It is only a matter of time — and Canada — before the USMCA comes
into force. In this QAD Precision Report, we look at some of the key
differences between the USMCA and Nafta.
On Thursday, 16 January, the US
Senate voted to approve the United States Mexico Canada
Agreement (USMCA). The trade deal passed with a comfortable
majority — 89-10 — and will now be signed into law. Thursday’s vote
followed the US House of Representatives vote on 19 December 2019. The
House of Representatives required changes to the revised trade
agreement to enforce labor rights and environmental rules before
passing the legislation.
Mexican President Andres Manuel Lopez Obrador welcomed the Senate’s
approval. Mexico initially ratified the updated free trade agreement
on 20 June 20, 2019. Furthermore, on 12 December 2019, Mexico’s Senate
changes to the trade deal, including agreeing to dispute
resolution panels to protect workers’ rights.
It may be some time before the USMCA comes into force. Canada has not
yet approved the deal. Nonetheless, the wind is at the USMCA’s back.
Canada’s Deputy Prime Minister, Chrystia Freeland, claimed that
approving the USMCA will be a “a
top priority” when Canada’s parliament returns to session on 27 January.
The updated trade agreement shares many similarities with its
predecessor, the North American Free Trade Agreement (Nafta). However,
there also are a number of key differences. We will discuss the most
striking ones here.
Keeping Cross-Border Trade & E-Commerce Flowing
The USMCA introduces some changes to cross-border trade. These take
into account the explosive growth of e-commerce. Under USMCA, the
signatory countries will simplify the cross-border transportation of
goods by using technology to reduce administrative delays and minimize
transaction costs. As a result, the US, Mexico and Canada will use a
single portal to electronically submit cross-border documentation.
A second important change is that Canada and Mexico will increase
their de minimis shipment thresholds. Under Nafta, shipments imported
into Canada with a value of more than C$20 are subject to duties and
require customs documentation. When the USMCA comes into force, this
will increase to C$40 for tax and C$150 for customs duties. In a
similar manner, Mexico’s tax-free de minimis will be $50 under USMCA,
while shipments valued at $117 or less will be duty-free.
This is good news for retailers and online shoppers in all three
countries. Cross-border e-commerce is on the rise. The UPS
Pulse of the Online Shopper survey found that in 2017, 83
percent of online shoppers in Canada, 78 percent in Mexico, and 47
percent in the US purchased goods from an international seller.
Automobile Content Changes
One of the most notable differences between USMCA and Nafta concerns
automobile manufacturing. Under the USMCA, car makers will need to
increase the number of parts made in one of the three signatory
countries for their finished products to qualify for preferential
duties. Nafta regulations specified 62.5 North American content; USMCA
requires 75 percent by 2023 — rising to a possible 80 percent,
depending on the method of calculation.
Furthermore, the new trade deal also includes labor provisions. Under
USMCA, 40 percent of the overall content of a passenger car or light
truck (and 45 percent for trucks) must be produced by workers earning
at least $16 per hour. This provision covers R&D staff as well.
Rules of Origin Changes
The automobile industry is not the only one likely to feel the impact
of the USMCA. There are also changes to Rules of Origin for a number
of products, including textiles and chemicals.
The USMCA also introduces changes to regional value content (RVC)
calculations. The new agreement uses the same two methods as Nafta to
calculate RVC — net cost or transactional value — but there are some
significant differences. Under the USMCA, non-originating material may
qualify as originating, depending on the value of the processing, and
the value of the originating material used in the production of the
The de minimis threshold for non-originating content has also
changed. Under Nafta, the threshold was 7 percent, while the USMCA ups
this to 10 percent.
Another significant difference is the USMCA’s provision for recovered
materials. Under the new trade agreement, recovered materials from the
signatory countries will qualify as originating when used in
When USMCA comes into force, products that are currently eligible for
preferential treatment under Nafta may no longer be eligible under the
new agreement. In a similar manner, goods which do not currently
qualify for duty-free status may do so under the USMCA.
How QAD Precision Can Help
QAD Precision Free
Trade Agreement simplifies free trade agreement compliance by
automating the most time- and labor-intensive steps. Using QAD
Precision, enterprises can automatically qualify goods according to
current preferential Rules of Origin legislation. Companies can verify
FTA origin determination in real-time — and in fractions of a second.
QAD Precision’s Free Trade Agreement solution complies with the FTA
requirements for all trade agreements recognized by the World Trade
Organization. Furthermore, the solution allows enterprises to create
“What if” scenarios for upcoming free trade agreements, such as the USMCA.
In addition, QAD Precision’s Global
Trade Compliance and Transportation
solutions automate import and export processes, along with
documentation production and customs reporting. This includes
capturing the value of goods being shipped, along with licence or
permit requirements. As a result, enterprises gain a competitive
advantage by mitigating compliance risk, avoiding unnecessary costs,
and reducing cycle-times for the seamless import or export of goods.
Are You Ready for USMCA?
Find out in 4 easy questions if your company is ready for the USMCA.
Please take our USMCA benchmark.
About QAD Precision – Trusted Global Trade and Transportation Execution
QAD Precision, a division of QAD Inc., provides industry-leading global
trade compliance, and multi carrier
transportation execution solutions from a single, integrated
platform. An ISO-certified company, QAD Precision assists companies to
streamline their import, export and transportation operations,
optimize deliveries, and increase logistics ROI. QAD Precision’s
scalable and extensible solution easily integrates with existing ERP
and WMS solutions. Industry leaders in every region of the world rely
on QAD Precision’s global support centers to leverage thousands of
carrier services and manage millions of global trade and shipping
transactions every day. For more information about QAD Precision,