UNDERSTANDING NORTH AMERICA'S NEW TRADE DEAL
RULES OF ORIGIN
STEEL & ALUMINUM TARIFFS
CHANGE ISN'T COMING.
IT'S ALREADY HERE.
On July 1, 2020, the United States-Mexico-Canada Agreement (USMCA) ushered in a new era of free trade in North America.
For businesses engaged in cross-border trade, that means new opportunities and new risks as they work to navigate new rules and regulations included in the agreement.
So what's changed?
The key difference in claiming preferential duty under the USMCA vs. under NAFTA is certification of origin vs. certificate of origin.
Under the USMCA, exporters will no longer be required to complete a formal certificate.
Certification of origin can be achieved using informal documentation, such as commercial invoices and can be completed by importer, exporter or producer. To simplify the process for businesses, Livingston has created a fillable form that ensures all the minimum information required by customs is included.
While NAFTA certificates are no longer required or accepted, previous NAFTA certificates and certification documentation under USMCA must be kept for a minimum of five years (six years in Canada).
CERTIFICATION OF ORIGIN
Certification of Origin form
RULES OF ORIGIN
Rules of Origin are essentially a set of criteria and guiding principles importers must meet in order for their goods to qualify for preferential duty rates under a free trade agreement. Importers that provide a certification of origin must be able to show through the certification that they have met all the applicable Rules of Origin.
Under the USMCA, the Rules of Origin have changed dramatically for the auto sector, but also for a number of other industries and the products they produce, including:
IT and communications
Check out our summary of the key changes for the automotive industry.
Download our free report on the impact of the USMCA to the automotive industry.
RULES OF ORIGIN
Check out our summary of the intellectual property protections in the USMCA.
One of the key goals of the NAFTA renegotiation was the modernization of free trade in North America.
Intellectual property considerations for digital content, data storage and data transfer weren't part of NAFTA, which was written and signed before the advent of the internet and the proliferation of digital content.
According to the Office of the United States Trade Representative, the Intellectual Property Chapter in the USMCA boasts the most comprehensive enforcement provisions of any trade agreement and the strongest standards of protection for trade secrets.
The new provisions will allow businesses engaged in the creation of new software, machinery design, medicines, chemical processes and digital artistry to be protected against the misappropriation and misuse of their work.
A 10-STEP GUIDE FOR USMCA COMPLIANCE
Familiarize yourself with the text of the agreement, especially Rules of Origin and product-specific information. Click here to access the text.
Digest the Uniform Regulations in the agreement as soon as possible.
Run scenarios against your product bills of material.
Prepare for solicitation as soon as possible. The certification process is changing. Suppliers will need to re-certify products that had been previously certified under NAFTA.
Examine your sourcing to seek out alternative suppliers in the event your current sourcing material has now been deemed non-originating.
Analyze the changes to the agreement that impact your goods specifically to project the short and long-term impact.
Evaluate your record-keeping practices to ensure you're able to provide evidence of full USMCA compliance in the event of an audit.
Identify new data points to collect and store.
Consider how you may need to adjust your existing automated processes for data gathering and storage to reflect the new agreement.
Alert your management to the changes that will impact your organization and the cost and/or supply chain implications.
BREAKING DOWN THE KEY CHANGES
Watch our explainer on the changes to the certification process.
Need help adapting to the USMCA?
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Listen to our podcast on how the auto sector is preparing for the USMCA.
Access the USMCA's full chapter on intellectual property.
Access the USMCA's full chapter on agriculture.
View our brief explainer to learn more about how U.S. dairy farmers will be able to access the Canadian market.
While agriculture was not one of the key hot-button issues during the renegotiation of NAFTA, there are a number of changes in the USMCA that directly impact producers of specific food items.
Canada was able to secure the elimination of U.S. tariffs on whey and margarine while also gaining greater access to the U.S. market for its refined sugar and products that contain sugar.
Most significantly, while Canada maintained its long-standing supply management system for the dairy sector, it did agree to open up some additional market access to U.S. producers for 14 types of dairy products.
Access the USMCA's full chapter on customs administration and trade facilitation.
Read our explainer on the impact of the USMCA on North American e-commerce.
The rapid proliferation of e-commerce was a key consideration for negotiators when NAFTA was being revisited. Of particular contention was the issue of "de minimis," a Latin term that means “about minimal things” and refers to the value threshold within which goods can enter a country duty free. Simply put, the higher the de minims, the higher the number of goods that can enter duty free.
The U.S. de minimis was dramatically higher than those of Canada and Mexico, which meant Canadian and Mexican e-commerce businesses had far more access to the U.S. market than U.S. e-commerce businesses had in Canada and Mexico.
The USMCA didn't quite level the playing field, but it did narrow the gap, creating a greater market opportunity for U.S. businesses looking to get into Canada's burgeoning digital marketplace.
Access the USMCA's full chapter on dispute settlement.
Read our brief summary of the changes to the dispute settlement system.
Even among allies and close trading partners, there's always the potential for disagreement. That's why NAFTA had a robust dispute settlement system built into it, which allowed private and public entities engaged in trade disputes to have recourse in the event they felt they were being treated unfairly or put into a disadvantageous position.
But the dispute settlement system has always been controversial for its encroachment on national sovereignty and U.S. negotiators were intent on doing away with dispute settlement under the new trade deal.
Nevertheless, the bulk of the dispute settlement mechanisms were retained under the USMCA with some important amendments, particularly for U.S. and Canadian businesses with investments on the opposite sides of their national borders.
Read our expert's article on the complexities of dispute settlement.
Watch our explainer on the USMCA's sunset clause.
Business with cross-border investments in North America were closely watching the evolution of negotiations around the so-called sunset clause in the USMCA.
The clause, which did not exist under NAFTA ultimately sets out a definitive date for the trade deal's expiration -- July 1, 2036. But the rules and framework for the clause aren't quite that simple and are designed to provide investors with reassurance that making cross-border investments under the umbrella of free trade is worthwhile.
Check out our one-minute video explainer to better understand how the sunset clause works.
Read our expert's perspective on the role of the clause during the negotiations.
Access the chapter of the USMCA in which the sunset clause is outlined.
Download the side letter between the U.S. and Mexico outlining the agreement on Section 232 tariffs.
Watch our explainer on steel and aluminum tariffs
During the renegotiation of NAFTA, U.S. trade policy became particularly focused on trade imbalances, creating the impetus to take trading partners to task over what Washington felt was excessive infiltration of its market.
The result was the use of an obscure legal provision to impose tariffs on steel and aluminum imports on the grounds of national security. While Canada and Mexico were initially given an exemption, it was short-lived and the tariffs were soon applied against Canada's and Mexico's exports, creating an akward dynamic at the negotiation table.
While the parties ultimately resolved the matter, the risk of tariffs returning remains, even with a new free trade deal in place.
STEEL & ALUMINUM
STEEL & ALUMINUM TARIFFS
Access the side letter between the U.S. and Canada outlining the agreement on Section 232 tariffs.
CHECK OUT THESE RESOURCES FOR MORE INFO
Have specific questions about the USMCA? Download our FAQ for a deeper dive.
Need some expert perspective? Watch a recent webinar hosted by our trade consultants.
Ready for a pop quiz?
Choose a topic
Rules of Origin
a) After three months
b) After six months
c) After one year
d) After three years
e) There wlil be no transition period
There will be no transition period or gradual phasing out of NAFTA certificates. Upon implementation of the USMCA, NAFTA certificates will no longer be valid. However, NAFTA certificate holders must retain their certification documentation for at least five years from the transaction date (six years in Canada).
With the implementation of the USMCA, NAFTA Certificates of Origin will no longer be required. Over what period of time will the certificates be transitioned out?
True or False?
Canada raised its de minimis threshold – the threshold within which low-value goods can enter the country duty free – from the current $20 to $100?
Under the USMCA, low-value goods under $150 can enter Canada duty free. However, this is limited to express courier shipments and is designed to ease the free flow of goods being purchased via e-commerce.
Under the USMCA, 70% of an automobile’s steel must come from North America. However, the requirement to have that steel melted and poured within North America will only be required after:
a) Three years
b) Five years
c) Seven years
d) Ten years
e) There will never be any such requirement
The requirement to have steel melted and poured within North America in order to meet Rules of Origin requirements will be phased in seven years after the USMCA’s implementation.
True or False?
The USMCA provided reassurance to Canada and Mexico that the U.S. would no longer impose tariffs under Section 232 of the Trade Expansion Act of 1962 on the grounds of national security?
The U.S. signed side letters with Canada and Mexico that stated it would provide both countries with a 60-day consultation period prior to imposing any tariffs under Section 232, but no promise was made that tariffs would not be imposed using the controversial mechanism.
True or False?
The patent period for biologics under the USMCA will be 10 years?
The original USMCA agreement created a universal patent period of 10 years for all three countries; however, the trade deal was later amended to revert patent protections back to each country’s existing patent period – 12 years in the U.S., eight years in Canada and five years in Mexico.
The USMCA opens up approximately what percentage of Canada’s supply-managed dairy market to U.S. producers?
Under the USMCA, U.S. dairy producers will have access to 3.6% more of Canada’s dairy market.
True or False?
The USMCA requires each country to notify the others if it intends to negotiate a trade agreement with China?
A clause within the agreement requires all parties to notify the others at least three months prior to entering into formal negotiations with a non-market economy. Furthermore, the party choosing to negotiate the agreement with a non-market economy must provide the full text of the agreement to the others at least 30 days prior to the date of signature.
After how many years will U.S. labor inspectors be able to enter Mexican factories to verify they are abiding by the labor practices set out in the USMCA?
a) As soon as the USMCA is implemented
b) After one year
c) After three years
d) After five years
e) U.S. labor inspectors will not be allowed to inspect Mexican factories
U.S. labor inspectors will not be allowed to inspect Mexican factories. Amendments made to the trade deal to enforce Mexico’s enactment of labor provisions under the USMCA will see a U.S. attaché stationed in Mexico to observe the country’s implementation of labor reforms, but inspectors will not be allowed into factories.
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Looking for fast facts? Download this one-pager courtesy of the USMCA Coalition.
Get the full text of the USMCA.
Get the full text of the USMCA uniform regulations.
Get the full text of the agreement's final implementing regulations.
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Read our expert's article to better understand the dairy dispute.
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