Are you ready for USMCA? The new trade agreement goes into effect on July 1, 2020. In our effort to keep you informed, the below is a snapshot of its key provisions and how it differs from NAFTA.
The USMCA was signed by all three countries on November 30, 2018 at the G20 Summit in Buenos Aires. It was ratified by all three countries as of March 13, 2020. It will go into effect on July 1, 2020.
Let’s start with: What’s in a name? The agreement is officially known under different names in each country.
In the U.S., it is called the United States-Mexico-Canada Agreement (USMCA);
In Canada, it is officially known as the Canada-United States-Mexico Agreement (CUSMA); and
In Mexico, it is called the Tratado entre México, Estados Unidos y Canadá (T-MEC)
Apparently, each country wants their country’s name to be first in the title of the agreement.
There are actually just a few changes in the USMCA that affect most industries and then some major changes that affect a few industries. Here are the highlights:
• Certificate of Origin – Importers are required to have a valid certification of origin in its possession at the time the USMCA preference claim is made. Under the USMCA, there is no prescribed Certificate of Origin (“C/O”) form like NAFTA required. The USMCA requires any format of certification showing nine (9) required data elements, such as a letter format on the business letterhead. Each of the elements matches a field on a C/O form. We are attaching a USMCA Certificate of Origin for your use, along with a description of the data elements. Important: NAFTA Certificates of Origin will no longer be accepted by Customs authorities after June 30, 2020.
• Certification Responsibility – Under NAFTA, the exporter was responsible for the completion of the C/O and the accuracy of the data contained within. Under USMCA, the certification can be prepared by the producer, exporter or importer. However, the importer is 100% responsible for the certification process and accuracy of the information. We caution importer firms from completing USMCA certificates without having access to the source records. We also urge importers to ensure that their suppliers can produce source records upon demand by Customs. In the event of a verification, Customs will only give your firm thirty (30) days to produce the documentation supporting the USMCA claim.
• Low Value Goods (De minimis levels) – In 2016, the U.S. raised the de minimis value for shipments subject to duties from $200 to $800 per shipment. Under the USMCA, Canada will raise their de minimis for duties from $20 CAD to $150 CAD, but will collect taxes on shipments worth $40 CAD to $150 CAD. Mexico will raise their de minimis for duties from $50 to $117, but will collect taxes on shipments worth $50 to $117.
• Term – NAFTA did not have an expiration date. The USMCA is mandated to expire in 16 years. All three countries will review the agreement every six years and the agreement can be extended for additional 16-year terms during any of the six-year reviews.
• Rules of Origin – In general, the preference criteria (A-D) used to determine whether a good qualifies as an originating good remains the same as under NAFTA. However, some of the product specific rules of origin have changes, such as regional value content requirements and added specific manufacturing processes that need to be complied with. There are separate sections of rules of origin for the automotive and textile industries. Highlighted changes include:
Automotive Rules of Origin – Must contain 75% US / CA/ MX content; 70% of steel and aluminum used must originate in US/CA/MX; 40% of automobiles and 45% of light truck production must be performed by workers earning an average production wage of at least $16 per hour; parts content will be divided up into core, principal, and complementary parts with content requirements of 75%, 65%, and 60% respectively; quotas established for CA & MX vehicles and auto parts. These changes will be staged over a period of years.
Textiles Rules of Origin – The USMCA will require that sewing thread, pocketing fabric, narrow elastic bands, and coated fabric, when incorporated in most apparel and other finished products, be made in the region (staged implementation); reduces some tariff preference levels (TPL) for U.S. imports from Canada and Mexico, while substantially increases TPLs for U.S. exports to Canada of apparel and other finished textile goods.
Important: Do not assume that your goods will qualify under USMCA because they qualified under NAFTA. Companies need to check the rules of origin for their products to determine if there are any changes to the qualification requirements.
• Dairy Industry – While NAFTA eliminated tariffs on agricultural products among the three countries, there were quotas enacted between the U.S. and Canada on many dairy products and other agricultural goods. The USMCA will open up the Canadian market to U.S. dairy, poultry and eggs. In return, the U.S. will allow more Canadian dairy, peanuts and peanut products into our country.
• De Minimis for Qualification – Raised from 7% to 10% of total value for most goods; for textiles – raised to 10% of the total weight, of which the total weight of elastomeric content may not exceed 7%.
• Merchandise Processing Fees (MPF) Exemption – The USMCA provides that originating goods and TPL goods are exempt from MPF if the claim for preferential tariff treatment is made at the time of entry.
• Section 232 Tariffs – The U.S. maintains the right to impose Section 232 tariffs on Canada and Mexico, but must provide them with a consultation period of sixty (60) days before the Section 232 tariffs could be applied.
• Labor Provisions – USMCA requires each country to: a) adopt and maintain core labor standards recognized by the International Labor Organization, including freedom of association and the right to strike; b) prohibit the importation of goods produced by forced labor, including forced child labor; and c) address violence against workers for exercising their labor rights. Shorthand: stop shooting labor leaders in the street when trying to organize!
• Environment Provisions – USMCA promotes the protection of coastal and marine environments by prohibiting fish subsidies to those involved in illegal and unregulated fishing, addressing and reducing marine litter, improving fisheries management to prevent illegal fishing, and prohibiting shark finning and commercial whaling; promotes conservation and combats trafficking in wildlife, timber, and fish by setting minimum penalties for these environmental crimes; requires parties to fulfill obligations under seven Multilateral Environment Agreements, including the Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES); and seeks to improve air quality.
• Intellectual Property – Stronger protections; law enforcement officials from US/CA/MX can stop suspected counterfeit or pirated goods in any of the three countries.