What is USMCA compliance? What are services that include USMCA...

What is USMCA compliance? What are services that include USMCA compliance offerings for the industry?

Posted 2023-01-11 05:30:53

The USMCA replaced the North African Free Trade Agreement (NAFTA) in 2020. USMCA, or the United States, Mexico, and Canada, is a newly created free trade agreement between the three countries. The new legislation was introduced as law in June 2019 in Mexico, in January 2020 in the US, and in March 2020 in Canada. The USMCA came to effect on July 1, 2020.

Benefits of USMCA

North American farmers, workers, ranchers, and businesses stand to gain from the USMCA. The agreement will allow trades to have a more mutually favorable, modernized, and balanced environment, support jobs that are high paying, and help to grow the North American economy.

USMCA, apart from eliminating trade barriers present during NAFTA, will also take up critical issues like job losses in the US automobile industry and take measures to address them. It will also look at the e-commerce rules and intellectual property rights. USMCA has retained some of the NAFTA provisions, but they have added and updated laws pertaining to small and medium enterprises, digital trade, agriculture, labor, environment, and others. The new rules have prohibited custom duties on digital products and promotes cooperation on cybersecurity issues, among other changes.

Workings of USMCA – an Overview

The Trump administration introduced USMCA to reduce the trade deficit and create more job opportunities for the nation’s middle class. For the US, the critical issues included provisions for labor enforcement and environment and intellectual property rights.

Impact of agreement on the following industries

Automobiles, trucks, and other products Bom Services

The new rules require at least 75% of Auto components to be produced in North America. This is 12.5% more than stated in NAFTA. The wages for automobile workers undergo a change, with 40% to 45% of the automobile product produced by workers earning a minimum of $16 per hour.

Strengthening and modernizing agricultural and food trade - Canada is the first largest, and Mexico is the third largest export market for US food and agricultural products. Reducing tariffs and other restrictions on products will help American farmers. The three nations will also cooperate on agricultural biotechnology initiatives such as gene editing in agriculture.

Opportunities for trade in US services, including intellectual property (IP) protection - Copyright protection is increased to the author's life plus 70 years from the earlier plus 50 years. According to movies, the new laws require stopping pirated and counterfeit goods, IP theft, and illegal.

Benefits for SMEs under the new trade agreement – SMEs usually lack funds to pay taxes and customs duties. USMCA increases the tax-free threshold limit from $20 to $40 for imports into Canada. The duty-free level is now set at $150. For Mexico, the tax-free limit is $50, and duties are exempted up to $117 for shipments. These changes help small US businesses to ship cheaper to Canada and Mexico.

Other changes in USMCA include uniform customer procedures at all ports of entry in the three countries. Increasing automation and reduction of paperwork for shipments below $2500 value to reduce trade costs.

Conclusion

It is still early days to understand and feel the impact of USMCA. However, a study by International Trade Commission (ITC) in the US thinks that automobile and digital trade will significantly affect the US economy.