CUSMA, USMCA, and NAFTA: Acronyms and Policies Explained

What’s In An Acronym?

No matter how you slice it CUSMA, or as it is known in the US, USMCA is the new trade agreement between Canada, the United States, and Mexico. Whether referred to as United-States-Mexico-Canada Agreement, Canada-United States-Mexico agreement, or Tratado entre Mexico, Estados Unidos y Canada (T-MEC), it is the new NAFTA, and it goes into effect on July 1, 2020. Kirsten Hillman, Canada’s acting ambassador to the U.S., said in an interview:“Trade agreements as public policy tools do two things: they open markets and liberalize trade between parties so as to incentivize mutual benefits — supply chains, investment, business partnerships — and they create predictable rules that Canadians can count on in deciding to make business choices.”

What Does This New Agreement Mean For Importers?

The new NAFTA establishes some distinct changes for importers to be aware of. For example:The producer, importer, or exporter will now be able to fill out the Certificate of Origin. This can be submitted electronically with a digital signature.Per the government website: The CBSA does not require a certification of origin to claim preferential tariff treatment where the value for duty does not exceed $3,300. Certain conditions apply, please refer to Customs Notice 20-15: Increase to the Low Value Shipment (LVS) Threshold and Simplification to the Proof of Origin Requirements for Goods Imported into Canada, for details.The current agreement has a one-year window to submit a claim for a refund of duties that were overpaid. Under the new agreement, this is extended to four years. The rules of origin for agricultural, automotive, and textiles have changed significantly. The chapter on textiles and apparel preserves the existing market access to goods traded amongst the CUSMA countries, including access to tariff preference levels that many producers use. Import permits issued by Global Affairs Canada will be required for clothing and textile goods that are eligible for tariff preference level treatment under the CUSMA upon entry into Canada, similar to the process under NAFTA. Information regarding import permits can be found in departmental memorandum D11-4-22: Tariff Preference Levels.Certain hand-crafted items (including folklore, cottage industry or Indigenous goods) are eligible for duty-free tariff treatment when traded amongst the CUSMA countries, Certificates of Eligibility (COE) will be required for exports of clothing and textile goods that are eligible for tariff preference level treatment under the CUSMA upon entry into the US or Mexico.

Agriculture

Canada secured a number of beneficial outcomes for agriculture under CUSMA including:

• New market access in the form of tariff-rate quotas for refined sugar and sugar-containing products, as well as certain dairy products;
• A modernized Committee on Agriculture Trade, which will provide a forum for Parties to address issues and trade barriers; and,
• Obligations for agricultural biotechnology that will increase innovation, transparency and predictability.

The Government defended the supply management system from strong U.S. attempts to see it dismantled.

Autos

The revised automotive rules of origin require higher levels of North American content in order to incentivize production and sourcing in North America. The final outcome builds on the ideas that Canada put forward in early 2018 related to strengthening the North American production platform, reducing red tape, and increasing the use of North American parts, steel, and aluminum.More robust rules of origin for the auto sector will help keep the benefits of the agreement in North America and diminish incentives to make investment and sourcing decisions based on the availability of low-cost labor. The new agreement has the potential to generate increased automotive production in North America, including in Canada, as well as additional sourcing opportunities for Canadian parts producers. The Canadian advantage in the automotive sector has always been the strength of our highly skilled workforce, and our workers’ ability to produce high quality and reliable cars and trucks.

Facilitating trade in goods

NAFTA eliminated virtually all tariffs between Canada, the U.S., and Mexico, with very few exceptions. CUSMA maintains these benefits and ensures that the vast majority of North American trade will continue to be duty-free. Additionally, a new chapter on customs administration and trade facilitation standardizes and modernizes customs procedures throughout North America to facilitate the free-flow of goods. There are also important improvements to disciplines on technical barriers to trade that will make it easier for Canadian businesses to export goods within the CUSMA region.As a result of this agreement, Canada agreed to have de minimis thresholds for express courier import shipments of C$150 for duties and C$40 for taxes at the point or time of importation.

Dispute settlement

When it comes to disagreements, CUSMA builds on and improves the original NAFTA outcome by:

• preserving the use of binational panels to resolve disputes on anti-dumping and countervailing duty matters, which is critically important to preserving market access outcomes and defending Canada’s interests in trade remedy cases; and
• improving the state-to-state dispute settlement process of NAFTA to ensure that arbitral panels are formed to hear disputes and that the process is carried out in a transparent and expedient manner.

Labour

CUSMA includes a comprehensive chapter on labour, which is subject to dispute settlement. This chapter aims to level the playing field on labour standards and working conditions in the CUSMA region by ensuring parties do not lower their levels of protection to attract trade or investment. CUSMA also contains commitments to ensure national laws and policies provide protection for fundamental principles and rights at work.

Environment

CUSMA includes a comprehensive environment chapter, which is subject to dispute settlement and aims to level the playing field by ensuring parties do not lower their levels of environmental protection to attract trade or investment. It also introduces new commitments to address global environmental challenges, such as illegal wildlife trade, illegal fishing and depletion of fish stocks, species at risk, conservation of biological diversity, ozone-depleting substances, and marine pollution.For the first time in an environment chapter, CUSMA includes innovative environmental commitments to improve air quality and combat marine pollution. The Parties recognize the importance of these issues and commit to working together to address them.

Culture

As countries become more economically integrated, it is increasingly important that nations are able to preserve a strong sense of national identity and belonging.The modernized agreement preserves Canada’s cultural exception, which gives Canada flexibility to adopt and maintain programs and policies that support the creation, distribution, and development of Canadian artistic expression or content, including in the digital environment.This was a key element in NAFTA. It helps protect Canada’s unique identity and provides greater security for over 660,000 Canadians who work in industries such as publications, broadcasting, and the distribution or sale of books, magazines, film, video, and music.

Indigenous peoples

Throughout the negotiations, one of Canada’s objectives for CUSMA was to better reflect the interests of Indigenous peoples. To this end, Canada was able to secure important clarity in the form of a general exception related to the rights of Indigenous peoples. Canada also retained policy flexibility for Indigenous peoples and Indigenous-owned businesses, including in the areas of services, investment, government procurement, environment, and state-owned enterprises. Additionally, outcomes on the environment reflect the important role of Indigenous peoples, including in the conservation of biodiversity.

Trade and gender

Canada has made gender equality and women’s economic empowerment a key priority in its recent trade negotiations. Canada is further demonstrating its leadership on the issue by integrating gender-related provisions in CUSMA. This includes new labour provisions which require Parties to implement policies that protect against employment discrimination based on gender. Gender is also addressed in other chapters, including provisions related to corporate social responsibility, and small and medium-sized enterprises.

Energy

Provisions governing trade in energy can be found across the modernized agreement. This includes disciplines and provisions in the areas of national treatment and market access, rules of origin, customs and trade facilitation, and cross-border trade in services and investment.Importantly, the agreement no longer includes what was referred to as the energy “proportionality clause” – which had placed certain limitations on the ability of Parties to constrain the export of energy products. The lack of a proportionality clause in the new agreement is a reflection of the overall high level of energy security present in the North American market today.

Government procurement

Canada and the U.S. will retain access to each other’s procurement markets, including at the sub-federal level, through their obligations under the World Trade Organization’s Agreement on Government Procurement (GPA). The government procurement obligations between Mexico and Canada will be provided under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Intellectual property

Parties agreed to an updated, comprehensive chapter on intellectual property (IP), with obligations on copyright and related rights, trademarks, geographical indications, industrial designs, patents, data protection for pharmaceutical and agricultural chemical products, trade secrets and IP rights enforcement.

What do You have to do now to prepare for the CUSMA in 2020?

Pre-qualify your goods under the CUSMA rules of origin so that you are better prepared to claim goods when the new policy is underway in July.

Review process & ongoing modernization

CUSMA includes a requirement for a formal review of the agreement at least every six years. This new review process will help ensure the agreement remains relevant, effective and beneficial for North American workers. It will also help address issues before they become major challenges, and provide predictability and stability for Canadian consumers and businesses. While establishing that the agreement will terminate 16 years after entry into force, the Parties can agree to extend the agreement for a further 16 years after each regular review.