Five Important Changes USMCA Will Bring to North American Trade

Five Important Changes USMCA Will Bring to North American Trade

The United States-Mexico-Canada Agreement (USMCA) — if ratified by the end of 2019 — will replace the North American Free Trade Agreement (NAFTA) in 2020. According to the United States Trade Representative, USMCA aims to modernize NAFTA and create a level playing field for robust economic growth in North America.

The agreement was signed by all three North American leaders on November 30, 2018, after more than a year of negotiations. While it was quickly ratified in Mexico, USMCA has been tabled in the U.S. and Canada for the majority of 2019, with some speculating it would not move forward in the U.S. until the completion of the impeachment process.

On December 10, 2019, House Democrats and the White House came to a deal to move forward with a revised version of the USMCA, and a vote to ratify the updated legislation is expected to be held in the U.S. by December 18, 2019. The new version will also need to be approved by Mexico and must be ratified in Canada before it can be implemented.

If all three governments pass the agreement before the end of the year, North American companies can expect major changes to the data collection and reporting processes needed to take advantage of the deal and avoid penalties. Under USMCA, companies can expect:

 

1. Labor Rights Will Expand

The USMCA makes several updates to labor rights. Under the agreement, workers across North America must have the right to organize and have representation in collective bargaining. New measures prohibit goods produced by forced labor, ensure the protection of migrant workers and address violence against workers. Trucks delivering goods from Mexico into the U.S. or Canada must also meet broader safety regulations.

These new standards will require companies to track supplier data to ensure standards are adhered to throughout the supply chain and in their facilities throughout North America. More

 

2. Environmental Protections Will Be Put in Place

The USMCA lays out strict, comprehensive and highly-enforceable environmental standards. Environmental protection measures include the prohibition of harmful fishery subsidies, protection for several marine species and articles to improve air quality.

To avoid trade penalties under USMCA, companies will need to substantiate that their products and components are produced in accordance with the new environmental requirements. In particular, companies should communicate with and inspect their North American manufactures to ensure expanded health and safety requirements are satisfied at facilities that produce components for their goods.

Companies must also ensure they have the correct paperwork to submit to the upcoming electronic database. This will include appropriate Harmonized Tariff Schedule (HTS) classifications, country of origin certificates, component valuation data and specific USMCA certificates.

 

3. De Minimis Will Be Updated 

De minimis, the monetary threshold under which low-value packages can be imported tax or duty-free, will be raised. Canada’s de minimis will be raised from $20 CAD to $150 CAD for duties and $40 CAD for taxes. Mexico agreed to a $50 USD tax-free de minimis and a $117 USD tariff-free de minimis with simplified customs processing. The U.S. also made a de minimis agreement, however, an existing $800 USD global de minimis will continue to apply to Canada and Mexico.

Companies should ensure they are taking advantage of these new thresholds to increase sales in all North American markets.

 

4. The Auto Industry Will Face Major Changes

The auto industry will be most impacted by the USMCA. The agreement mandates 75 percent of car components must be manufactured in North America to qualify for zero tariffs, increasing from 62.5 percent. Additionally, 30 percent of the labor per vehicle must be paid at $16 per hour or more and is slated to increase to 40 percent by 2023.

To continue to sell throughout North America without being penalized with additional tariffs, car companies will need to proactively collect and manage wage data throughout their supply chain to ensure their suppliers and internal factories are USMCA compliant.

 

5. Further Changes May Come

While the USMCA is scheduled to remain in place for 16 years before negotiations are approached again, it can be revisited in as few as six years, meaning additional changes could come sooner than anticipated. Further, some changes, such as wage requirements in the auto industry, will be rolled out in stages, so companies will need to remain up to date with their obligations and continuously monitor supply chain operations.

Leveraging a dedicated supply chain data management solution, such as Assent, is the most efficient method of collecting and managing data, and staying compliant with evolving legislation. To learn how Assent can help your company meet data obligations and mitigate risk, contact us at info@assentcompliance.com.

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