Association of Food Industries

2020: A Look at the New NAFTA-USMCA 

Nicole Biven Collinson 
Sandler, Travis & Rosenberg, P.A.

USMCA: What Can We Expect and When?

The United States-Mexico-Canada Free Trade Agreement was finalized in an amended agreement on Dec. 11, 2019. It had originally been signed on Nov. 30, 2018 but the terms of the agreement were not sufficient to garner Democrats’ support in the House of Representatives, so United States Trade Representative Robert Lighthizer began a series of negotiations with members of Congress and officials in Mexico and Canada to amend the original agreement so that Democrats could support it. 

Ratification

Mexico moved very quickly to ratify the agreement with a vote on Dec. 12, 2019. The U.S. Congress moved very quickly as well, with the House holding a vote on Dec. 19. The vote was an amazing show of bipartisan support, with 385 members voting to approve the agreement. After the holidays, the Senate quickly followed suit passing the agreement by a vote of 89 – 10. On Jan, 29, 2020 the president signed the bill.

We are now awaiting Canada to ratify the agreement.  

Implementation

We don’t know, however, when the agreement will be implemented. There are several steps that must be taken before it actually goes into effect. We will know that we are close when the president notifies congress that the parties have undertaken all the necessary measures to meet their commitments under the agreement. It can by law, go into effect 30 days later. If I were to wager a guess as to the possible dates for being able to import or export under the new USMCA, I would say that July 1. 2020 would be the absolute earliest, although it’s more likely to be Jan. 1, 2021, or sometime in between these two dates.

Modification

For the most part, the new USMCA does not impact manufacturing schemes for AFI members. The rules of origin on almost all agricultural products (prepared and fresh) did not significantly change. However, there are some overall changes of which members should be aware that may impact their business operations under the agreement.

Specifically, the changes on food products is more on access than on rules of origin. The focus of the negotiators was on gaining more unrestricted access to Canada and Mexico than to the rules.  

Companies will no longer be required to us a “NAFTA” certificate for entry. Previously, a specially designed form had to be used to make entry and if any information was incorrectly inserted into the wrong box, Customs could reject the entry. Now there is a list of specific entry information that is required but, in theory, one could write that information on the back of a napkin and provided it was complete, CBP would have to accept it! Some companies have stated they likely will continue to use the NAFTA forms just because they have become the standard for such shipments, but others may choose to use a format that is more consistent with internal practices.

The marking rules for goods under NAFTA are going away. As you know, all imported goods must be marked with country of origin. Under the NAFTA, a special set of “marking rules” was devised so that one could possibly have a NAFTA-qualifying product that was actually marked made in another country.  It was a convoluted system that took years to adjust to, but which now will disappear; many companies are emitting a sigh of relief because it sometimes caused great consternation with Customs.

Other changes that may impact AFI members include an increase in the amount of low-value shipments limitations. The U.S. has an $800 limit and Mexico increased its limit to $117 for duty purposes and $50 before taxes are assessed, while Canada increased its limits to CA$ 150 for duty and CA$40 for taxes.

The amount of non-originating content one can have in its product was increased from 7 percent to 10 percent, making it more consistent with many of our other trade agreements. 

A provision that one might think at first glance is more restrictive is actually better for importers in the long run. Previously, when a duty-free claim was made under NAFTA and a customs entity challenged the eligibility, the agreement specified that the “exporter” or “manufacturer” was responsible for ensuring that their goods were FTA-eligible. This practice resulted in the U.S. importer making the claim for duty-free treatment, only for Customs to then reach out to the exporter or manufacturer with a demand letter seeking additional documentation proving the eligibility of the product. The exporter/manufacturer many times could not read English or would ignore the demand, which after 30 days, resulted in Customs issuing a notice to the importer requiring payment of duties. The change puts the onus of demonstrating eligibility for a duty preference claim on the importer. This change also puts control of responding to Customs in a timely fashion in the hands of the importer – the entity that will either benefit or suffer the consequences.

Another change that may be a difference without a distinction is the duration of the agreement provision. This agreement has a sunset clause that may be triggered every six years. At that point, a review of the agreement shall be undertaken by the parties and if one believes the agreement is not working, it can notify the other parties of its intent to withdraw from the agreement and who then have 10 years to address the concerns of the aggrieved party. If during that 10 years the parties agree the problems have been resolved, the clock for a review will reset. Thus, if a party determines it intends to withdraw from the agreement, it cannot do so until a 10-year period has passed. Although some are not pleased there is a withdrawal clause, it is significantly better than the six-month notice clause of the NAFTA.

All of these changes may be tricky at first, but because the agreement has been in place for more than 25 years and the three economies have become so intertwined, on the whole the additional changes and amendments will bring the agreement into the 21st century and provide added protections to intellectual property, labor, environment, e-commerce and data.

Nicole Biven Collinson is president, international trade and government relations for the international trade policy and law firm of Sandler, Travis & Rosenberg, P.A.  She has appeared on MSNBC and NPR many times discussing trade and tariffs. She is co-manager and resides  at the firm’s Washington, DC office and sits on the firm’s operating committee. She can be reached at 202-730-4956 or nbc@strtrade.com.

Association of Food Industries: Serving the U.S. Food Import Trade Since 1906
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