USMCA Replaces NAFTA: How Does it Affect Manufacturers?

On July 1, the United States-Mexico-Canada Agreement (USMCA) went into effect, replacing NAFTA, the North American Free Trade Agreement, which had been in place since the beginning of 1994. The USMCA modernizes NAFTA with trilateral free trade that “will support mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America,” according to the Office of the United States Trade Representatives. The three countries will review the Agreement every six years; it is set to expire in 16 years, unless the participants choose to extend it.

Note that Canada and Mexico use alternative names and acronyms for the Agreement. In Canada, it is the Canada-United States-Mexico Agreement, or CUSMA, or, in French, the Accord Canada-États-Unis-Mexique (ACEUM). In Mexico, the Agreement is called the Tratado entre México, Estados Unidos y Canadá, (T-MEC). As a result, your customers or vendors may refer to the agreement by these names.

While many industries will not experience a significant difference between NAFTA and USMCA, some provisions will affect products like automobiles, agriculture and textiles. Those key differences include:

• USMCA requires 75 percent of a vehicle’s parts to be made in one of the three countries for the vehicle to pass through the countries duty-free, up from 62.5 percent under NAFTA. In addition, at least 70 percent of the producer’s steel and aluminum purchases must originate in one of the participating countries.
• USMCA requires at least 40 percent of vehicle parts to be manufactured by workers earning at least $16 per hour for the vehicle to avoid duties. This is designed to help level the playing field for U.S. manufacturers.
• For the textile industry, USMCA implements new requirements to source sewing thread, narrow elastic fabrics, pocketing and coated fabrics from within North America, which may help U.S. textile manufacturers to expand their markets.
• USMCA strengthens labor standards and works to ensure workers’ rights are not violated. In addition, the Agreement calls for enforcement of environmental standards, with specific attention to protecting marine environments and air quality.
• USMCA allows U.S. dairy farmers and agricultural goods producers to increase their exports to Canada.
• The Agreement includes protections for copyrights, patents, innovations and other intellectual property.
• USMCA addresses technology and digital issues, updating the trade relationships to accommodate a 21st century economy.

Manufacturers who import or export goods should consider taking the following actions:

• If you import, work with your vendors to determine if you should make changes to your importing process. Do your suppliers understand the USMCA requirements? Can they provide you with the information you need to document your compliance with the requirements?
• Assess your supply chain. The implementation of USMCA and other factors, such as COVID-19, have led many businesses to reassess their supply chains. Should you consider making changes to your vendors to improve cost, quality or reliability?
• If you export, work with your customers to determine if you should make changes to your exporting process. Review requirements for documentation. For example, NAFTA Certificates of Origin, invalid as of June 30, must be replaced with a USMCA Certification of Origin.
• Particularly if your business will be significantly affected by USMCA, be sure to review the agreement, fact sheets, or other information related to applicable process changes or compliance requirements at ustr.gov/usmca.

If you have questions about how the USMCA may affect your manufacturing operations, contact a member of the HBK Manufacturing Solutions Group at 330-758-8613 or manufacturing@hbkcpa.com.