If you are an exporter or thinking of exporting to the United States of America(USA), you may have heard of the Canada-United States-Mexico Agreement (CUSMA) which came into effect on July 1, 2020. As the US is the biggest market for Canadian goods, the agreement has a deep impact on Canadian exporters since it provides improved access to this critically prime market.
Canada, the United States and Mexico form a tight-knit trade community. The roots of this relationship are in geographical proximity, people-to-people connections, and a strong desire for the economic prosperity of the region. Since 1994, the North American Free Trade Agreement (NAFTA) helped create export opportunities and a more level playing field for its member countries by gradually eliminating tariffs and other trade barriers. It has now seamlessly transitioned to (CUSMA).
What is CUSMA?
You may hear the names CUSMA, USMCA and MUSCA for this agreement. All three names refer to the same agreement. While in Canada it is known as CUSMA; in the US it is called United States-Mexico-Canada Agreement (USMCA) and in Mexico, it is referred to as MUSCA. CUSMA is a modernization of NAFTA and provides improved procedures to make it easier for goods to move across Canada, USA and Mexico borders.
So, what has changed?
While a lot remains unchanged from the original NAFTA or has been updated to better project how international trade currently works, there are some significant changes too. Below are a few highlights:
Certification of Origin
Unlike the NAFTA certificate of origin, CUSMA does not require a prescribed format. Certain data elements regarding certification of origin can be included in commercial invoices or any other documentation. The minimum data elements should include information about the exporter/importer/producer, description and tariff classification of goods, origin criteria, and blanket period(for multiple shipments of identical goods for a specified period of up to 12 months). This certification may be completed by the exporter, producer or importer of the goods. It may be submitted electronically. You can find more information on the certificate of origin and an example of the certification here.
The revised rules focus on maintaining a large North American content in the auto sector. The total North American content in vehicles has gone from 62.5% (Under NAFTA) to 75%. 70% of all steel and aluminum used in auto production needs to originate in North America. 40% of a passenger car (45% in the case of a light truck) must be produced by workers paid an average labour wage of USD $16/hour.
De minimis threshold
De Minimis duties and taxes have changed for shipments under CUSMA. Canada has agreed to $150 for customs duties and $40 for taxes. This rule only applies to goods shipped from USor Mexico to Canada by courier.
The dispute settlement chapter details the mechanism for resolving disputes between the member countries. Disagreements are to be resolved via cooperative means such as consultations. However, if these do not work out, the agreement provides for arbitral panels.
The agri-food sector is a key element in the Canadian economic story and it has seen incredible growth in the past two decades in North America. Canada has protected the supply management system for dairy farmers. New USA market access has been provided to Canada for refined sugar and sugar-containing products, as well as certain dairy products. The USA has been provided new access to the Canadian market for dairy, poultry, and egg products. If you export agricultural or agri-food products and are interested in finding out more, you can find details here.
The digital landscape has changed during the past few years with the increase in e-commerce activities. CUSMA reflects the present digital trade realities. Customs duties, fees, or other charges on or in connection with the importation or exportation of digital products transmitted electronically will not be allowed. It also protects against forced disclosure of proprietary source code and algorithms.
CUSMA includes a formal review of the agreement every six years. While the agreement will terminate after 16 years, the Parties to CUSMA can agree to extend it for a further 16 years after each regular review.
The North American trade bloc offers immense opportunities to women exporters. USA and Canada have a unique trade relationship because of several factors including a common language and shared connections. These shared commonalities have encouraged and supported close trade connections. About 75 percent of Canadian exports are to the USA. Several USA states such as Michigan, Illinois, California, and New York have close economic ties with Canada. For example, Michigan annually imports about $45.2 billion in goods from Canada. Mexico is also a priority market for Canadian exports. In 2018, Canada exported goods about $8.2 billion to this market. CUSMA is a step in the right direction and provides momentum to Canadian exporters by facilitating the trade process.
You can learn more about the agreement here.
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