The new US-Mexico-Canada Agreement (USMCA) replaces North American Free Trade Agreement (NAFTA) on July 1, 2020. After the three countries signed the agreement on the modernized NAFTA on October 1, 2018, its entry into force stalled. Democrats in the US Congress sought stronger enforcement of the agreement’s labor provisions and stricter environmental protections. As a result, the agreement reached by the three countries was re-negotiated by the US Congress and the Trump Administration. The addition of a multinational panel of independent experts to enforce the labor provisions allowed the re-negotiated USMCA to win US ratification on January 29, 2020. Canada subsequently ratified the agreement on March 13, 2020, allowing its entry into force on July 1.
All goods entered before July 1, 2020 will continue to enter using NAFTA rules. USMCA rules will apply to all goods with an entry date of July 1, 2020 and beyond. So knowing what rules will apply, and when, will be important during this transition period.
In general, country of origin requirements have been simplified, while many entry and drawback procedures remain unchanged. There are industry-specific exceptions, however. Noticeably, the automotive industry will face higher and more stringent requirements in order to claim preferential entry under USMCA. Substitution drawback standards of the 2015 Trade Facilitation and Trade Enforcement Act (TFTEA) have been applied to the USMCA, except for specified sugar products. While food and agricultural products that attract zero tariffs under NAFTA will continue to do so under the USMCA, tariff rate quotas grant expanded market access for US dairy, poultry and eggs into Canada and for Canadian dairy, peanuts and peanut products, and some sugar and sugar products into the U.S. The USMCA also promotes digital trade by exempting digital products from customs duties while facilitating such transactions through the use of electronic authentication and signatures.
The specific rules for USMCA will be contained in General Note 11 to the US Harmonized Tariff Schedule (HTSUS), which is not yet published (as of the date this blog was posted). NAFTA Rules are contained in General Note 12 to the HTSUS.Creation of USMCA Center
To support the trade community in addressing challenges during the NAFTA to USMCA transition, the US Customs & Border Protection (CBP) has created the United States-Mexico-Canada Center to coordinate implementation of the USMCA. The Center is the US Government lead for implementation of the USMCA rules of origin. Primary responsibilities are:
- Coordination: Ensure smooth implementation of USMCA internationally and across agencies;
- Communication: Lead USMCA-related communication between CBP and stakeholders in the trade community, including training, informational briefings, compliance guidance, and online resources; and
- Regulations and Policy: Track and support the development of all USMCA-related legal and regulatory documents, including domestic regulations and interagency agreements.
The Center will be based in Washington, DC, and is expected to operate on a walk-in basis to the public. It is also organizing and conducting webinars and virtual briefings for interested companies and organizations.
Monitoring the USMCA
Perhaps the most intriguing way in which the USMCA differs from NAFTA is in its sunset clause. The USMCA will come up for review every six (6) years and the terms of the agreement are set to expire after 16 years – in 2036. At each review period, any party will have the opportunity to withdraw from the agreement. This sunset clause trades-off the certainty that traders usually seek in preferential agreements for the flexibility that may be an advantage in these dynamic times. Setting up the mechanisms to monitor what is working well and where improvements are needed will give companies the opportunity to continue to enhance and improve the new US-Mexico-Canada Agreement.
Contact us to learn more and to discuss how we can support you in effectively making the transition to the new US-Mexico-Canada Agreement. DevelopTradeLaw LLC in Washington DC provides customs and trade law/consulting services.