigration provisions that allow for the movement of US, Canadian and Mexican nationals throughout the free trade zone under a more expedited process. At the outset, while immigration was not a principal concern, the NAFTA drafters realized that the movement of goods and services in international commerce would also involve the moving of people who trade in those goods and services.
For the United States, NAFTA provides the following immigration provisions:
Visitors for Business (B-1)
Canadian and Mexican nationals are allowed to enter the US to engage in B-1 business activities as long as they receive no salary or remunerations from a US source, establish they will engage in business activities, and will not be performing “work” activities that usually require a work permit. The activities include the following:
– Technical research and Design
– Growth, manufacture, and production
– Market research and analysis
– Negotiating contracts or taking sales orders
– Transportation and distribution activities
– After-sales services
Canadian nationals are able to enter the US as a B-1 business visitor through the US-Canada border or through a preclearance facility in Canada without having to apply for a visa at the US Consulate.
L-1 Intracompany Transferees
The NAFTA provisions permit Canadian nationals to follow a streamlined process for applying for L-1 admission as an intra-company transfer. Canadian nationals are not required to file their L-1 petition with US Citizenship and Immigration Services (USCIS). Instead they may submit an L-1 petition and request admission into the United States with US Customs and Border Protection (CBP) at a Class A port of entry along the US/Canada border at a pre-clearances station in Canada.
TN Nonimmigrants (Treaty Nationals)
NAFTA permits Canadian and Mexican nationals to enter the US on TN status to engage in certain professional activities that are designated by the treaty provisions. The TN professions and the minimum qualifications for each are listed in the NAFTA appendix and include, but are not limited to, the following:
– Computer System Analysts
– Urban Planners
Canadian nationals may submit a TN application and request admission into the United States with US Customs and Border Protection (CBP) at a Class A port of entry along the US/Canada border at a pre-clearances station in Canada.
E-1/E-2 Treaty Traders and Investors
The NAFTA provisions make Canadian and Mexican nationals eligible for E visas which are designed for treaty traders (E-1) and treaty investors (E-2).
b) NAFTA Immigration Provisions for Canada
Entry provisions for US and Mexican citizens seeking to work in Canada under NAFTA largely mirror those found in the US.
Under Canadian immigration law, NAFTA’s provisions exist alongside of general immigration provisions. Business visitor eligibility criteria under NAFTA parallels the business visitor requirements set out at section 186(a) of the Immigration and Refugee Protection Regulations (IRPR), with the main difference being that NAFTA has slightly more restrictive after-sales service provisions.
The other three categories of business people — namely professionals, intra-company transferees and traders / investors — are eligible for Canadian work permits under IRPR R. 204(a) on a similar basis to the US. US and Mexican citizens may apply for NAFTA-based work permits upon arrival in Canada, with no advance government processing or an application through a visa office abroad being required.
US and Mexican citizens who qualify for NAFTA-based work permits are exempt from the onerous Labour Market Impact Assessment process, meaning that NAFTA is an efficient and cost-effective basis for obtaining a work permit.
The Post-NAFTA Landscape
Under Article 2205 of NAFTA, any of the three countries can pull out of the treaty by giving six months notice to the other two countries. NAFTA has been in place for over 20 years and the implications of a potential US withdrawal are still being ascertained. In this regard, we have outlined some potential scenarios and outcomes if the US decides to withdraw from NAFTA.
a) Does the President have the authority to pull out of NAFTA?
The NAFTA treaty states that any country may pull out of the agreement by providing six months’ notice. Based on this provision, the President may pull out of the agreement. However, the power to negotiate trade deals is shared between the President and the Congress. Congress usually grants the President the ability to negotiate trade deals, which are ultimately submitted for a congressional vote.
If the President withdraws from NAFTA, some provisions of the deal such as the binational panels that resolve trade disputes, would disappear while other things, such as preferential tariff treatment for Canadian and Mexican goods, would remain until Congress passes legislation to repel them.
Additionally, after the agreement was executed by the three countries, the United States ratified and implemented the agreement through legislation, which governs the way the US trades with Mexico and Canada under NAFTA. The legislation can only be repealed by congressional vote. Congress could fight to keep the legislation intact or pass new laws designed to boost its own authority over trade agreements. Thus, since much of NAFTA is implemented by congressional statute, which cannot be changed without congressional vote, what would remain has been termed a “Zombie” NAFTA—where the US no longer formally participates in the agreement but the domestic laws would treat Canadian and Mexican products as NAFTA-bound.
In any scenario, it is extremely likely that a withdrawal will lead to a legal battle with members of Congress or industry groups challenging the President in court over his power to unilaterally withdraw from the agreement.
b) In the case of a withdrawal, what would happen to the NAFTA agreement between Canada and Mexico?
In the event of a US withdrawal, the NAFTA agreement may remain in effect between Canada and Mexico, but this would likely require positive action from both countries.
It should also be noted that the Trans-Pacific Partnership (TPP) — which could be ratified as early as 2019 — contains mobility provisions that are similar to those in NAFTA. Canada and Mexico are both parties to the TPP. With the TPP on the horizon, Canada and Mexico may not have the appetite to revive NAFTA in the event that the US withdraws from this agreement.
c) Could the US and Canada revert back to the Canada-US free-trade agreement (CUSFTA) that came before NAFTA?
In 1987, Canada and the US signed a free-trade deal known as the Canada-US free-trade agreement (CUSFTA). This deal superseded NAFTA. The prevailing view is that if the United States pulls out of NAFTA, then the original CUSFTA provisions might come back into force. The immigration provisions in CUSFTA are similar to those in NAFTA, with the exception that the professional categories in CUSFTA are not as extensive as those listed in NAFTA. Certain professional categories in NAFTA, such as Urban Planners, are not available under CUSFTA. Nevertheless, CUSFTA could serve as a fall back option for individuals in Canada or the US on NAFTA-based work permits.
However, there are issues with this scenario: First, the CUSFTA would not automatically revert become operational. Various decisions and significant “lift” will be required first. Secondly; the withdrawal provisions of CUSFTA are very similar to those in NAFTA; either country can terminate the agreement by providing six months’ notice. Thus it is possible that the President could provide six months’ notice to simultaneously withdraw from NAFTA and CUSFTA, leaving no fallback provision.
d) If the US pulls out of NAFTA, what will happen to the immigration status of Canadian and Mexican nationals who are in the US and Canada on NAFTA-based work permits?
This is a complex question and could involve many likely scenarios. As mentioned before, the Canada-US trade relationship could revert back to the CUSFTA provisions. These provisions are similar to NAFTA and include work permits for professionals that are similar, though more limited, to those enumerated in the NAFTA provisions. However, it is unclear whether NAFTA-based work permit holders in the US could remain in the US based on CUSFTA provisions. One option is that the US could provide further guidance to state that NAFTA-based work permits would automatically revert to CUSFTA-based work permits and Canadian nationals could remain in the US without disruption to their employment.
Another possible scenario is that NAFTA-based work permit holders will have to take action and apply for a CUSFTA-based work permit. Within the six month notice period, Canadian nationals, who reside in the US, could file a CUSFTA-based work permit at a service center inside the US. This process would allow Canadian citizens to continue working while their new CUSFTA application is being adjudicated by the service agencies. Canadian nationals would also have the opportunity to apply for a CUSFTA work permit at a US-Canada land crossing or at a preclearance facility in Canada.
There is a great deal of uncertainty as to how the Canadian government would address the termination of NAFTA and the rights of NAFTA-based work permit holders in Canada.
At present, there are upwards of 40,000 NAFTA work permit holders in Canada, many of whom are working in fields with persistent labour shortages, such as nursing and engineering. It would be devastating to the Canadian economy if tens of thousands of skilled professionals are required to leave the country, not to mention counterproductive in light of government’s recent efforts to lure foreign talent to Canada. In the event that NAFTA is terminated, it is expected that existing NAFTA-based work permit holders would be permitted to continue working in Canada until such time as their status documents expire. This would protect Canadian employers from the sudden and unplanned departure of key US and Mexican talent, as well as ensuring that government does not have to deal with an onslaught of thousands of new work permit and other applications from NAFTA-based work permit holders.
However, if the Canadian government opts to follow the US government’s lead and instead takes the position that all NAFTA-based work permits are void as soon as NAFTA is terminated, US and Mexican citizens should be able to apply for new work permits during the 6 month notice period provided that they qualify under an alternative work permit category (such as the reciprocal employment or significant benefits work permit categories under IRPR’s general immigration provisions). US citizens holding NAFTA-based work permits may also be able to change the basis for their work authorization from NAFTA to CUSFTA (provided that CUSFTA comes back into effect) or their work permits may be automatically deemed to have become CUSFTA-based work permits.
To the extent that NAFTA-based work permit holders are required to take proactive steps to remain in Canada, they may have to apply for work permit extensions and / or change of conditions through the Case Processing Centre in Vegreville, Alberta or, if applicable, at a Canadian port-of-entry.
If some form of NAFTA remains in effect between Canada and Mexico, Mexican nationals holding NAFTA-based work permits may be unaffected by the termination of this agreement by the US. Alternatively, depending on the timing of NAFTA’s termination, Mexican citizens may be able to change the basis of their work authorization from NAFTA to the TPP.
At the end of the day, it should be highlighted that the Canadian government has been actively courting foreign skilled workers under the Global Skills Strategy and other related initiatives. Allowing tens of thousands of highly skilled professionals to leave the country would run completely contrary to these efforts. Accordingly, if proactive measures are needed to keep NAFTA-based work permit holders in the country, the Canadian government may take such steps.
e) Assuming the US issues a six month notice to withdraw from NAFTA and CUSFTA, what will happen to the NAFTA-based work permits of Canadian and Mexican nationals residing in the US?
Again, there are many possible scenarios. It is possible the three countries could make separate agreements to let NAFTA-based work permit holders remain in the US and continue to utilize the work permit provisions of NAFTA.
Alternatively, the US may allow NAFTA work permit holders to work until the expiry of their work permits. They could also decide that all NAFTA work permits will end at the expiry of the six month notice period. Under this last scenario, Canadian and Mexican nationals would have to leave at the end of the six month notice period or change to another work permit category, if they are eligible.
From an immigration perspective, it is not clear what type of post-NAFTA and post CUSFTA landscape will emerge. Currently, Canadian nationals, when entering the US as B-1 business visitors, or applying for L-1 or TN work permits, do not have to apply for a visa at a US Consulate. It is unclear if they will continue to remain “visa-exempt” in the B-1 and L-1 categories or would have to apply for visas at the US Consulates in Canada. It is also unclear whether the US Congress would be willing to pass law to keep the immigration provisions of NAFTA intact, which would allow NAFTA work permit holders to continue working without disruption in their US status.
Recommendations in the event of a US-led NAFTA withdrawal
Despite the uncertainty associated with a post-NAFTA landscape, there are some concrete steps companies can take in anticipation of a NAFTA and CUSFTA withdrawal that would help protect NAFTA-based employees to remain in the US or Canada.
For individuals working in the US on L-1 NAFTA-based work permits, companies should consider switching their work permits to the H-1B classification. Keep in mind that only 85,000 total H-1B visas are given each year; the first day of filing is April 1st and if the application is accepted and approved, the H-1B will become effective on October 1st. Moreover, the H-1B position must require a four-year bachelor degree and the individual applicant must have a four year bachelor degree or its equivalent in education and/or experience related to the position.
It may also be possible to re-file L-1 applications with the service center through USCIS. An L-1 approval through USCIS would allow the individual to continue to work and reside in the US on the same status.
For individuals in the US on TN work permits, companies should also consider filing H-1B petitions on their behalf. Alternatively, if employees have worked for a sister, parent, or subsidiary company outside the US for one full continuous year within the last three years prior to their entry into the US, then they may be eligible for an L-1 work permit. The L-1 work permit would be filed at a USCIS service center.
Canadian employers seeking to retain NAFTA-based work permit holders would be well-advised to transition such individuals to permanent resident status. Under the federal government’s Express Entry process, foreign nationals can secure permanent resident status through the Canada Experience Class, Federal Skilled Worker Program or Federal Skilled Trades Program within 6 months (and, in some cases, in as little as a few weeks). A number of provinces also have very fast and effective provincial nomination programs. Once a NAFTA-based work permit holder has applied for permanent residence through the federal government or secured a nomination for permanent residence from a province or territory, they then become eligible for a bridging work permit, which will allow them to remain in Canada until they have secured permanent resident status.
Alternatively, affected foreign nationals could look at changing the basis for their work authorization from NAFTA to a different work permit category, such as the reciprocal employment or significant benefits category.
Employers could also look at transitioning U.S. and Mexican citizens to intra-company transfer work permits, provided that they have a history of employment with the company abroad. However, Canadian immigration law requires intra-company transferees to be employed with the foreign employing entity at the time the application is made; accordingly, this strategy would require the Canadian employer to transfer their NAFTA-based work permit holder back to the foreign employing entity for a period of time before that individual could return to Canada and apply for an intra-company transfer work permit.
We recommend that companies review their employee population to identify which individuals are currently on NAFTA-based work permits and then work with their counsel to develop alternative work authorization strategies on their behalf.
The termination of NAFTA would have far-reaching implications for NAFTA-based business visitors and work permit holders in Canada and the US.
As the Canadian government has recently taken active measures to attract skilled workers under the Global Skills Strategy and related initiatives, Canada is expected to take proactive steps to ensure that NAFTA-based work permit holders can remain in the country. On the other hand, in light of President Trump’s “America First” policies, the US may be less facilitative in terms of ensuring that NAFTA-based work permit holders can continue to live and work in the country.
There are still many unknowns associated with the termination of NAFTA and the impacts to current NAFTA-based work authorization holders. Please contact PwC Law LLP to discuss your company’s particular situation and to develop a plan for retaining your NAFTA-based work permit holders.
The conclusions reached in this document represent and are based upon our best judgment regarding the application of immigration laws arising under the Immigration and Refugee Protection Act and Regulations Customs Act, the US Code of Federal Regulations, the Immigration and Nationality Act (INA), judicial decisions, administrative regulations, and operational manuals existing as of the date hereof. This document is not binding upon the Canada Border Services Agency, Customs Border Protection or any other immigration enforcement authority and there is no assurance or guarantee that CBSA, CBP or any other immigration/customs authority will not successfully assert a contrary position.