Are you ready for USMCA on July 1, 2020?
Posted: June 26, 2020 |
Introducing the United States-Mexico-Canada Agreement (USMCA) effective July 01, 2020. What the shipper should understand as they transition to the USMCA agreement.
Moving from NAFTA to USMCA background.
The creation of the trilateral trade bloc agreement (NAFTA) in North America on January 1, 1994, brought the immediate elimination of tariffs on more than one-half of Mexico's exports to the U.S. and more than one-third of U.S. exports to Mexico .Tariffs were eliminated within the next 10 years of the implementation of the agreement, all U.S.–Mexico tariffs were to be eliminated except for some U.S. agricultural exports to Mexico, to be phased out within 15 years.
Prior to NAFTA, a shipper would need to Export and Import goods that would require Schedule B numbers, duty rates to be calculated and pricy customs clearance procedures. NAFTA simplified the commerce between our borders.
On September 30, 2018, the governments of the US, Canada, and Mexico inked a trilateral free trade agreement, concluding more than 13 months of negotiations. These three countries entered into a new agreement called the United States-Mexico-Canada Agreement (USMCA), which replaces the preceding NAFTA.
Though these two agreements have many similar points, such as the process and information to pass during cross border transactions, there are unique distinctions existing between the two. Below are the 5 major areas where changes are made in the two agreements:
1. Country of Origin & Labor Clause for Automobile Industry
NAFTA – 62.5% of automobiles components must be manufactured in Mexico, US, or Canada in order to qualify for zero tariffs.
USMCA – up to 75% of automobiles components must be manufactured in Mexico, US, or Canada in order to qualify for zero tariffs.
This change intends to strengthen manufacturing abilities as well as increase the automotive workforce of the three countries. Also, by 2023, around 40-45% of automobile parts must be made by workers earning at least $16 per hour. This will provide greater protections to workers from Mexico. The US will allow Mexico & Canada to export up to 2.6 million passenger vehicles to the US annually without any tariffs. For exports over that amount will be subject to tariffs.
2. More access for US farmers into Dairy Market
NAFTA – 1% of US dairy products can be exported into Canada’s dairy market.
USMCA – up to 3.6% of US dairy products can be exported into Canada’s dairy market.
The change in dairy exports comes in the wake of Canada’s system opening its domestic quota for imports, which otherwise has been protective of its farmers from foreign competition. This allows more access from U.S. dairy farmers into Canada’s dairy market.
3. Revision enabled Sunset Clause
NAFTA – no automatic sunset clause or a predetermined ending date to the agreement.
USMCA – meant to last for 16 years, wherein after 6 years, the three countries will again get together to negotiate and fix any problems and discuss the possibility of an extension.
This is the unique difference between the two agreements with regard to. the sunset clause.
4. Intellectual Property
NAFTA – pharmaceutical companies can maintain patents on biologics for an 8-year term and the term of copyright of 50 years after an author’s death
USMCA – pharmaceutical companies can maintain patents on biologics for a 10-year term and the term of copyright of 70 years after an author’s death
This change will result in the creation of generic biologics as a cheaper alternative to the original brand products and delayed by two years coming into Canada market.
5. Increased DE MINIMIS Shipment value level
To facilitate seamless & improved cross-border trade, the US has inked an agreement with Mexico & Canada to increase their de minimis shipment value levels. For the first time, Canada will raise its de minimis level from C$20 to C$40 for taxes and provide for duty-free shipments up to C$150. It will also allow a 90 days period for the importer to make payment of taxes, after entry.
Mexico will continue to provide a US$50 tax-free de minimis along with duty-free shipments up to the equivalent level of US$117.
With this agreement, the US shipment values up to these levels get to enter the Mexico & Canada shores with minimal formal entry procedures. This will make it easier for small & medium-sized enterprises (SMEs) from the US to be a part of the cross-border trade.
After three years of slow progress as USMCA moved through the negotiation and legislative processes, the April 2020 announcement of a midsummer 2020 implementation was unexpected. For many companies, this short window doesn’t offer enough time.
That’s why it’s essential to get up to speed quickly and learn how it affects your business and your customers. The U.S. Customs and Border Protection recently opened the USMCA Center to better assist the implementation of the new USMCA procedures.
CBP Launches the United States-Mexico-Canada Center to Coordinate Implementation of USMCA
To help coordinate implementation of the USMCA agreement, which enters into force on July 1, U.S. Customs and Border Protection recently opened the USMCA Center.
The center will be Staffed with CBP experts from operational, legal, and audit disciplines, as well as in collaboration with Canadian and Mexican customs authorities. The USMCA Center will serve as a central communication hub for CBP and the private sector community. updating CBP regulations on pending USMCA topics/issues, while also providing clear and transparent technical guidance on USMCA’s new compliance obligations.