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NAFTA: What You Should Know About the US’s New Trade Agreement

April 26, 2022 by FreightCenter
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Shipping across borders can be confusing, tedious, and time-consuming, especially when running your business. And with new government policies now in place and often changing, it’s more important to understand how these changes could affect your business and your shipping strategy. Here, we dive into what shippers need to know about the new NAFTA (now known as the USMCA).

What Is NAFTA?

The North American Free Trade Agreement, or NAFTA, was created and implemented in 1994 to help eventually eliminate most tariffs and barriers to trade on services and products between Canada, the United States, and Mexico. Some of the most notable items where tariffs faded out included automobiles, clothes, textiles, and agricultural products. The agreement aimed to foster free trade relationships among these North American countries.

What Is the New NAFTA?

The new NAFTA is called The United States-Mexico-Canada Agreement or USMCA, replacing the old NAFTA. As stated in a USMCA Fact Sheets, “Canada and Mexico are our first and third largest export markets for United States food and agricultural products, making up 28 percent of total food and agricultural exports in 2017. These exports support more than 325,000 American jobs.”

Additionally, the United States imports many goods from Mexico and Canada. In 2018, Mexico was the United States’ second-largest supplier of imported goods, totaling an estimated $671.1 billion in trade, with imports to the U.S. making up $371.9 billion of the total amount.

Some of the most imported Mexican items included vehicles, electrical machinery, general machinery, agricultural products, mineral fuels, as well as optical and medical equipment.

Canadian imports in 2018 were also high, with Canada being the third-largest supplier of imported goods. Imports from Canada totaled $318.8 billion in 2018. Some of the most notable Canadian imports include agricultural products, snack foods, red meats, vegetable oils, processed fruits, and vegetables, as well as fresh vegetables.

Additionally, some Canadian services imported to the U.S. included travel and transport services, telecommunications, and computer and information services.

NAFTA

What Are Some of the Updates to the new NAFTA or USMCA?

The USMCA has updated features. The updates’ goal is to benefit the United States, Mexico, and Canada mutually.

Some of the important features of the USMCA include:

  • It is a free trade agreement between the United States, Mexico and Canada.
  • It is replacing the NAFTA, which was in effect since 1994.
  • The UMSCA took effect as of July 1, 2020.
  • In 16 years, the UMSCA will expire if not renewed between the countries.
  • The UMSCA has updated provisions and features.

Additional key features in the USMCA include:

  • Intellectual property will be under stronger protection and will have more enforcement of intellectual property rights.
  • Digital trade and eCommerce will be under greater scrutiny.
  • De minimis shipment value levels will increase.
  • Labor will have increased value, and new trade rules of origin will deliver higher wages to laborers.
  • Environmental impacts chapter of the agreement will be more detailed and comprehensive.

For those interested in reading the complete USMCA trade agreement, click here. Additionally, if you want to look through some frequently asked questions about the USMCA, click here.

How Will the New NAFTA or USMCA Affect Shippers?

If you manufacture, produce or sell your products or services across borders, then the USMCA will affect your shipping strategy. There are some significant changes to know, and they are:

Digitized Regulations

One of the biggest challenges in cross-border trade has been the lack of easily accessible, accurate trade regulation information and documents. Inaccurate information and documents make it nearly impossible for small businesses to expand their shipping across borders.

The USMCA requires the U.S., Mexico, and Canada to provide free, accurate, and easily accessible online documentation that addresses each country’s regulations, laws, trade procedures, duties, charges, and documentation requirements for enhanced transparency.

Online Document Processing

When you are a small business owner trying to get your shipments out on time to your customers, you don’t have extra time to search for the cross-border shipping documents you need for each specific country. In the USMCA, you won’t have to search anymore.

The new trade agreement has directed the U.S., Mexico, and Canada to create a digital platform that is both simple and easy to use. The goal of digital media is to streamline commerce and shipping. Shippers can submit customs declarations within each country’s forum and any other country-specific forms or documents. Thus, the digital medium must be easily accessible to all shippers.

Streamline Compliance

Having too many rules makes it incredibly challenging for shippers to know which compliance rules to follow and when to follow them. In the USMCA, each country must adhere to uniform trade rules for exports and imports and consistent regulations. The goal is to make it easier for anyone shipping across the border to know which laws they must follow and when.

Updated Origin Procedures

Origin procedures have been updated in the USMCA as well. Updating origin procedures aim to improve modern trade and limit administrative costs to shippers and traders. Here’s how things have been updated:

  • Provide electronic processes.
  • Increase trader or shipper participation in verification and certification processes.
  • Make it easier to certify the origin of goods.
  • Bolster collaboration and cooperation between customs administrations while following the new rules.
  • Maintain balance between compliance and trade facilitation.

Certificate of Origin

In the USMCA, anyone importing goods must no longer fill out a formal certification document. You can prove your origin with informal documentation, such as invoices or an informal origin certificate.

Under the USMCA, you will need to have the following information to show proof of origin:

  • Organization’s information, including name, title, address, phone number, and email.
  • Names of the exporter, producer, and importer.
  • Description with details of goods and the tariff classification.
  • Origin criteria.
  • Blanket period (if applicable).
  • Authorized signature and date (e-signatures are now accepted).
  • Exact closing statement:
    • “I certify that the goods described in this document qualify as originating, and the information contained in this document is true and accurate. I assume responsibility for proving such representations and agree to maintain and present upon request or to make available during a verification visit, documentation necessary to support this certification.”

Remember, you will need to keep your certification documents for at least 5 years.

Increase in De Minimis

An increase in de minimis in the USMCA means that low-value goods can enter a country duty-free, so you won’t have to worry about paying more. This increase in de minimis is suitable for small businesses and shippers because it can increase your trade with the other nations in the agreement without you having to pay additional fees, such as duties or taxes. Here’s a breakdown of the de minimis update:

  • United States: $800 USD.
  • Canada: $150 CAD for duties (customs) and $40 CAD for taxes.
  • Mexico: $117 USD for duties (customs) and $50 US for taxes.

Express Shipments

To ease the strain and keep shipments moving more smoothly, all express shipments in the USMCA must be processed by customs before the arrival of the shipment. The load can be released quickly if all the necessary documents and essential data are there. That’s good news for your small business and your customers!

Single Window Clearance

Having everything you need in one place is very important, which goes for cross-border shipping. In the USMCA, new provisions have been made that require a technology-based single window clearance system to be set up that informs all importers, exporters, and others in the shipping process to keep track of the shipment’s status. As with most of the updates in the USMCA, the goal of this update is to speed up and streamline the shipping process.

Let FreightCenter Help

The USMCA has a lot of information and updates, and you have a lot on your plate as a small to medium-sized business owner or manager. It is time-consuming to read through all the updates and figure out how they apply to you and your shipping strategy.

That’s why partnering with a 3PL, like FreightCenter, gives you a competitive advantage. Let our shipping experts guide you through the cross-border and domestic shipping processes. With our powerful, easy-to-use transportation management system, the best carriers with the best shipping rates are delivered right to you so that you can choose the best option for your freight shipment. Our shipping experts are ready to help.

Instantly compare quotes from top carriers or speak with one of our shipping experts at 844-212-7447.

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