NAFTA is now history, replaced by the U.S.-Mexico-Canada Agreement, which officially went into force on July 1st, 2020. Do you know how the new agreement governing North American trade affects your business?
There are major differences compared to NAFTA, which went into effect back in 1994. They involve both the scope and substance of USMCA, but also new processes for taking advantage of benefits offered through the new agreement.
Key Ways USMCA Is Different
While the new agreement did leave many provisions of NAFTA intact, it also changed many. Substantive changes include:
- Significantly strengthened intellectual property rules
- 75% of an automobile’s components now must be made in North America to be imported duty-free, up from 62.5% under NAFTA (this shift is phased in through 2023)
- More open agricultural markets—American farmers now have greater access to Canadian dairy markets
In terms of how companies qualify for and participate in the new trade agreement, key difference includes:
- Additional data elements are now involved in Origin Qualification requirements (more on this below).
- An increase in the level of permitted non-originating content from 7.5% to 10%—meaning 10% of a product may now originate from outside North America.
Let’s take a closer look at what a business must now do to reap the benefits of USMCA.
Under the agreement, an importer, exporter or producer can provide the COO.
A business must submit the following information to the government:
- Who is certifying (can be importer, exporter or producer)
- Contact info for certifier, exporter, producer and importer
- Product description and Harmonized Tariff Schedule (HTS) classification
- Origin criteria
- Blanker periods (up to 12 months)
- Authorized signature and date
The goods news is that, unlike NAFTA COOs, you can submit all this electronically. And again unlike NAFTA, there’s no prescribed format that the information must be submitted in—it can be attached with an invoice packing list or a bill of lading, for example.
More good news: You can make multiple shipments under a blanket certificate, or a single certificate if you don’t ship often in the NAFTA region.
Be Sure USMCA Is Worth Your Time and Energy
Remember that participating in the USMCA is voluntary, just like any other free-trade agreement. If your company doesn’t receive a benefit from participating (i.e., a good can’t receive a reduced tariff) or the costs outweigh the benefits, then don’t participate.
Here’s when you don’t need a USMCA COO:
- Your good doesn’t qualify
- You don’t want to claim a benefit (because tariff reduction is too small)
- Your good qualifies under the 10% minimum threshold rule
- It’s a noncommercial importation
- Value of good is less than $2,500 (in which case it can cross borders without any tariffs)
The bottom line: If you’re going to go through the administrative exercise of qualifying your good for USMCA benefits, which can involve significant paperwork and recordkeeping, you want to make sure you actually get benefits.
Think Your Business Can Benefit? Three Action Items.
If you believe your company can benefit from the USMCA, here are three major action items to ensure your business is up-to-speed on all requirements.
1: Update origin documentation practices. See “Origin Stories” section above, and remember: The NAFTA COO form is no longer accepted.
2: Review your material inputs and supply chains. Confirm that the final goods you’re selling meet USMCA requirements for North American origin—otherwise you don’t qualify for benefits. (It’s worth doing this on an annual basis; supply chains change!)
3: Test your procedures and recordkeeping. How are shipping documents provided? Where do you get that information from?
Finally, don’t go it alone if you can’t figure out exactly what your business should be doing in this area. Check out these three resources from the U.S. government:
- U.S. Customs Factsheet on Origin Certification Requirements
- USMCA Implementing Instructions, from U.S. Customs and Border Protection (official rules, instructions and guidance)
- FTA Tariff Tool: This handy tool can determine potential tariff rates and rules of origin under USMCA.