The United States-Mexico-Canada Agreement (USMCA) is the most sweeping and high-standard trade agreement ever negotiated. The agreement completely modernizes and brings NAFTA up to speed to meet the challenges of a 21st century economy. USMCA seeks to ensure that American workers, farmers, ranchers and businesses including small and medium size enterprises all benefit from the agreement. The goal of the revamped deal is to drive economic prosperity, promote fairer and more balanced trade and allow North America to remain the world’s most competitive economic region. With the new agreement comes new requirements for manufacturers and other industries.
By all accounts the belief is the USMCA is a win for all three economies involved, but it will require additional research for companies in regards to certification, labor requirements, and content requirements to ensure that they are compliant under the new agreement.
Increased Regional Value Content requirements for vehicles
The USMCA establishes a Regional Value Content (RVC) requirement of 75 percent as opposed to the 62.5 percent requirement included in NAFTA. At least 75 percent of a vehicle’s components must be made in Canada, the United States or Mexico. The 75 percent requirement must be achieved after three years (66% in 2020, 69% in 2021, 72% in 2022 and 75% in 2023), giving companies time to phase in the new standards. It is important that you consider your supply chains to become familiar with new designations such as Core, Super Core, Principal and Complementary Parts.
It is also critical to know where the aluminum and steel used by suppliers and suppliers of suppliers comes from as there is a requirement for 70 percent of those raw materials to come from local sources.
Labor Value Content Rule for vehicles
Another new requirement that comes with the USMCA is that a certain percentage of qualifying vehicles (40 percent of cars, and 45 percent of trucks) must be produced by employees making an average of $16 per hour. Many feel the hourly requirement will level the playing field for the workers fueling one of the world’s most important industries. The USMCA has also eliminated loopholes that allowed manufacturers to sidestep the less stringent Regional Value Content requirements set by NAFTA and help ensure that key parts are made within the region.
This aspect of the USMCA could be looked at as a positive or an area of uncertainty as there is no set format for origin certifications. Origin certifications could be included on an invoice or a separate document altogether. An importer may submit an importer, exporter, or producer certification, and the importer is responsible for exercising reasonable care concerning the accuracy of all documentation to US Customs and Border Protection. Certification is not required for non-commercial shipments under $2,500. You can begin to implement these terms into new and existing agreements to become familiar with the new processes under the USMCA.
Reducing the administrative burden on vehicle and parts producers
The new, less-complicated origin procedures contained within the USMCA are designed to alleviate some of the administrative responsibilities for automotive producers and help to maintain tighter enforcement of the agreement’s automotive rules. The new original rules should allow originating status requirements to be more easily met.
Initially set to be implemented earlier this year, the Coronavirus has generated outcry from different parties for postponement until January 2021, but recently it was announced that the agreement will officially go into effect July 1, 2020. However, the Customs and Border Protection (CBP) understands that Companies will need time to adjust business processes changes to achieve full compliance. During the first six months, the CBP will focus on supporting the trade’s efforts to comply with the requirements including webinars and other outreach efforts. Therefore, the CBP may in appropriate cases show restraint in enforcement during the six-month period after the USMCA went into force on July 1, 2020.
How can your company prepare for the USMCA?
We have been advising our clients to prepare for implementation as soon as possible in order to experience minimal disruption to your business and to be in the best position for the future.