The USMCA Explained

The USMCA Explained

On July 1, 2020, the new trade deal between the U.S., Mexico, and Canada (USMCA) will come into effect, replacing the North American Free Trade Agreement (NAFTA) that was signed in 1994. The USMCA enshrines a new set of protections, restrictions, and rules that companies in North America must navigate if they hope to take advantage of tariff-free trade between countries.

The USMCA Trade Deal

The signing of NAFTA in 2004 created the world’s largest free trade region, removing or limiting tariffs on a multitude of products that moved across the U.S., Mexico, and Canada. Although the deal largely had economic benefits for each country, it became a key focus of the 2016 U.S. presidential election. The renegotiation of NAFTA was a central pillar in then-presidential candidate Donald Trump’s campaign, which he ultimately fulfilled.

Negotiations began in 2017 and lasted until late 2018. The USMCA trade deal has many similarities to NAFTA, but introduces new provisions as well, such as a guaranteed average wage rate for manufacturing workers and certain environmental protections.

USMCA vs. NAFTA

The world has changed a great deal since 1994, and the USMCA includes elements that would not have been considered during NAFTA negotiations. For example, the new agreement has rules about where companies can house their digital property. This was not a key concern in 1994.

NAFTA removed tariffs from most products moving across North America, but had a major focus on three industries: automotive, textiles, and agriculture. These industries are the most impacted by the new measures in the USMCA.

For example, the new trade deal has changed the provision requiring automakers to use a minimum percentage of North American-made parts, increasing the requirement from 62.5 percent to 75 percent. Additionally, companies are now required to produce 40–45 percent of their parts from factories paying an average wage of $16 USD per hour.

The agricultural industry saw a large shift as the U.S. secured greater access to Canada’s protected dairy market, while the textile industry has new country of origin requirements. For example, sewing thread, narrow elastic fabrics, and pocket bag fabrics must now be sourced from one of the three signatory countries.


Learn more about how the new USMCA trade deal will impact businesses in our webinar, The Road From NAFTA to the USMCA.


USMCA Certificate of Origin

There has been a substantial change in the documentation required to take advantage of the preferential trade agreement, as NAFTA Form 434, which served to certify country of origin, has been sunsetted without a replacement. Nevertheless, companies are still required to certify the country of origin.

In guidance published by U.S. Customs and Border Protection (CBP), companies have been instructed to include nine minimum data points in their claims:

  1. Importer, exporter, or producer certification of origin.
  2. Certifier.
  3. Exporter.
  4. Producer.
  5. Importer.
  6. Description and HS Tariff Classification of the Good.
  7. Origin criteria (as outlined in Article 4.2 of the agreement).
  8. Blanket period (for when multiple shipments are required).
  9. Authorized signature and date.

It’s important to note that, even for goods that see no change from NAFTA to the USMCA, Form 434 will not be accepted as certification of origin.

What It Means for Businesses

The total trilateral merchandise trade between the U.S., Mexico and Canada is over $1 trillion USD. While the USMCA is in effect, billions of dollars in potential tariff costs will be averted by preferential trade claims. With the removal of the more structured Form 434, businesses have more flexibility in demonstrating eligibility under the agreement. However, as with any process lacking standardization, the potential for human error increases.

Additionally, how companies demonstrate compliance with new standards such as the wage guarantee remains to be seen. Companies may opt to request attestations affirming alignment with the wage measures and other incoming standards.

How Assent Helps

Assent is the global leader in supply chain data management and supplier engagement. The Assent Compliance Platform automates supplier outreach, enabling the efficient collection and validation of customs codes necessary for trade. Assent’s USMCA template also simplifies the certification of origin documentation, providing companies with a streamlined process to issue claims for the preferential trade agreement. To learn more, contact us at info@assentcompliance.com.

Newsletter