The United States, Canada, and Mexico have been mutual holders of well-negotiated and planned trade deals for nearly three decades. The trade deals haven’t only allowed the three countries to trade easily, but the availability of free commerce has resulted in great profits for all economies.
In December of 2019, the United States Mexico Canada (USMCA) Trade Deal replaced the 24-year-old North American Free Trade Deal (NAFTA) to create a more modern free-trade system. By replacing NAFTA, the USMCA addresses recent and newly-emerging trade issues, like the harmonization of regulatory systems, e-commerce, and the protection of intellectual property during exportation. Additionally, the USMCA has altered some protocols regarding how certain goods can be traded, while focusing on the improvement of mechanisms on how to resolve trade disputes.
Some Key Changes
The main reason why the three governments decided to create a new trade deal was to modernize the way that NAFTA operated. Here are some of the changed factors:
- Certificate of Origin
- De Minimis
- Resolution of Disputes
- The Dairy Market
- Section 232 Tariffs
- The Sunset Clause
- Intellectual Property
- Automotive Rules of Origin
Certificate of Origin
A Certificate of Origin is used to prove that listed products have met certain criteria to be considered as originating in a particular country.
- According to the USMCA, importers no longer need to provide a formal Certificate of Origin document.
- A proof of origin can be proved by using informal documentation like Commercial Invoices. These forms can be completed by the importer, exporter, or producer.
- The importer must keep and archive previous NAFTA Certificates of Origin for a minimum of five years.
The De Minimis tax rule is used to set a threshold of prices. Specifically, the USMCA changed the threshold within which low-value goods can enter each country duty-free. Here are the De Minimis lower thresholds under USMCA:
Canada – $150 CAD for customs and $40 CAD for taxes.
Mexico – $117 USD for customs and $50 USD for taxes.
United States – $800 USD.
Resolution of Disputes
The USMCA has changed the way in which trade disputes are resolved between the three countries.
- NAFTA Chapter 11 - investor-state dispute resolution mechanism (ISDS) was eliminated between Canada and the U.S., but it remains in place between the U.S. and Mexico.
- NAFTA Chapter 19 - the anti-dumping / countervailing duty dispute-resolution mechanism remains in place.
- NAFTA Chapter 20 - country-to-country dispute resolution mechanism remains in place.
The Dairy Market
- Canada will now accept the importation of U.S. ultra-filtered milk.
- Canada will give U.S. producers access to an additional 3.6% of its dairy market.
- Canada will continue to maintain its dairy supply management system, which limits foreign imports.
Section 232 Tariffs
- Under Sec. 232 of the Trade Expansion Act of 1962, the U.S. maintains the right to impose tariffs. The Act gives the President the power to impose tariffs on the grounds of national security.
- These types of tariffs have been imposed on Mexico and Canada, as well as a few other countries. In turn, Mexico and Canada imposed countermeasures on American consumer goods.
- A side letter to the USMCA was signed to give Canada and Mexico a consultation period of 60 days before the Section 232 tariffs can be applied to Canadian and Mexican goods.
The Sunset Clause
A sunset clause is a provisional measure within a statute, regulation, or law— which states that the law will lose effectiveness after a specific date.
- The terms of the USMCA will remain in effect for 16 years, during which all parties can negotiate its terms, or withdraw from the agreement if it’s agreed upon.
- The terms of USMCA’s sunset can be revisited and extended after 6 years if the involved parties find it beneficial.
Intellectual Property Laws
- The patent changes on biologics were set at 10 years for all participating countries, but this provision was removed by the Protocol of Amendments, leaving the patent period the same as it was under NAFTA - 5 years in Mexico, 12 years in the U.S., and 8 years in Canada.
- Under the USMCA, the term of copyright was extended from 50 years after an author’s death to 70 years.
Automotive Rules of Origin
Under the USMCA:
- The total North American content of a vehicle must be 75% (previously 62.5%).
- 70% of all aluminum, glass, and steel used in the production must originate in North America.
- In the Protocol of Amendment, the definition of “Steel” was altered to include that it must be melted and poured in North American territories in order to be considered for duty exemption. This new definition will be implemented 7 years after the passing of the USMCA, or in 2026.
- In the Protocol of Amendment, the definition of “Aluminum” remains the same as it was under NAFTA but will be reviewed for revision 10 years after USMCA, or in 2029.
- Contents for the automobile parts will be divided up into core, principal, and complementary categories, with requirements of 75%, 65%, and 60%, respectively.
- The average labor wage must be $16 an hour, for the production of 40% of an automobile, and 45% of a light truck.