Understanding the USMCA: United States-Mexico-Canada Trade Agreement

What is the USMCA?

The United States, Mexico, and Canada Agreement (USMCA), also known as the "new NAFTA" (North American Free Trade Agreement), is a trilateral trade agreement that replaced the previous NAFTA agreement on July 1, 2020. It was negotiated between the United States, Mexico, and Canada to modernize and enhance trade relationships in North America.

Key Objectives of the USMCA

The USMCA aims to achieve several key objectives:

1. Modernization: The agreement updates and modernizes the trade rules between the three countries to reflect the changing economic landscape since NAFTA's implementation.

2. Market Access: It improves market access for various industries, including agriculture, manufacturing, and services. The USMCA promotes fair competition and aims to create a level playing field for businesses in the region.

3. Labor and Environment: The agreement includes new provisions that address labor rights and environmental protection. It sets higher standards to ensure fair working conditions and sustainable practices.

4. Intellectual Property: The USMCA strengthens intellectual property rights, providing better protection for patents, trademarks, copyrights, and trade secrets. This encourages innovation and protects the interests of businesses and creators.

5. Digital Trade: The agreement establishes new rules for digital trade, e-commerce, and cross-border data flows. It promotes a secure and open digital environment, enabling businesses to thrive in the digital economy.

Benefits of the USMCA

The USMCA offers several benefits for the participating countries:

• Economic Growth and Job Creation The agreement promotes economic growth by reducing trade barriers and enhancing market access. It encourages cross-border investments, creating new opportunities for businesses and stimulating job creation.
• Strengthened Regional Supply Chains The USMCA encourages the development of regional supply chains by providing more predictable trade rules. This helps businesses in North America remain competitive globally and fosters collaboration between industries across borders.
• Fair Trade Practices By implementing stricter rules on intellectual property, labor, and the environment, the USMCA ensures fair trade practices. This helps protect businesses from unfair competition and provides consumers with greater confidence in the products they purchase.
• Dispute Resolution Mechanisms The agreement includes robust dispute resolution mechanisms that help resolve trade disputes among the member countries. This ensures that conflicts are addressed in a fair and timely manner, providing stability and predictability for businesses operating within the region.

How Does the USMCA Impact Various Industries?

Manufacturing The manufacturing industry benefits from the USMCA through strengthened rules of origin. The agreement requires a higher percentage of regional content in automobiles, promoting the use of North American parts and materials. This supports the growth of the manufacturing sector in the region.

Services The USMCA opens up new opportunities for service providers by removing barriers to trade-in services. It includes provisions that promote fair treatment and non-discriminatory access for service suppliers. This benefits industries such as telecommunications, financial services, and professional services.

Impact of USMCA in the Automotive Industry

The USMCA has had a significant impact on the automotive industry, bringing changes to the manufacturing process and labor conditions. Here are some key facts and numbers highlighting the effects of the trade deal:

1. Increased North American Content: Under the USMCA, automakers must use a minimum of 75 percent North American-made parts in their vehicles, up from the previous requirement of 62.5 percent. This change aims to promote regional manufacturing and boost the North American economy.

2. Market Value: The North American market for light and medium vehicles is estimated to be worth $728 billion USD. This showcases the importance of the automotive industry in the region and the potential impact of the USMCA on trade within this sector.

3. Tariff Charges and Costs: With the average car part crossing a North American border eight times during the manufacturing process, the USMCA introduces multiple points for tariff charges. Companies that fail to meet the USMCA requirements may face significant costs due to these charges.

4. Composition Determination: To determine the composition of a vehicle, importers now use the substantial transformation criterion, which considers the percentage cost of parts rather than the overall part number. This criterion gives more weight to higher-value components, such as engines, compared to smaller parts.

5. Steel Sourcing Requirement: The USMCA mandates that a minimum of 70 percent of the steel used in the final automotive product must be sourced from a North American country. This provision aims to promote regional steel production and support the domestic steel industry.

6. Labor Conditions: The USMCA addresses wage inequality in the automotive industry. Previously, the Mexican automotive job force received lower wages compared to their Canadian and American counterparts. Under the USMCA, companies are required to produce 40-45 percent of their parts from factories paying an average wage of $16 USD per hour.

7. Labor Reforms: Mexico is obligated to pass laws reforming labor conditions, including collective bargaining agreements between auto workers and employers. These reforms aim to improve working conditions, address wage disparities, and ensure fair treatment of workers. The USMCA provides a timeline of four years for the ratification of these labor reforms.

These facts and figures highlight the significant changes and improvements introduced by the USMCA within the automotive industry. The trade deal seeks to promote regional manufacturing, fair wages, and stronger labor conditions, ultimately shaping the future of the automotive sector in North America.

Impact of USMCA in the Agriculture sector

The USMCA brings significant changes to the agricultural sector. It improves market access for American farmers, reducing barriers and expanding their opportunities to export agricultural products to Mexico and Canada. The agreement also includes provisions to address issues such as biotechnology and sanitary and phytosanitary measures.

The USMCA has had a significant impact on the agricultural industry, bringing about notable changes and opportunities. Here are some key points summarizing its effects:

• Access to Canada's Dairy Market: The US secured greater access to Canada's protected dairy market under the USMCA. The agreement increased the US share to 3.6 percent of Canada's total dairy market, nearly quadrupling the previous one percent allowed under NAFTA. These changes will be reviewed periodically, starting five years after ratification, to consider further adjustments.

• Addressing Scientific Advancement: The USMCA acknowledges the importance of scientific advancement in the agricultural sector. The agreement includes provisions for cooperation on sanitary and phytosanitary processes, ensuring the safety of agricultural products. Additionally, it facilitates information sharing on biotechnology and gene editing related to agriculture, promoting innovation and progress in the industry.

• Grading of Wheat: The US and Canada reached an agreement to set aside the use of competitive grading of wheat. As part of this agreement, Canada will rate US wheat no less favorably than its own. Similar agreements may exist for other agricultural products, fostering fair trade practices between the two countries.

The USMCA's impact on the agricultural industry is evident through increased market access, provisions for scientific collaboration, and agreements to promote fair treatment of agricultural products. These changes aim to enhance trade relations, facilitate innovation, and ensure a level playing field for agricultural producers in North America.

To ensure compliance with the United States-Mexico-Canada Agreement (USMCA), companies need to take several steps. Here's a guide on what businesses should do to become compliant with the USMCA:

1. Understand the Agreement: Familiarize yourself with the provisions and requirements outlined in the USMCA. Thoroughly review the text of the agreement to gain a comprehensive understanding of its obligations and how they apply to your business.

2. Assess Supply Chain: Evaluate your supply chain to identify areas that may require adjustments to comply with the USMCA. Determine if any of your suppliers are located outside the USMCA region and assess the impact on your eligibility for preferential treatment.

3. Determine Product Eligibility: Determine whether your products qualify for preferential treatment under the USMCA rules of origin. Review the specific rules and criteria to ensure your products meet the necessary thresholds for regional content and other requirements.

4. Gather Documentation: Collect all the necessary documentation to support your claim for preferential treatment. This includes documentation related to the origin of the goods (Country of origin inquiry), such as certificates of origin, supplier declarations, and supporting records to substantiate your compliance.

5. Implement Internal Controls: Establish internal controls to ensure accurate record-keeping, data management, and compliance with USMCA requirements. This includes maintaining appropriate documentation, tracking information related to origin, and conducting periodic audits to ensure ongoing compliance.

6. Engage with Suppliers: Collaborate closely with your suppliers to obtain accurate and reliable information regarding the origin of components and materials used in your products. Establish effective communication channels and collect the necessary documentation from your suppliers to support your claims.

7. Monitor Regulatory Updates: Stay updated on any changes or updates to the USMCA regulations. Regularly review official communications, guidance documents, and announcements from relevant government agencies to ensure ongoing compliance with any evolving requirements.

8. Utilize Technology Solutions: Consider utilizing software and database systems that can streamline data management, facilitate compliance, and help ensure accurate and efficient management of USMCA claims and documentation.

By following these steps, businesses can take the necessary actions to achieve USMCA compliance and leverage the benefits offered by the agreement while minimizing the risk of non-compliance and associated penalties.

Implementing Software and Database Systems

With the removal of the structured Form 434 and the need to maintain accurate USMCA claims, businesses are increasingly turning to software and database systems to streamline their processes. These systems help companies organize, track, and manage their trade claims effectively. By utilizing such technology, businesses can minimize the risk of errors, ensure compliance, and maximize the benefits derived from the USMCA.

How Acquis can help in your trade compliance efforts

Complying with the USMCA is essential for businesses seeking to capitalize on the opportunities presented by the North American market. Acquis offers supply chain data management and supplier engagement solutions such as country of origin inquiry & Harmonized System Tariff Classification. Our platform streamlines the compliance process, reduces risks, and helps organizations maximize the benefits of the agreement. Contact Our USMCA Compliance Experts today to learn more about how we can assist your business in meeting USMCA requirements effectively. Streamline your compliance efforts with Acquis and unlock the full potential of the USMCA for your business.