CUSMA (USMCA) agreement will soon come into effect
On March 13, 2020, Parliament passed Bill C-4, giving royal assent to “An Act to implement the Agreement between Canada, the United States of America and the United Mexican States” (the “CUSMA Implementation Act”). The legislative processwas completed on a highly expedited basis, much earlier than expected. Parliament then immediately adjourned for a five-week period (until April 20) in response to the COVID-19 coronavirus pandemic.
With the passage of the CUSMA Implementation Act into law, Canada was the last of the three partner countries to ratify the new agreement, paving the way for CUSMA (or “USMCA” as it is called in the United States, or “T-MEC” in Mexico) to enter into force.
In accordance with paragraph 2 of the Protocol replacing NAFTA with CUSMA, all three countries must notify each other, in writing, when they have completed their internal implementation procedures, after which CUSMA shall enter into force (and NAFTA shall be terminated) on the first day of the third month following the last written notification.
Canada needed to complete its legislative process for Bill C-4 before notification could be carried out under the relevant CUSMA provisions. On Thursday, April 2, 2020, Canada notified the United States and Mexico that it has finished its ratification process and is now ready to implement the measures in CUSMA. On April 3, 2020, Mexico notified Canada and the U.S. that it was also ready to implement CUSMA. If the United States gives its notice to Canada and Mexico before the end of April, then per the protocol, the new CUSMA could take effect as early as July 1, 2020.
It is not clear how soon the United States will act. The U.S. administration had previously wanted CUSMA in place by June 1. But that was before the COVID-19 pandemic substantially disrupted the global economy and drastically altered cross-border trade between the three countries.
Given the current pandemic situation, many industry and trade associations as well as certain legislators are concerned that a July 1 timeline is not achievable, and would place unnecessary pressure on stakeholders, since many businesses and supply chains are presently shut down because of COVID-19.
Nevertheless, the new agreement will come into effect sooner rather than later. Accordingly, the Canada Border Services Agency (CBSA) has already begun to publish the following guidelines in preparation for the implementation of CUSMA:
It is worth noting that CUSMA does not provide transitional rules; in other words, on the date the new agreement comes into force, it will be the CUSMA rules that apply to imports and exports on which the CUSMA preference is claimed. Previous NAFTA rules will be terminated and will only apply to imports and exports where the NAFTA preference was claimed BEFORE the CUSMA implementation date.
Importers and exporters who currently rely on NAFTA need to plan and prepare for the changes that CUSMA will bring, such as changes to product-specific rules of origin (changes to either tariff shift or Regional Value Content rules), changes to Certificate of Origin requirements, and changes to Customs procedures, to name a few.
For more information on changes, please consult W2C’s previous article: The New CUSMA Agreement – Are You Ready?
In addition, for express courier shipments, there will be changes to “De Minimis” thresholds. Below are the fixed amounts for De Minimis value for express courier shipments entering the three countries:
- The United States: USD $800.00 – same as the current amount
- Canada: CAD $150.00 for customs duties and CAD $40.00 for taxes (GST, PST, HST) – up from CAD $20.00
- Mexico: USD $117.00 for customs duties and USD $50.00 for taxes – up from 645 pesos or USD $34.00 approx.
Moreover, effective on the day CUSMA comes into effect, the CBSA will increase its LVS (Low Value Shipment) thresholds to an estimated value for duty not exceeding CAD $3,300.00 (up from the current CAD $2,500.00).
In conclusion, while the new CUSMA is based on existing NAFTA principles, there are several changes. W2C recommends that you review your internal processes for management of origin certifications and country of origin analysis under the new CUSMA rules. Even though the NAFTA rules remain in effect until CUSMA comes into force, NAFTA will become obsolete on new transactions crossing the border once CUSMA is implemented.
W2C offers several services to help you navigate the changes ahead:
- Customs training
- Determining tariff classification
- Conducting origin analysis based on any FTA (NAFTA, CUSMA, CETA, CPTPP, etc.)
- Support during Customs audits
- Requests for Advance Rulings (CBSA) or Binding Rulings (CBP)
- And much more
Don’t hesitate to contact W2C today to speak to one of our consultants.