Goodbye NAFTA, Hello USMCA

Remember when global trade topics like China tariffs, Brexit, and NAFTA/USMCA dominated the news? Although the world’s attention has been focused on the COVID-19 pandemic over the past few months, global trade has continued (albeit at a much lower rate) and the risks and challenges associated with new tariffs and trade agreements have not disappeared.

For example, this coming Wednesday (July 1), the United States-Mexico-Canada Agreement (USMCA) will go into effect, replacing the North American Free Trade Agreement (NAFTA). Are you ready?

Getting USMCA ratified by all three countries has been a multi-year journey. Back in October 2018, for example, as more details about the new agreement were emerging, I interviewed Jose Minarro, who at the time was the SVP of Customs at Transplace (a Talking Logistics sponsor), about the coming changes.

“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,” said Jose. “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.”

Regarding certifying origin, Richard Mojica, Riyaz Dattu, and Eduardo Sotelo Cauduro provide some details in a recent post:

Under NAFTA, companies used a prescribed form —the NAFTA Certificate of Origin—to certify that products qualify for preferential treatment (i.e., satisfy the applicable rules of origin). The USMCA abandons NAFTA Certificates of Origin (i.e., they will no longer be accepted by the customs authorities upon July 1) and instead allows companies to claim preferential tariff treatment on the basis of a certification of origin, which has no prescribed format but requires certain data elements set forth in the USMCA (e.g., a product description, the contact details for the parties to the transaction and the applicable origin criteria).

Like NAFTA, this certification may apply to a single shipment or multiple shipments of identical goods within a 12-month period and must be in the importer’s possession when the USMCA claim is made. Unlike NAFTA, which limited certification to the producer or exporter, a USMCA certification may be completed by an importer (in the case of Mexico, however, importers will not be able to issue such certification until approximately February 2024). 

While importer certifications may sound appealing, it should be kept in mind that an importer who certifies must be prepared to substantiate the claim (i.e., prove that the products covered by the certification “originate” in the USMCA territory). Practically, that means the importer would need to maintain all records necessary to demonstrate that the good is originating for at least five years from the date of importation of the good, meaning that it may be asked to provide purchasing and product records, such as costed bills of materials (BOMs), purchase and payment records for raw materials, production records etc., which are generally kept by the producer. False or incorrect certifications of origin can lead to penalties.

The rest of their post (“Five Takeaways for Corporate Counsel on the USMCA”) provides additional insights and advice about USMCA, so check it out to learn more. Our friends at Transportation Insight (a Talking Logistics sponsor) also published a post last week highlighting some key differences between NAFTA and USMCA

Finally, I encourage you to watch the full episode with Jose Minarro titled “The New NAFTA: What’s Changed? What’s The Impact?” (and read our highlights post) for more insights and advice on this topic.

P.S. Don’t forget about Brexit and the coming changes. As reported by Lloyd’s Loading List last week, “The European Union (EU) will impose full customs controls and checks on goods from the UK from 1 January 2021, a key EU diplomat indicated last week, declining to reciprocate London’s plan to offer traders a six-month phased implementation period.”

The article adds that “Robert Keen, director general of BIFA [British International Freight Association], said that even if a trade deal is agreed [between the UK and EU], BIFA members will have to manage a huge increase in paperwork and administration, leading to potential for disruption and delays at the border. But those challenges would be even greater if no agreement is reached.”