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By Kim Biggar
Canada, Mexico and the United States have each ratified the Canada-U.S.-Mexico Agreement (CUSMA)—as it’s known in Canada (USMCA in the U.S.)—and the deadline for implementation is looming. The agreement is scheduled to take effect on July 1, replacing the 26-year-old NAFTA. However, with the coronavirus pandemic having shut down businesses in all three countries and refocused governments on containing the virus and mitigating its economic impacts, there have been many calls, from both politicians and business executives, to delay the agreement’s entry into force.
Despite the uncertainty about timing, governments in the three countries are preparing for implementation, developing regulations to lay out how they will apply the new rules of the agreement. Until those regulations are in place, businesses cannot fully prepare for the changes they will face. However, they can certainly begin the process based on information in the agreement itself and tweak their preparations when the regulations are announced.
A consultant on free trade agreements, import/export, supply chain optimization and related topics, Christian Sivière, President at Solimpex in Montreal, says the groups calling for the delay in implementation are largely involved in the auto and auto-parts industry.
Companies in that sector face the most changes with the new agreement, in particular around the new, more-stringent rules of origin that will require more North American content in vehicles made on the continent. This is not surprising, says Sivière, since the move under NAFTA of much auto production to Mexico was President Trump’s “main motivation” for renegotiating the agreement.
“In order to qualify for duty-free entry, regional value content (that is the amount of production that happens in North America) was increased from 62.5% to 75% (starting at 66%, to be increased over three years) for passenger vehicles,” say Inu Manak and Simon Lester, in their December 2019 article, “Evaluating the New USMCA.” Further, “there is an additional Buy America provision that requires producers to source 70% of the steel and aluminum used in their production to originate in North America.”
In an April 1 article, “USMCA Implementation, What’s Next?” Adrienne Braumiller of Braumiller Law Group says, “One positive note is that in many cases, the rules of origin are more simplistic and originating status can be more easily met. Thus, many companies may determine that a higher number of goods will qualify under USMCA than did under NAFTA.” She continues to say, however, that “in other cases, such as with the automotive sector, the rules are more complex with various overlapping thresholds,” confirming Sivière’s assessment.
The agreement, despite the many months of negotiation and browbeating that were part of the process to create it, turned out to be “not fundamentally different” from its predecessor, says Sivière. Apart from the changes for the auto industry, there will be “small changes for the textiles and chemicals industries,” he notes; most of the rest of the changes are not industry specific.
A process change will see the certificate of origin required under NAFTA discontinued. Instead, an origin certification statement can be included “on any document,” according to Sivière. This change is in line with changes in other recent agreements, including CETA and CPTPP.
While the origin certification statement might be included, for example, on an invoice, it must absolutely be present; compliance remains essential. Sivière foresees fewer shipments being held at the border due to missing certificates of origin, but likely more auditing “after the fact” to ensure compliance.
Another change affecting many sectors will be the increase in the de minimis exemptions, of which there are two. The first, and most familiar, refers to the “thresholds under which low-value parcels can be imported duty/tax free.”1 Under CUSMA, Canada’s de minimis shipment-value levels will rise to C$150 for duties and C$40 for taxes.
The second de minimis exemption, relating to the amount of non-originating material in a good, will also increase, from 7% to 10%. The same change was made in CETA and CPTPP.
Revisions related to intellectual property, the sunset clause, legal terminology and so on are unlikely to have an impact on the day-to-day work of freight forwarders and logisticians, says Sivière.
Customs Notice 20-14 – Implementation of the Canada-United States-Mexico Agreement (CUSMA), published on April 3, 2020, provides information on the changes to the Customs Tariff that will occur as a result of the implementation of CUSMA and summarizes requirements to benefit from the agreement’s preferential rates of duty. The notice specifies that regulatory amendments and new regulations made under the Customs Act as a result of CUSMA’s implementation will be announced later, in another customs notice.