What Logistics Leaders Need to Know about the USMCA Treaty
By: Frank McGuigan, CEO, Transplace
On July 1, 2020, the new USMCA trade treaty between the United States, Mexico, and Canada will replace the current NAFTA treaty. The new agreement updates the 1993 North American Free Trade Agreement (NAFTA) and is the result of more than a year of negotiations between the three countries.
Goods imported on or before June 30, 2020 will be able to reap the benefits of the new treaty. The USMCA includes new rules related to the following topics:
- Rules of Origin
- Digital commerce
- Protection and better wages for workers
- Strengthening Intellectual Property Rights
To support the implementation of the treaty, the authorities are developing the new regulation 19 CFR 182 and will modify the U.S. Harmonized Tariff Code to include general note 11.
Instructions and more information are pending. The U.S. Customs and Border Protection recommends that stakeholders continuously monitor updates at https://www.cbp.gov/trade.
The following are examples of key changes and updates for logistics leaders in accordance with the USMCA Treaty.
Rules of Origin and Regional Value Content for Automobiles
Rules of origin requirements dictate how much of an automobile’s value comes from the region where it originated. The rules of origin value content will be changing from NAFTA’s current requirements of 62.5% to 75%. According to the Office of the U.S. Trade Representative Fact Sheet, this update will provide “greater incentives to source goods and materials in the United States and North America.”
More details include:
- 70% of all steel, aluminum, and glass used in car production must originate in North America.
- The content of parts will be divided into core, main, and complementary. The content requirement will be 75%, 65%, and 60% respectively.
- 40% of a car and 45% of a light van must be produced using an average workforce paid wages of $16 USD/hour.
- Quotas totaling 2.6 million Canadian and Mexican vehicles will be established.
- Quotas totaling 32.4 billion dollar’s worth of Canadian parts and 108 billion dollar’s worth of Mexican parts will be established.
Access to the Dairy Market
The treaty offers new tariff-free dairy provisions for the United States to the Canadian dairy market. American farmers will also have the opportunity to sell products into Canada. The Office of the U.S. Trade Representative Fact Sheet states that the new agreement “will enable food and agriculture to trade more fairly, and to expand exports of American agricultural products.”
- Restrictions on the importation of ultra-filtered American milk to Canada were removed. The Canadian import tariff on many of these products is up to 275%.
- American producers will have access to an additional 3.6% of the Canadian dairy market.
- Limits on imports of dairy products set by the Canadian administration will be maintained.
One of the most modern updates to the treaty between the three countries is the inclusion of intellectual property. The update of the agreement, according to the Office of the U.S. Trade Representative Fact Sheet, supports “mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America.”
More details include:
- Pharmaceutical companies’ patents will be held on products for a term of 10 years, up from 8 years previously.
- Copyright terms will be extended from 50 years to 70 years after the author’s death.
- Prohibitions customs duties or other tariffs on digital products distributed electronically (e-books, videos, music, software, games, etc.).
With the stall in negotiations, the treaty includes a sunset clause to entice all parties to revisit the treaty with regularity. The terms of agreement will remain in effect for a period of 16 years, in which participants may decide to review, renegotiate, or get out of the agreement. However, after 6 years of this 16-year period, the treaty can be reviewed and potentially extended if participants feel it would be beneficial.
Other Included Topics
The new agreement also aims to promote higher levels of environmental protection including prohibitions on illegal fishing, protections of marine species, more effective ports-of-entry customs inspections of shipments containing wild flora and fauna, and articles to improve air quality, forests, and oceans.
Digital commerce is incorporated for the first time, as the global markets have changed dramatically since NAFTA went into effect in 1994. The USMCA agreement includes more stipulations related to digital trade and financial services.
The new treaty does not include tariffs on steel and aluminum. The United States imposed tariffs on Canada, Mexico, and other trading partners but the other countries would not agree to the tariffs being included in USMCA.
For more information, please visit the following websites:
USMCA Interim Implementing Instructions
Office of the U.S. Trade Representative
USMCA Web Page
Will your business be affected by the new treaty?