Long-awaited recognition of the impact of technology on trade in North America will come into force on July 1 when the United States-Mexico-Canada Agreement (USMCA) takes effect.
The California Chamber of Commerce supported the agreement based on an assessment that it will serve the employment, trading and environmental interests of California, the United States, Mexico and Canada, and is beneficial to the business community and society as a whole.
U.S. Trade Representative Robert Lighthizer announced the trade pact’s effective date on April 24 when he notified Congress that Canada and Mexico have taken measures necessary to comply with their commitments under the USMCA.
The U.S. Department of Commerce provides key information at www.trade.gov/usmca.
CalChamber Support
The CalChamber actively supported the creation of the USMCA, the successor to the North American Free Trade Agreement (NAFTA).
The United States, Canada and Mexico comprise more than 490 million people (6.5% of the world’s population), a $26 trillion gross domestic product (GDP) (18.3% of world GDP), and $6 trillion in trade (nearly 16% of global trade).
The objectives of the USMCA are to eliminate barriers to trade, promote conditions of fair competition, increase investment opportunities, provide adequate protection of intellectual property rights, establish effective procedures for implementing and applying the agreements and resolving disputes, and to further trilateral, regional and multilateral cooperation.
Due to California being a global trade leader, USMCA priorities are important to CalChamber members and the state’s economic health.
The USMCA is a necessary modernization to NAFTA that recognizes the impacts of technology on the three countries’ economies. There are new chapters on good regulatory practices, digital trade, small and medium-sized enterprises (SMEs), the environment, and labor. The USMCA deal improves access to Canada’s dairy market for U.S. farmers, giving U.S. exporters an estimated additional 3.59% market share. It also provides for stronger intellectual property provisions, and tighter rules of origin for auto production, according to the Trump administration.
Major Provisions
COVID-19
“The crisis and recovery from the COVID-19 pandemic demonstrates that now, more than ever, the United States should strive to increase manufacturing capacity and investment in North America. The USMCA’s entry into force is a landmark achievement in that effort,” Lighthizer said in April 2020.
Mexico’s Economy Ministry said the USMCA’s implementation will “drive [economic] recovery of our country, of the North American region, after the health crisis caused by COVID-19.”
Certificate of Origin
One of the major changes is replacing the NAFTA Certificate of Origin with a certification, similar to other free trade agreements, such as those with Korea and Australia. The certification will not be required for noncommercial shipments and imports valued at less than $2,500.
Customs De Minimis
The de minimis threshold sets the value of goods below which no duties or taxes are collected by customs. According to the U.S. Department of Commerce, shipments up to the following values generally will enter with minimal formal entry procedures.
• Canada will raise its de minimis level for North American express shipments from C$20 to C$40 for taxes. It will also provide for duty-free treatment for express shipments up to C$150.
• Mexico will continue to provide US$50 tax-free de minimis and also duty-free treatment for express shipments up to the equivalent of US$117.
• The United States will maintain its de minimis level at US$800.
Auto Regulations
The three North American trading partners have wrapped up talks on uniform regulations to implement the USMCA’s rule of origin, one of the most challenging issues for USMCA implementation. Officials in the United States, Mexico and Canada have been working since March to craft the regulations, which include specific formulas and information on how automakers must comply with the new rules to qualify for reduced tariffs under USMCA.
Automakers indicate that complying with the rules will require time-consuming and costly changes, made more difficult by the economic fallout from the pandemic—but the regulations offer auto companies a transition period between July 1 and the end of the year.
Labor Issues
Appointments are being made to the newly created independent Mexico labor expert board, which will monitor and evaluate whether Mexico is implementing its promised labor reforms in a timely manner.
Mexico Statistics
Two-way trade in goods between Mexico and the United States increased dramatically from $81.4 billion in 1993 to $614.42 billion in 2019. Mexico has remained the United States’ second largest export market since 1995 and is the first or second largest trading partner for 27 American states.
Mexico continues to be California’s No. 1 export market, purchasing 16% of all California exports. Computers and electronic products account for 21.1% of all California exports to Mexico.
Canada Statistics
The United States and Canada enjoy the largest bilateral trade and investment relationship in the world. In 2019, two-way trade in goods between Canada and the United States topped $612 billion. Canada is the largest U.S. export destination.
Canada is California’s second largest export market, purchasing 9.6% of all California exports. Computers and electronic products account for 28.6% of all California exports to Canada.
