But to the experts, the general thrust of the deal that entered into force July 1 is clear: It’s a necessary modernization of a 1990s framework that made North America an integrated export powerhouse that can compete globally.
Not only did USMCA (called CUSMA in Canada and T-MEC in Mexico) enshrine NAFTA’s tariff-free status on practically all goods traded traded across the three-country region, but it also created or clarified rules that reflect reality of digital commerce and increased cross-border data flows.
The Cobb Chamber of Commerce on Sept. 22 aimed to provide its members with a primer on the deal and what it means for businesses, especially small companies that have yet to embark on their export journey.
The resulting webinar (viewable here and moderated by Global Atlanta) ended up laying out an extremely comprehensive look at the deal from experts in government and affected businesses, along with export-promotion agencies.
The consuls general of both Mexico and Canada agreed that the new agreement more fittingly represents the realities on the ground a quarter-century after its initial signing, when e-commerce was basically non-existent and Mexico was a very different place.
NAFTA transformed Mexico from a commodity-based exporter of oil to a radically open trading nation, growing its industrial base dramatically and strengthening the “institution democratic regime,” said Mexican Consul General Javier Diaz de Leon.
Now, the deal is about sharing prosperity across the region by making it the most effective bloc in the world — much of the trade is intermediate parts that add up to final pdocuts.
“We see USMCA as a tool to produce and create better jobs in these manufacturing supply chains because we have a great competitive edge over the rest of the world,” Mr. Diaz said. “t’s about being more competitive in the global economy, with other regions in the world, but being open, and we firmly believe in open economy and the open global trade for the future.”
Canada’s outgoing consul general, Nadia Theodore, noted that beyond upgrading the digital aspects and trade facilitation measures, the deal is about multiplying the positive spillover effects from trade.
“If you double click, it’s really about ensuring that trade agreements that we enter into allow all members of society and not just a privileged few to benefit from trade,” she said.
Into the Weeds: Key Changes From NAFTA
David Weiner, consul and senior trade commissioner from the Canadian consulate in Atlanta, laid out some key changes that will help ensure the health of the $1.2 trillion trade bloc, which has seen trade volumes multiply by four times since NAFTA was signed in 1994.
One big change: Now, USMCA “sunsets” after 16 years, after which point it will be subject to renewal every six years.
The USMCA’s nine new chapters include sections on small and medium-sized companies, digital trade, intellectual property rights, labor and the environment.
Other provisions streamline the customs process — including making it easier to document that a product originated in the NAFTA region, thus qualifying it for duty-free status. No certificate of origin is required for products below $2,500, Mr. Weiner said.
Relevant to e-commerce companies, Canada and Mexico both raised their “de minimis” thresholds as part of the deal — that’s the price at which a product sold online can be shipped into a country duty- and tax-free. A higher de minimis threshold encourages more cross-border e-commerce consumption by theoretically lowering prices for consumers and the compliance burden for sellers.
In Canada, the number rose to C$40 (or express shipments up to C$150) and in Mexico, it’s $50 and about $117. In the U.S., the number remained unchanged at $800.
Mr. Weiner also noted that the deal includes national treatment of copyrights, civil and criminal protections for trade secrets, enhanced collaboration on cybersecurity, safeguards against data localization requirements and tariffs on digital goods and much more.
Luis Gonzalez, head of political and economic affairs for the Mexican consulate, highlighted the two industries that saw major changes from the Mexican side: agriculture and automotive, the latter being the one where the Trump administration most stridently lobbied for substantive changes.
The deal raises the rules of origin — the proportion of a finished product that must be sourced from the region to qualify for duty-free status — on cars to 75 percent from 62.5 percent.
It also requires 70 percent of the steel and aluminum going into a vehicle to be purchased within the three-country region, and stipulates that at least one of the three countries must be the source for all of seven critical parts: the engine, the transmission, suspension, steering, chassis, batteries and the bodywork, said Mr. Gonzalez.
The deal also requires at least 40 percent of the value of a car to be made in plants where workers make at least $16 per hour, a stipulation seen as being aimed at leveling the playing field with Mexico, whose labor costs remain much cheaper than the U.S. or Canada.
Mr. Gonzalez pointed to Annex 4B of the trade deal’s text for more product-specific rules of origin.
Small Business: Using USMCA to Break Into Exporting
Other speakers talked about the more practical aspects of the deal for their business.
Using the Zoom format to his advantage, Allen Bogenshutz of used his mobile phone to walk around the Cobb County headquarters of YKK Corp. of America, showing how parts made in Georgia or throughout the Japanese-owned company’s operations cross borders multiple times before being integrated into the finished good.
YKK USA’s Macon, Ga. plant makes copper wire for zipper factories across the hemisphere, while a hook-and-loop product embedded into an automotive seat takes a roundabout transnational journey.
“The hook is made in Macon. The loop is made in Mexico, the seat is actually assembled in Canada and then shipped back to Mexico to many of the car manufacturers,” Mr. Bogenshutz said, noting how crucial USMCA is to maintaining a predictable supply chain. It’s hard to imagine a dynamic manufacturing environment in the region without the deal, he said.
“A lot of that may leave and go to other places where labor is actually cheaper and or the the issues are not as not as difficult,” Mr. Bogenshutz said.
For small companies looking for other sources of growth during the pandemic, using USMCA to drive exports can be a boon with the right preparation and research, said Nasim Sadr-Fala, trade specialist at the U.S. Commercial Service in Philadelphia.
Even in an era where trade shows have gone virtual, companies are now strategically targeting various markets, utilizing the U.S. government resources to proactively conduct preliminary market research and match up with potential partners.
“It’s no longer waiting for the RFQs a nd the RFPs to come in to see where we’re going,” Ms. Sadr-Fala said.
For Maria Luisa Boyce, a vice president for global public affairs at United Parcel Service Inc., a self-professed trade nerd who has worked previously at U.S. Customs and Border Protection, it’s clear that USMCA helped accelerate commerce in line with 21st-century speeds.
She pointed to Chapter 7 on trade facilitation, Chapter 19 on digital trade and most of all, Chapter 25, the first-ever chapter on small-business in a major trade deal. Basically, it outlines ways the three governments can share practices to encourage cross-border trade among smaller enterprises.
Ms. Boyce tried to break through the technical talk by encouraging companies on the call to be encouraged by what the agreement enables without getting bogged down in the details.
“if you’re considering even exporting, just do it. I know that sounds too easy, but (USMCA) really has made it easier to connect.”
Resources Mentioned:
- U.S. Export Assistance Center Atlanta
- Full USMCA text from the U.S. Trade Representative
- FTA Tariff Tool
- U.S. International Trade Administration’s USMCA hub
- Mexico’s T-MEC website (Spanish)
- Canada’s CUSMA site (English and French)
- Canadian Consulate General in Atlanta – Trade Team
- Mexican Consulate General in Atlanta
