Introducing the USMCA agreement
You’ve likely heard about the CUSMA/USMCA agreement that was ratified on July 1, 2020. Chances are, you’re probably wondering what this new agreement means for your business. If your business is already importing and exporting, this new agreement could result in simplified paperwork, easier access to international supply chains and regulations written in concise, plain English. For Canadian businesses that don’t yet ship internationally, this could be the chance to understand a new agreement and decide if it makes sense to extend your reach beyond the Canadian border.
We’ve answered some of your top questions about shipping your business from Canada, under the new USMCA agreement.
What does USMCA mean?
USMCA stands for the United States-Mexico-Canada Agreement. This is its U.S. name, and how the agreement is generally referred to in content, but each country has its own way of addressing the agreement. In Canada, it’s called the Canada-United States-Mexico Agreement (CUSMA) and the Accord Canada–États-Unis–Mexique (ACEUM) in French. In Mexico, it’s known as the Tratado entre México, Estados Unidos y Canadá (T-MEC).
What is the USMCA trade deal and how will it benefit businesses?
The USMCA trade deal will replace NAFTA (North American Free Trade Agreement) which was formed in 1994. Leaders in Canada, the U.S. and Mexico recognized the need to modernize the decades-old NAFTA agreement, building new policies fit for the 21st century.
The goal of USMCA is to support mutually beneficial trade and promote robust economic growth for all three countries. Businesses can benefit from fairer trade opportunities and freer markets set out by USMCA.
What are the main changes, moving from NAFTA to USMCA agreement?
Here are some of the key changes that came from USMCA:
- Updates to certification of origin procedures
- New de minimis thresholds for e-commerce
- Changes to rules of origin in the automobile sector
- Expanded duty-free provisions the agricultural sector
- Duty-free movement for digitally-traded property
For more details about the USMCA trade deal, visit the official resources at the end of this article.
Updates to certification of origin procedures
What are the new requirements for the certification of origin?
Exporters are no longer required to complete a formal certification of origin. Now, shippers can use informal documentation, such as commercial invoices, and can be completed by the importer, exporter, or producer. While there’s no formal certificate, there is a list of requirements for a document to be considered as a certificate of origin.
Note: NAFTA certificates and documentation for USMCA must be kept for a minimum of six years in Canada (five years in the U.S.).
Will there be a period when both the NAFTA Certificate of Origin and CUSMA rules certification can be used?
No, now that USMCA is in place, the NAFTA Certificate of Origin won’t be accepted.
New de minimis thresholds for e-commerce
What does de minimis mean?
De minimis is a Latin term that means “a negligible amount”. In trade, de minimis refers to a price threshold, which when the value of goods is less than the threshold, fewer (or no) duties or taxes are charged on shipments.
What are the new de minimis thresholds for e-commerce sales?
In Canada, the de minimis level has been raised from $20 CAD to $40 CAD. Now, there is no duty or taxes charged for the vast majority of orders under $40 CAD. Goods valued between $40.01-150 CAD are imported duty-free, but taxes are still applicable. This means Canadian businesses can benefit from importing higher-value shipments that don’t require additional fees.
In the U.S., the de minimis threshold is $800 US, far higher than Canada. This means U.S. residents can purchase up to $800 US of Canadian goods, without duties and taxes – in turn, making Canadian businesses a favourable avenue to buy goods from.
Changes to rules of origin in the automobile sector
What does “rules of origin” mean?
Rules of origin set out the minimum local manufacturing of a good or the percentage of locally produced parts needed to qualify as “originating” within a USMCA country and thereby benefit from perks like tariff-free shipping. This discourages businesses from importing parts from other countries and therefore supporting their local economy.
How will USMCA’s rules of origin impact Canada’s automobile sector?
The origin of trade can be more difficult when a finished good is made of many parts – like an automobile – and their components are from around the world. Therefore, provisions apply to support local manufacturing and material of all the small parts that make up a vehicle. Here are some of the main rule updates:
- 75% (up from 65%) of auto components must be manufactured in Canada, Mexico or the U.S. to qualify for tariff-free shipping.
- 40% of automobiles and 45% of light trucks must be produced using wages of at least $16.00 US (approx $20.88 CAD) an hour.
- 70% of steel, aluminum and glass used in vehicle production must originate in North America.
Expanded duty-free trading in the agricultural sector
What is duty-free trading in USMCA?
Duty-free trading allows shippers to import without paying duties or tariffs imposed on goods from other countries, to encourage businesses to support the economy within USMCA countries.
How will new duty-free trading rules impact Canada’s agricultural sector?
New changes allow Canadian farmers a greater opportunity to sell produce to the U.S. market and vice versa. Here are some of the highlights:
- More U.S. products will be allowed to enter Canada duty-free (within certain quantities) such as milk, cream butter and cheese.
- Producers in the U.S. will have access to an additional 3.6% of Canada’s dairy market.
- The U.S allowed Canadians greater access to U.S. refined sugar and products that contain sugar.
Duty-free movement for digitally traded property
What is “digitally traded property”?
In USMCA provisions, digitally traded property refers to e-commerce products and services, covering both tangible and intangible online purchases. Tangible products include items purchased online, that are physically delivered. Intangible products include ebooks, online games, and music and video streaming services.
How will this new rule benefit digitally traded property?
As a trade framework for the digital age, these new provisions ensure the internet is kept open by protecting the businesses and consumers that rely on it. The agreement prevents customs and other charges on digital products, though corporations can impose domestic taxes (such as GST/HST).
As added protection for businesses, there are certain protections from lawsuits related to the actions of third-party content.
Did you know? Previous trade agreement NAFTA mentioned “telegrams” several times, but had no mention of the Internet.
What are some other updates for the USMCA agreement?
For a full rundown of all changes, here is a link to the USMCA summary and the full-text agreement, from the Government of Canada.
Official resources for USMCA/CUSMA
For further information about the USMCA trade agreements, we’ve compiled a list of official resources to help your business ship to the U.S. and Mexico.
Canada-United States-Mexico Agreement (CUSMA) – Official Canadian CUSMA resource page
USMCA – Official U.S. USMCA resource page
Resources for new exporters
Doing business in the United States – Information about the trade relationship between the U.S. and Canada.
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