USMCA/CUSMA

It is important to understand if the products you are importing are eligible for preferential tariff treatment under USMCA/CUSMA, where you as the importer would then be able to claim ‘duty-free’ on your imports by completing a USMCA certification of origin.

Rules of Origin

The USMCA/CUSMA prohibits importers from applying unnecessary restrictions on imports of remanufactured goods. If an importer adopts or maintains a prohibition or a restriction on a used good, it shall not apply the measure to a remanufactured good. In order to qualify, the product must comply with USMCA rules of origin, which distinguish between “origin of goods” versus “originating in a North American country.” The rules of origin specify that goods originate in North America if they are wholly North American.

What Do You Need to Know?

Over the years, revolutionary advances in technology, telecommunications and e-commerce have combined to provide a strong rationale for modernizing and improving NAFTA to better reflect the way businesses now engage in international trade.

The United States-Mexico-Canada Agreement (USMCA) or Canada-United States-Mexico (CUSMA), is set to replace the 26-year-old North American Free Trade Agreement (NAFTA) on July 1, 2020, therefore creating a modernized free-trade system between the three countries. This modernized free-trade addresses recent and emerging critical issues, such as:

  • Harmonization of regulatory systems, e-commerce and the protection of intellectual property

And provides changes to:

  • Various rules and processes which govern how specific goods are traded within North America and;
  • Mechanisms for how trade disputes are resolved

We detail all new provisions of the USMCA/CUSMA below.

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Everything you need to know about the new trade agreement coming into force, how it will affect your business, and what you need to do to prepare.

Did You Know?

As a result of NAFTA:

  • Between 1993 – 2019, trade between the three countries quadrupled from $290 billion to $1.23 trillion
  • Tariffs were lowered, some eliminated, which reduced prices of imports
  • Economic growth increased substantially – agriculture, automobiles, and the services sectors
  • Job creation increased – manufacturing expanded
  • Foreign direct investment increased between countries – businesses attained opportunities to develop and expand into different markets
  • Government spending reduced – firms could bid on government contracts

USMCA/CUSMA Changes

USMCA changed the de minimus threshold within which low-value goods can enter each country duty free. 

Canada 

  • $150 CAD for duties (Customs)*
  • $40 CAD for taxes*

*Applies to shipments worldwide

United States

  • $800 USD*

*Applies to shipments worldwide

Mexico

  • $117 USD for duties (Customs)*
  • $50 USD for taxes*

*Applies to shipments worldwide

NAFTA Chapter 20 & Chapter 19 – Maintained in USMCA

  • CH. 20* – Country-to-country dispute resolution mechanism – maintained
  • CH. 19* – Anti-dumping/countervailing duty dispute-resolution mechanism – maintained

*will move to USMCA Chapter 10 and 31, respectively.

NAFTA Chapter 11 – Phased Out in USMCA

  • CH. 11* – Investor-state dispute resolution settlement (ISDS) process –  eliminated between Canada and the United States – maintained between the U.S. and Mexico.

*Process provides investors with recourse to an impartial tribunal to challenge government rulings affecting their investments will be phased out for claims against Canada or by Canadians in three years from the USMCA entering into force.

Afterwards, Canadian or U.S. investors wanting to dispute rulings in either country will have recourse only at the government-to-government level or in each country’s civil courts.

Qualifications for Duty Exception Under USMCA 

Regional Value Content

  • 75% percent of a vehicle must originate in North America (up from 62.5% under NAFTA)
  • 70% of all steel*, aluminum*, and glass used in the production of the automobile must originate in North America
  • Beginning on January 1, 2020 the higher regional value content threshold for most passenger vehicles and light trucks is to be phased in over three years: 66% (using net cost method) and increasing by 3% per year until it reaches 75% in 2023. Automotive parts will also be subject to regional value content requirements of between 65% and 75%

*Steel will newly be defined as “melted and poured” in North America in order to qualify for duty exemption (new definition will take effect seven years after the USCMA’s implementation). Aluminum definition is maintained under NAFTA ( to be revisited 10 years after the USMCA’s implementation).

Labour Value Content

  • Workers earning at least US$16 per hour must carry out 40 to 45% of an auto producer’s activities (i.e., manufacturing, technology, assembly)

Section 232 of the Trade Expansion Act of 1962

Tariffs imposed by the United States under Section 232 of the Trade Expansion Act of 1962, which authorizes the President to impose tariffs on the grounds of national security, was not addressed in the USMCA.

Canada and Mexico, as well as a number of other countries were hit with such tariffs in the summer of 2018. Canada and Mexico hit back with countermeasures on U.S. consumer goods; however, the parties came to a resolution in the Spring of 2019.

Canada’s Duty Free Access (Automotive)

In a side letter as part of the USMCA, the U.S. agreed to first seek a negotiated solution with Canada and Mexico for 60 days before applying any new Section 232 tariffs and made a concession to the auto sector with an assurance indicating that notwithstanding any such actions being taken in future.

Canada will still have guaranteed duty-free access to the U.S. market for up to 2.6 million vehicles and more than $32 billion in auto parts (figures greatly surpassing current export levels).

  • U.S. producers will have duty-free access to an additional 3.6% of Canada’s annual dairy market
  • Restrictions on the import of U.S. ultra-filtered milk into Canada have been removed
  • Canada will eliminate Classes 6 and 7 protein substances from the milk pricing structure under Canada’s dairy supply management system, and limit exports of Canadian milk protein concentrates, skim milk powder and infant formula
  • Canada’s price for skim milk solids used to produce non-fat dry milk, milk protein concentrates, and infant formula will be set no lower than a level based on the U.S. price for non-fat dry milk
  • Canada’s dairy supply management system, which places limits on foreign imports is maintained

  • Canada has agreed to treat wheat imports the same as domestic wheat for grading and pricing
  • Mexico and the U.S. agreed that all grading standards for agricultural products will be non-discriminatory

USMCA is the first free trade agreement for the United States that addresses cooperation, information sharing and other trade rules related to biotechnology and gene editing.

The agreement also includes provisions that aim to enhance science-based trading standards among the three countries as the basis for sanitary and phytosanitary measures for farm products.

USMCA eases the requirements to qualify for duty-free treatment for certain textile and apparel products, but tightens the requirements for other products. For example:

  • the new agreement eliminates the NAFTA demand that visible linings must be sourced from member countries; however, USMCA adds more restrictive new requirements for narrow elastic fabrics, sewing thread, and pocket bag fabric.

Adjustments made to Tariff Preference Levels

  • Doubling the amount of U.S. cotton and man-made fiber apparel exports to Canada
  • Establishing a new chapter dedicated to North American trade in textiles and apparel, including textile-specific verification and customs cooperation provisions that provide new tools for strengthening customs enforcement and preventing circumvention and fraud

The intellectual property provisions in the USMCA are considerably more robust than those of NAFTA and largely mirror the Comprehensive and Progressive Trans-Pacific Partnership free trade deal that Canada signed in 2018.

  • Patent extended* for biologic medicines such as vaccines to 10 years, for all countries, an increase from the existing standard in Canada of 8 years and Mexico of 5 years
  • Copyright duration was extended from 50 years after an author’s death to 70 years.
  • IP rights relating to copyrights, trademarks and patents to be enforced by Customs and other law enforcement officers to stop suspected counterfeit or pirated goods at every phase of entering, exiting, and transiting through the territory of any member country.

*A new provision in the USMCA also obligates the parties to offer multi-year extensions on patent terms when reviews by their regulatory or patent office take longer than terms deemed “reasonable” for the purpose of compensating the applicants for such delays.

The USMCA aims to set a new global standard for e-commerce with a chapter setting out rules governing Digital Trade.

  • Prohibition on customs duties and other discriminatory measures from being applied to digital products distributed electronically (e-books, videos, music, software, games, etc.)
  • A ban on restrictions that would be applied to data transfers across borders and includes controversial new rules prohibiting so-called data localization policies, which for reasons of consumer privacy can require companies to store personal information within the local jurisdiction

Products assembled in the Territory that:

  • Are entirely or partially comprised of recovered goods
  • Have similar life expectancies and meet similar performance standards as new goods
  • Enjoy similar factory warranties as new goods

These provisions were necessary to endure that remanufactured goods receive same treatment as new products.

Product coverage for remanufactured goods vary by Agreement. For USMCA product coverage is for Chapters 84 through 90 with some exclusions.

A “sunset clause,” provides for an automatic expiration/termination after the ‘sunset’ period or 16 years, unless the agreement is explicitly extended by the parties.

  • USMCA extends the ‘sunset clause’ to a 16-year term, at which time the parties can choose to review and/or renegotiate terms, or withdraw from the agreement altogether
  • A review of the agreement is required every six years, that could lead to a renewal for another 16-year term

The USMCA includes an unusual new provision related to free trade agreements with “non-market” economies such as China.

What under this clause?

  • The negotiating country must provide the other two nations with the opportunity to review the full text of the agreement 30 days prior to be signed
  • Entry into such a free-trade agreement allows one or both of the other countries to then terminate the USMCA on 6-months’ notice and replace it with a bilateral agreement, at its discretion.

A Certificate of Origin is now allowed to be made by the exporter, producer, or importer of the goods (it was only the exporter with NAFTA).

Minimum of 9 data elements:

  1. Importer, Exporter, or Producer Certification of Origin
  2. Name and address of Certifier
  3. Name and address of Exporter
  4. Name and address of Producer
  5. Name and address of Importer
  6. Description and HS Classification of the good
  7. Origin Criteria as set out in Article 4.2 (Originating Goods)
  8. Blanket Period – How long the certification is valid up to 12 months
  9. Authorized Signature and Date

The certification* will need to be signed and dated by the certifier and accompanied by the following statement:

“I certify that the goods described in this document qualify as originating and the information contained in this document is true and accurate. I assume responsibility for proving such representations and agree to maintain and present upon request or to make available during a verification visit, documentation necessary to support this certification.”

Know Your Risks and Benefits Under USMCA/CUSMA

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