In preparation for USMCA — beginning enforcement as of July 1st, 2020 — it is critical that all professionals along the supply chain stay informed. As such, we’ve been creating resources for importers to understand the implications of the new agreement on their operations.
It should be noted that both USMCA and NAFTA bear many similarities, which simplifies the transition process for all parties. However, there are certainly some differences that must be understood.
CNN Politics put out an explainer piece on the two agreements, highlighting the changes to come and how they’ll affect various sectors across the 3 countries in question (US, Mexico, Canada).
Recommended reading – previously published resources:
Below, we’ll be doing an overview of the 6 main differences between USMCA and NAFTA.
1- Auto Manufacturing
One of the most notable changes is that, in order to benefit from tariff relief, 75% of a vehicle’s components should be made in one of the three countries (up from 62.5%). It also stipulates a minimum rage of $16USD an hour for workers.
The International Trade Commission suspects that this will add 28,000 jobs to the industry in 6 years.
2- Dairy Farming
USMCA will keep tariffs at 0 for agricultural products moved between the three countries. But it will also further allow the Canadian market access to US dairy, poultry, and eggs. And the United States will allow for more Canadian dairy, peanuts, and some sugar.
3- Going Digital
There will be new benefits for the technology sector as well. USMCA forbids Canada and Mexico from forcing US-based companies to store data on in-country servers. There is also a provision that ensures that US companies can’t be sued in Canada and Mexico for the content on their platforms.
4- Environmental Protections
The agreement established $600 million to be spent addressing environmental issues in the regions. In the CNN piece, they use the example of the sewage spillovers in Tijuana that impact San Diego.
5- Biologic Drugs
There was a provision pulled from the agreement that would have required the US, Canada, and Mexico to provide 10 years of exclusivity on biologics. Right now, the US provides 12, Canada 8, and Mexico 5.
6- Labor Laws
NAFTA has been scrutinized for sending jobs to Mexico, where labor is cheaper. There is now an inter-agency committee to monitor Mexico’s labor enforcement and compliance. There is also a review process for facilities, to ensure workers’ rights and to levy duties on the goods made there.
President Donald Trump tweeted that the agreement was a historic transaction, solving many “deficiencies and mistakes in NAFTA, greatly opens markets to farmers and manufacturers, reduces trade barriers to the US, and will bring all three great nations in competition with the rest of the world.”
House Speaker Nancy Pelosi also stated that “there is no question, of course, that this agreement is much better than NAFTA!”
July 1st onward, the three countries will benefit from the agreement as they move towards a more open market.
While many things remain the same or similar to NAFTA, importers must stay apprised as to what USMCA will change for them. As a customs consultancy and brokerage, we are working closely with importers to ensure that they are prepared and ready to stay compliant — as well as benefit from duty free importing!
If you are interested in connecting with a broker to ensure that you are ready for USMCA, click here.