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From NAFTA to USMCA: What Will Change?

The North American Free Trade Agreement (NAFTA) is the current free trade agreement among the United States, Canada, and Mexico, and will soon be replaced with the United States—Mexico—Canada Agreement (USMCA). NAFTA went into effect in 1994, making favorable changes to encourage trade and production in North America. Since its inception, US exports to Canada have increased by almost 300%, and exports to Mexico have increased by over 500%.

Approximately one-third of United States trade is with Mexico and Canada. With such a large volume of products crossing our neighboring countries’ borders, it is important to have an agreement in place to maintain healthy trade relationships among the three countries. USMCA aims to improve and increase trade and production among the three North American neighbors. After extensive negotiation, USMCA was signed by representatives of all three countries in November 2018. The agreement has been ratified by the United States and Mexico and is pending ratification by Canada.

Listed below are notable differences between the two agreements. It is important to note that only products manufactured in one of these three countries are eligible for the preferential treatment available in either agreement.

NAFTA                            USMCA                         
  • To claim preferential duty rate, a standardized NAFTA certificate must be completed, stating that the product is eligible for NAFTA and providing details regarding the item and its history.
  • No standard format of the certificate is required to claim USMCA. Exporters can create their own certificate of origin, according to the minimum standards set out by Chapter 5 of the USMCA.

 

  • To claim the origin of a vehicle or components thereof produced in a NAFTA country, 62.5% of the product must be manufactured in the country claiming origin.
  • To claim the origin of vehicle or components thereof produced in a country, 75% of it must be manufactured in the country claiming origin.

 

  • Designed to be indefinite.
  • Designed to be reviewed every 6 years and can expire in 2036 or be extended from there.
  • No wage minimum for automotive industry workers.
  • The minimum wage of $16 per hour for automotive industry workers.
  • Canada has high restrictions on US dairy products.
  • Canada has lowered restrictions on US dairy goods, leading the way for American farmers to export roughly $560 Million in dairy to Canada
  •  No chapter on digital trade
  • A chapter has been added to highlight digital trade and prohibits duties being imposed on digital products.
  • Mexico’s De Minimis is USD 50.
  • De Minimis is the value under which a shipment can be imported duty-free and tax-free with simplified customs requirements.
  • Mexico raises De Minimis to USD 117 for duty-free, simplified entry and remains at USD 50 for tax-free entry.

 

  • Canada’s De Minimis is CAD 20.

 

  • Canada raises De Minimis to CAD 150 for duty-free, simplified entry and to CAD 40 for tax-free entry. 
  • Chapter 11 Article 114 states that it is inappropriate to encourage inv2estment by relaxing environmental measures. 
  • Instead of a full section added to the agreement, a separate agreement was written called the North American Agreement on Environmental Cooperation (NAAEC). NAAEC established councils in each country with the duty to observe and report environmental hazards based on each country’s environmental laws.

 

 

  • USCMA Chapter 24 discusses environmental concerns and holds each government to a new standard. This chapter requires each country to adopt and enforce their own laws to abide by the agreement. The chapter highlights issues such as air quality, sustainability, illegal fishing, trade and biodiversity, conservation and trade, and sustainable use of natural resources.
  • Each country recognizes the need to improve air quality by reducing pollutants, monitoring air quality, and prevention of emissions. The articles include provisions to service and protect ecosystems and to protect against illegal trade of wild flora and fauna. Several articles focus on promoting sustainable fishing, protecting marine wildlife, and combating illegal fishing.

For more details on USMCA and how your imports may be affected, please email Allyn International at customs@allynintl.com.

Contributor: George Ciaffone 


About Allyn International

Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China, Prague, Czech Republic, and Dubai, U.A.E. For more information, visit www.allynintl.com.

 

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