From NAFTA to USMCA
The USMCA went into force on July 1, 2020, and replaces NAFTA.
To review, NAFTA first came out in 1994, creating the world's largest free trade zone, with the goal of reducing trade barriers between Canada, Mexico and the US. However a new world of products and industries have since grown up in the years since; notably e-commerce, and the shrinking of a world via modern technologies. With the implementation of USMCA, the intent is to cover these areas, as well as address other topics in relation to today: notably, labor provisions, the auto industry and environment.
Below we include some highlights of the new trade agreement now in force. Please note, these are intended as highlights of the new trade agreement, but this is not an exhaustive list. Please reach out to the Radiant Network for expert guidance: we are happy to help.
Details, details...
While the two agreements are in many ways similar, the devil is in the details. The RULES have been updated, and it is here that the USMCA has the most impact:
- Regional Value
- Labor Value
- Rules of Origin
Certainly the most visible industry affected by the USMCA rule changes is the automotive industry.
Regional Value: The USMCA has adjusted the regional content for passenger vehicles from 62.5% to 75% in order to qualify for preferential tariff benefits.
Labor Value: There is a new labor requirement as well, in that 40-45% of workers must have a higher wage of at least $16 per hour.
Rules of Origin: The change to RoO are intended to "help ensure that only producers using sufficient and significant North American parts and materials receive preferential tariff benefits." These parts and materials include products such as chemicals, steel-intensive products, glass, and optical fiber.
It is worth noting that these RoO changes affect more than just the auto industry, case in point: the textile industry. With the USMCA updates to RoO, textile and apparel will need to consider where materials are sourced from a regional standpoint, including what might seem like low value components like trim, thread and other notions.
Intellectual Property
With the USMCA, the copyright on intellectual property has been extended for no less than 70 years after the life of the author.
NAFTA was implemented as dial-up internet was just being commercially launched (1992), so the online landscape has certainly changed since then. There is also a chapter within the USMCA that deals specifically with digital trade, including the "application of customs duties and other discriminatory measures to digital products distributed electronically, such as ebooks, videos, music, software, and games." It also ensures that data can be transferred across borders and addresses cybersecurity.
Tariff Rate Quotas & De Minimis Thresholds
Tariff rate quotas have been adjusted for the USMCA, particularly in the areas of the Canadian eggs, dairy, and poultry markets.
The USMCA has raised some de minimis and duty free thresholds for imports, to $150 CAD (up from $20 CAD) and from $117 USD for Mexican shipments across the border, up from $50.
The USMCA has an Expiration Date...
The USMCA is not intended to be an ongoing agreement, but instead, has a shelf life; in the first instance of 16 years.
Following six years after the implementation of the USMCA, all three countries will revisit and review the agreement; at that time making a determination of either its extension or expiration. If it is determined to let the USMCA expire, the three countries then have a decade of discussion and review in which to determine a direction and purpose for any subsequent agreement once the USMCA expires. If it is determined that the USMCA will stay in place, the agreement will continue for an additional term of 16 years.
Implementation & Enforcement
The USMCA officially went into effect on July 1, 2020.
The US Customs and Border Patrol has launched a USMCA Center to serve as a one stop shop for information concerning the USMCA. Here is an excerpt of what they have said:
"...during the first six months after entry into force, CBP will focus on supporting the trade’s efforts to fully comply with USMCA requirements, including providing webinars and other outreach efforts to educate the trade on the new Agreement...Importers are required to exercise reasonable care when making a claim under USMCA, including ensuring that they are in possession of a complete and valid certification of origin at the time of making a claim and meeting all record keeping obligations.
"In order to provide the trade sufficient time to adjust to the new requirements and in consideration of the business process changes necessary to achieve full compliance, CBP may in appropriate cases, show restraint in enforcement during the six-month period after USMCA’s entry-into-force. CBP will take into account the difficulties importers may face in complying with the new rules, as long as importers are making satisfactory progress toward compliance and are making a good faith effort to comply with the rules to the extent of their ability."
...A few final helpful links:
Below are also a few links to further familiarize yourself with the USMCA:
USMCA Final Text
CBP USMCA Center
In addition to the many information sheets, FAQs more from the CBP, there is also a recorded webinar held by the Baker Institute, which explores the prospects for success and the challenges of implementing the new USMCA through the analysis of experts on commerce and economic integration in North America, held by. This webinar was held on July 1.
As ever, we are here for you; please do not hesitate to reach out with questions or concerns. We look forward to working through the implementation of this agreement as we move forward into the next trade chapter for us all!
