Trade between Canada, the United States of America and Mexico has helped the countries foster valuable working relationships that have benefited all parties. However, recent changes require us to consider the benefits of NAFTA vs.USMCA. The North American Free Trade Agreement was first signed on Jan. 1, 1994 and this came as an improvement on the previous agreement between the United States and Canada. However, following renegotiations between member states, NAFTA was replaced by the USMCA, or the United States Mexico Canada Agreement, in 2018, with a redrafting of terms following the next year.
So what are the differences and similarities between NAFTA and USMCA? While many of the free trade factors of the deal remain, notable changes occurred in a number of important areas. These include the automotive industry, labor standards, environmental policy, and more.
If you're an importer that's bringing in goods from Canada or Mexico, our team can help you make the successful transition to USMCA. We provide customs consulting services where we can discuss your importing program to ensure you're getting the most out of the USMCA.
Our comprehensive guide below provides you with a complete breakdown of the transition from NAFTA to USMCA.
While the USMCA shares many similarities with its predecessor, there are still several key differences that set it apart from the previous NAFTA agreement. For businesses looking to import goods into the United States from either Canada or Mexico, it is essential to understand these differences before proceeding. With this understanding, you will be able to navigate the changes more comfortably and ensure straightforward importing.
These differences include:
One of the most evident changes within the USMCA compared to NAFTA is with auto manufacturing. Previously, the rule was that at least 62.5% of all vehicle parts must be made across the three nations. However, with the new agreement, this has been raised to 75%, emphasizing workers earning at least $16 per hour. A report from the International Trade Commission found that this can add as many as 28,000 jobs to the industry over six years, while a report carried out by the Trump Administration found that there could be as many as 76,000 new jobs with the same policy.
The USMCA will also strengthen labor laws. In the past, manufacturers have noted that too many jobs are sent to Mexico. Compared to NAFTA, the new agreement will improve the enforcement of labor laws that will create a more even playing field for workers while also protecting their rights when working in manufacturing plants and factories.
Dairy farmers will also be provided more significant market access following the implementation of the new USMCA. As Canada and Mexico are two of the most prominent markets for US ranchers and dairy farmers, the USMCA retains the original zero tariffs. It will also allow Canadians greater access to eggs, dairy, and poultry from the US. To provide a balance, the US will have more access to Canadian dairy, peanuts (and peanut products), and small amounts of sugar for cross-border trade.
With technology being an ever-evolving aspect of the modern world, the original North American Free Trade Agreement needed a severe update. With the United States Mexico Canada Agreement, the policy is ready for the 21st century and beyond. While these policies may not create new jobs, at least not immediately, they can still benefit the US in other ways. The new digital trade deal will prohibit Canada and Mexico from making the United States businesses store customer and client data on servers from within the country. Likewise, the same companies cannot be sued about content that appears on websites in Canada or Mexico.
Continuing efforts to help the environment, the new agreement will set aside as much as $600 million to tackle environmental crises across the region. This can include Tijuana sewage spillovers that have a severe effect on San Diego. The agreement will also make new regulations much easier to enforce compared to the previous policy that stated trade must be proved to be violated before setting new rules in place.
When drafting the agreement, members of the Democrat Congress negotiated to remove protections over the development of biologic drugs, arguing that it would have hindered drug pricing legislation. While this benefits other countries, members of the US Congress say that it does not help the United States. Instead, they will encourage foreign nations to take intellectual property following the hard work and innovation of American drug developers.
Following the final implementation of NAFTA policies on January 1, 2008, there was little development throughout the Obama Administration. It was only when Donald Trump received the RNC nomination to run for (and eventually win) the Presidency in 2016 that the idea of USMCA to replace NAFTA began to become more prominent. Following several years of negotiations, the USMCA would finally come into force on July 1 2020.
Simply, no. There is not a grace period for complying with USMCA. However, as with any trade deal, there is much more to it than that. With grace periods in other policies, companies can use either agreement to obtain preferential rates for exporting or importing goods. However, with NAFTA going away and the implementation of the USMCA, businesses in North American must review their products.
Through this review, companies will ensure their products now meet the necessary standards outlined by the USCMA terms. For the majority of products, there will not be any significant changes to regulations. However, with industries such as automobiles and agriculture, businesses in these sectors must review their products to ensure they comply with the new agreement.
Failure to do so could cause headaches when looking to import or export goods across the border. Not only will this cause issues with supply chains and fulfilling orders, but it could also impact manufacturing and retail, which would directly affect consumers hoping to purchase and use these products.
For the benefit of all three nations, reviewing and complying with the latest terms of the agreement will make the process much more comfortable and ensure that businesses avoid obstructions and roadblocks along the way.
The USMCA will not just help the automotive and agricultural industry. It is also designed to boost the fortunes of small- and medium-sized businesses across the region.
One of the most crucial and critical achievements made by the ratification of the USMCA is the elimination of red tape at borders by increasing de minimis levels. With this regulation, imports under $2,500 will not need to go through the same amount of paperwork as more significant imports do. This will speed up the process and allow for more rapid progression of importing goods that can benefit SMEs dramatically.
For Canada, the de minimis level for express shipments has also been raised for the first time in years. Previously, de minimis levels were just C$20. with the USMCA, this has been raised to C$40 that is exempt from taxes and duties. For duty free imports, the agreement outlines as much as C$150. Likewise, Mexican imports free of duty and taxes will experience an increase to $50 USD, while express and duty free shipments rise as high as $117 U.S. dollars..
Furthermore, the copyright of intellectual property has seen a vast increase. During the NAFTA years, intellectual property copyright lasted for 20 years following the life of the author. The USMCA drastically increases this and outlines that this copyright is good for up to 70 years.
Digital trade is also positively affected. The agreement removes customs duties on digital products, and this includes video games, ebooks, and software. Data flows will also be protected, while source codes and algorithms are no longer required to be entirely disclosed by the company.
Finally, small businesses are encouraged to participate in Government Procurement. This will increase transparency and efficiency that will benefit businesses from all three nations. The policies will incentivize making tender documents free and there will also be considerations into how U.S. small businesses can compete more effectively in the national and global markets.
These benefits represent a fruitful future for the United States, Mexico, and Canada. They demonstrate a willingness to bolster cross border working relationships, offering mutually beneficial results that can encourage the increase of small businesses while also making it easier to work with companies from other nations. Rather than feel overwhelmed by large corporations, these small- and medium-sized businesses could easily compete.
The USMCA Rules of Origin and Origin Procedures includes specific rules for a range of products that include, but are not restricted to, passenger vehicles and light trucks, as well as auto parts.
These rules will encourage economic growth throughout the US by ensuring that at least 75% of parts are developed within one of the three nations included in the agreement. Through this, the rules help with several key points that are necessary for the continued success of the deal.
Such rules will:
This is not all the Rules of Origin will achieve. Another critical achievement of the revised agreement is the development of a new labor content rule. To support better jobs and allow the United States to compete better with global manufacturers, the rules will require between 40% and 45% of all parts are developed by workers earning at least $16 an hour. This will also encourage better investment in the industry and push towards more involved research and development.
The USMCA has also managed to exceed original standards from NAFTA 1.0 and the Trans-Pacific Partnership. With the revised Rules of Origin, procedures have been established that streamline verification and certification, promoting vigorous enforcement to prevent duty evasions. With this, only significant North American parts developed by the three nations will receive preferential tariffs and benefits.
If you need help understanding the rules of origin and how to comply with them, our team of experts are ready to help.
If your business wants to import or export goods across borders, it will need to include a Certificate of Origin. With this certificate, the products will qualify for preferential duty treatment.
But what is the USMCA Certificate of Origin? The form includes nine steps that must be followed in order to receive the preferential tariff treatment. These steps include:
Indicating which category the Certifier falls into
How long the period of certification covers multiple shipments up to 12 months
The name, title, address, and contact details (telephone number and email address)
If different from the Certifier, the Exporter must list contact and personal information.
The name, address, and contact details of the person (or company) responsible for manufacturing the goods
If known, provide contact and personal information about the importer.
The Origin Criterion will help you to determine whether your good qualifies under as an originating good under the USMCA. You can find more information about the Certification of Requirements to ensure you follow the correct procedure.
Before sending off, the certification must be signed and dated by the designated Certifier with a statement outlining all the information to be accurate and accepting full responsibility.
When importing from Canada or Mexico, working with a customs broker will make the shipment process much more manageable. While the USMCA has already helped to streamline the importing process, there are still requirements that businesses importing goods must adhere to in order to ensure a hassle-free experience. These requirements include paperwork and certifications that a customs broker can assist with before you get started.
A Customs Broker can:
It is essential to recognize that any mistakes made along the process can have significant consequences for your business and your customers and clients across the border.
Because of this, working with a Customs Broker that understands the regulations in place, as outlined by USMCA, will ensure there are no issues, such as delays or confiscation upon the goods' arrival at the customs office. A Customs Broker is especially useful for small- and medium-sized businesses that are trying to expand their market and want to make an immediate good first impression for over-the-border clients.
With the USMCA's emphasis on boosting SMEs' opportunities, using a Customs Broker is the perfect way to help get a foothold in industries across the North American region, and it will give you the chance to follow procedures correctly and prevent any mishaps.
USA Customs Clearance offers an easy customs bond process with same-day approval. The simple three-step process makes us the best company to work with for Canadian or Mexican companies that need help importing goods to the United States. Our experienced team of consultants can assist your business with all your importing needs. With a quick 30-minute phone call, we can start the process to help you import all types of goods from Canada and Mexico to the U.S. to make sure you comply with USMCA regulations. Give us a call today at 855.912.0406 to get started.