USMCA

On July 1, 2020 the United States-Mexico-Canada Agreement (USCMA) replaced the 26-year old North American Free Trade Agreement (USMCA), and ushered in a new era in North American trade.  Most significantly, the USMCA “modernizes” the countries’ trade relationship, with new provisions for digital trade and intellectual property, along with special considerations for small-and-medium size enterprises (SMEs). This agreement is known as CUSMA in Canada and T-Mec in Mexico.

USMCA maintains core USMCA principles, including duty-free status for eligible products.  USMCA eliminated tariffs on qualified goods moving between Canada, the United States and Mexico.  The USMCA maintains this principle, ensuring the vast majority of North American trade will continue to be duty free.  For many stakeholders, this  is a significant achievement because the U.S./Canadian trade relationship operated under a cloud of uncertainty for the past few years, marked by U.S. threats to withdraw from USMCA, and a series of tariffs imposed on each other’s steel and aluminum products. 

For the first time in decades, Canada has adjusted its “de minimis threshold,” to allow a greater number of express shipments arriving in Canada to avoid sales taxes and duties.  The threshold, which had been C$20 is now C$150 for duties, and C$40 for taxes.  U.S. online retailers are expected to benefit from this change, since Canadian consumers can make purchases valued at up to C$150, without having to incur duties.  But only shipments arriving in Canada via express delivery carriers are eligible for the duty and tax savings.  Shipments delivered to Canada through the postal system remain unaffected.

All commercial shipments valued at less than US$2,500/C$3,300 are eligible for “informal entry” under a new USMCA provision.  Informal entry generally means a shipment can avoid most customs paperwork and documentation requirements, which expedites the clearance process.

The USMCA commits the three countries to making better use of technology to simplify customs processes, eliminate onerous regulations, and find ways to make it easier for businesses to engage in international trade.  The agreement does this in many ways, most notably by eliminating the “USMCA Certificate of Origin,” which was a mandatory document required under USMCA to prove eligibility.  Going forward, eligibility can be demonstrated using informal documentation, such as commercial invoices.  Other provisions require each country to provide online publication of laws, regulations, contact information, tariffs, taxes and other fees, and documentation requirements.  The agreement also requires each government to automate the customs compliance process through “single window” filing systems, something already in use in the U.S. and Canada.

This is just the topline summary. There are many other changes that could impact your supply chain configuration as well as your business practices. To make sure you know all the requirement – from paperwork to financial impact. Reach out to Purolator International for more information.