Dachser Americas prepares for USMCA Regulation changes

\As part of its ongoing commitment to guide its customers through complex supply chain challenges, Dachser Americas has educated its teams throughout the region about the new rules and regulations associated with the United States-Mexico-Canada Agreement (USMCA), which officially replaced the 25-year-old North America Free Trade Agreement (NAFTA) on July 1, 2020.

Along with the promise to create more balanced, reciprocal trade among the three North American countries, the new agreement also brings new regulations that need to be considered when assessing supply chain strategies. Adding to the challenge is the fact that USMCA is launching at a time of unprecedented supply chain disruption caused by COVID-19.

“Right now, global supply chains continue to evolve and change, responding to the needs of the marketplace. As we work with our customers throughout the Americas and revisit strategies, it’s important that we understand the new dynamics associated with USMCA—the opportunities as well as the challenges,” said Guido Gries, Managing Director, Dachser Americas. “We know that new regulations may create uncertainty among customers with regard to compliance, so we at Dachser have allocated time and resources to educate our teams on the nuances of the agreement.”

Following an outline of key, but not all, elements of USMCA:

Automotive Trade Rules: Much of the agreement relates to the automotive sector as this specific area requires collaboration across all three countries. The new regulations will require automakers to revisit their manufacturing and supply chain strategies.

• A major focus of the new plan relates to labor requirements. Over the next three years, 40-45 percent of all auto parts must be made by workers who make at least $16 per hour. As a result of these new rules, Mexico has agreed to change its labor laws, which sets the stage for unionizing.
  
• Another area of significant change is the regulations surrounding the country of origin rules, specifically as they relate to automotive. The deal requires that 75 percent of the vehicle componentry be manufactured in the US, Mexico or Canada; NAFTA required 62.5 percent. In addition, 70 percent of all steel, aluminum and glass used in the production of the automobile must originate in North America.
  

Certification of Origin: Under USCMA, importers will no longer be required to complete a formal certification document. Certification of origin can be achieved by using informal documentation, such as commercial invoices and can be completed by importer, exporter or producer. Previous NAFTA certificates and certification documents must be kept for a minimum of five years.

Dairy Imports into Canada: Another important aspect of the USMCA is designed to benefit farmers. Restrictions on the import of U.S. ultra-filtered milk into Canada are no longer in place, which allows U.S. farmers to sell milk in Canada without pricing arrangements. In addition, U.S. producers will have access to an additional 3.6 percent of Canada’s dairy market.

De Minimus Thresholds: Relating to tariffs and taxes, there was an increase in de minimus thresholds to encourage e-commerce trade amongst the three countries. These thresholds determine at what price point a tariff or tax will be applied. NAFTA, which was developed before the advent of online shopping, did not address this issue. Since 2016, the U.S. threshold has been $800USD and will, at this point, remain at that level. With the USMCA, the Mexican threshold is $50USD for tax free, and $117USD for tariff free and simple customs forms. Canada agreed to $31USD tax-free threshold, and $117USD for tariff free as well as simple customs forms.

Protection of Intellectual Property: Modernizing the intellectual property terms in NAFTA to keep up with the pace of innovation was a top priority. The USMCA features stronger protection for patents and trademarks for areas including financial services and biotech. Furthermore, it includes regulations for overseeing the growth of digital trade as well as investing in innovation.

Exchange Rates: Another important point in the new agreement is that the three countries agreed not to manipulate exchange rates and to consult each other on their respective economic policies.

Sunset Clause: The three countries agreed to the introduction to the “Sunset Clause,” which states that USMCA will expire after 16 years, at which time the three nations can choose to revisit, renegotiate or withdraw from the deal. It is also agreed that the three countries will review the agreement every six years.

“We understand the goal of the USMCA is to drive economic growth for North America and strengthen the partnership of these trading partners,” said Guido Gries. “We are here for our customers to help them leverage the opportunities presented in this agreement as we incorporate them into their supply chain strategies.”