The New NAFTA: What’s Changed? What’s the Impact?

Renegotiating the almost 25-year-old NAFTA trade agreement has been a priority of the current U.S. administration, and after a lot of back and forth negotiations between the US, Mexico, and Canada over the past year, a new agreement has been reached which is set to be signed soon. What’s changed? How will these changes impact companies, particularly those that trade with Mexico? What actions should shippers take in response? Those are some of the questions I discussed with Jose Minarro, SVP of Customs at Transplace, in a recent episode of Talking Logistics.

NAFTA’s impact

To set the stage for our discussions on the changes in the renegotiated trade agreement between the U.S., Mexico, and Canada (USMCA), I asked Jose to evaluate the impact of NAFTA — was it positive or negative?

“I see only positives,” says Jose. “I don’t think Mexico would be in the economic status it has today without it. It turned Mexico into a manufacturing country. It helped develop skilled workers for the factories and professionals such as engineers and logistics specialists to run them. The universities got involved to train and educate the required workers. And it brought in foreign investment from Asia (Korea, China, and Japan), Europe, and other parts of the world. It has been responsible for a lot of progress, from the mostly manual labor 25 years ago to a great deal of automation and high-tech electronics today.”

There have also been positives for the U.S. as supply chains have become more global. There are benefits of speed to market and efficiencies in having regional manufacturing centers close to home markets, which sometimes get overlooked.

What changes will USMCA bring?

Given that the agreement has not been signed yet and companies haven’t seen the final draft, I asked Jose what he sees as the biggest expected changes. Jose points out that, “We’ve all seen the working drafts and negotiation points and the biggest area to consider from a customs and transportation perspective is the country of origin rule changes. The regional value-added content rules are going to change and that will force everyone to re-examine how their products qualify under the agreement.

“For the past 24 years under NAFTA, value-added has been based on the bill of materials. You look at the component parts of a product or assembly and calculate the value added. Now you have to include the value of the labor that goes into the product. That’s never been done before. How is government going to measure, track and control this?

“A second area to consider is the Foreign Corrupt Practices Act (FCPA). There is much greater focus on security than 24 years ago and the U.S. government is pushing this issue within the new agreement. Companies must understand how that impacts them.

“Third, technology has changed drastically. Most of our customers have an ERP, often running in the cloud with data that may be stored in a different country. Companies must take that into account in regards to the security issues we just discussed.”

The impact of e-commerce

Following up on Jose’s comments on the dramatic changes in technology, I asked him about the impact of e-commerce. Jose notes, “We have evolved as consumers in Mexico the same as in the U.S. Companies like Amazon are growing exponentially. But they still ship products into Mexico in full truckloads or full shipping containers. The way we process small shipments through the ports of entry [which is the case for e-commerce orders] is the same as how we process very large shipments [in truckloads or container loads]. That makes it difficult to facilitate e-commerce, which is our new reality. That has to change.

“There are new rules coming in the USMCA agreement to help facilitate e-commerce. Currently there are some special rules for parcel carriers only to handle smaller shipments. But the rules and processes must be simplified to allow wider facilitation of e-commerce shipments.”

Is USMCA an improvement?

With all of the contention over NAFTA and USMCA changes, I asked Jose if he feels the new agreement will be an improvement. Jose says, “I think it will be. None of us have business plans from 24 years ago and expect them to be fresh and workable today due to the eternal changes we deal with. All of the new additions are just adjustments to reflect our economies and world. The financial adjusts are just part of how we do business together in North America. The backbone of NAFTA wasn’t changed in a way that will negatively affect future growth.”

How should companies prepare for compliance with the new regulations, in what timeframe, and how can logistics service providers help? What advice does Jose have for companies to navigate this new reality successfully? I encourage you to watch the full episode for insights to these questions and more. Then post a comment and keep the conversation going by adding your own thoughts and experiences.