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In place since 1994, the North America Free Trade Agreement (NAFTA) was the playbook that all shippers involved with cross-border trade in the U.S., Canada, and Mexico worked from. The three-country accord had its supporters and detractors, and was focused on eliminating most tariffs on products traded across the three countries.
With a primary focus on liberalizing trade in agriculture, textiles, and automobile manufacturing, NAFTA also sought to protect intellectual property, establish dispute resolution mechanisms, and implement labor and environmental safeguards.
It’s been about two years since the three countries reached an agreement to replace NAFTA with the United States–Mexico–Canada Agreement (USMCA) (NAFTA remained in force until USMCA was implemented). As of July 1, the USMCA effectively replaced NAFTA and went into effect with no transitionary period.
That means U.S. shippers must now follow the new rules of USMCA when shipping to and from Canada and Mexico. Similar rules apply for shippers based in those two countries, although there the pacts are known as the Canada-United States-Mexico Agreement (CUSMA) and Tratado entre México, Estados Unidos y Canadá (T-MEC).
Challenges and Opportunities
In 2020 Cross-border Update: Even more confusion ahead, Logistics Management outlines some of the differences between USMCA and NAFTA. Pointing to the auto sector, it says the former includes a requirement that by 2023 at least 75% of parts in an automobile must be North American (up from 62% required under NAFTA). The new agreement also stipulates at least 40% of workers in the North American auto supply chain must be paid at least $16 an hour.
There have also been changes to the rules of origin, which could be altered further over the coming months. “That leaves companies to evaluate how the rules of origin, as currently written, impact their operations and also leaves them wondering if they’ll need to reevaluate them every time there’s an update to the proposed regulations,” Logistics Management points out.
Streamlining Supply Chains
The new agreement also presents an opportunity to streamline supply chains across the three North American countries. For example, it nearly eliminates the need for any hardcopy documentation to be presented for customs clearance (i.e., electronic document submissions will be treated equally with paper documents).
“The idea behind the new USMCA is to improve supply chain efficiencies by embracing a more modern, systematic approach and use of information technology that wasn’t present in the old NAFTA,” it adds, noting that USMCA incorporates new, updated sections on topics such as intellectual property rights, enforcement, digital trade, and labor rights based on the original NAFTA.
“The new agreement addresses many existing cross-border issues and red tape, including what USMCA introduces as the concept of a single window system,” Logistics Management points out, “as the original NAFTA didn’t address any systematic requirements among the parties.”
The High Points
In Gaining Supply-Chain Efficiencies Through Implementation of USMCA, Supply Chain Brain highlights some of the other positives that could come out of the new free trade agreement. For instance, it singles out the increase to the de minimis amount (the threshold at which a shipment can incur a duty or tax) as one benefit for shippers. Here’s how it works:
- Canada is maintaining a de minimis threshold of at least $150 (CDN) for customs duties and $40 for taxes at the time or point of importation of goods shipped by courier from the United States or Mexico.
- For Mexico, there is no change in the original amount of $50 (USD), no duty or taxes payable but adding a level of up to US$117, and no duty payable but subject to taxes.
- For the U.S., there was no change to the current $800 level that was put in place back in 2016.
The agreement also emphasizes the need for uniform treatment of imports across ports and border crossings, stating that each party shall apply its customs procedures related to the importation, exportation, and transit of goods in a manner that is transparent, predictable, and consistent throughout its territory.
“As many U.S. importers know, one port might treat a tariff classification or item value differently than another,” the publication states, “so the agreement emphasizes the need for ports to work together in the event of a discrepancy.”
By setting out modern standards to assist the flow of information for customs clearance, the USMCA lays out a new foundation for shippers, carriers, freight forwarder, and logistics providers. “The next few years should see improvements in these areas for the USMCA trading bloc,” Supply Chain Brain concludes.