USMCA enters into force: What companies need to know

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June 2020

Overview

The United States-Mexico-Canada Agreement (USMCA) — the replacement for the North American Free Trade Agreement (NAFTA) — enters into force on July 1. The new agreement maintains a free trade relationship among the North American countries and officially ends a period of trade uncertainty in the region. At the same time, USMCA reflects significant changes to the NAFTA treaty that had been in place since January 1994, and it creates new questions of its own.

One important aspect of USMCA applicable to all three countries relates to certification of origin. USMCA Annex 5-A establishes nine specific requirements that every certification of origin must contain. Companies already should have the certification of origin templates that they are going to use or require their suppliers to use. Conversations among producers, exporters, and importers regarding certification should be a priority at this point. 

Note: The agreement is referred to differently by each signatory. In the United States, it is called USMCA; in Canada, it is officially known as the Canada–United States–Mexico Agreement (CUSMA) in English (though generally referred to as USMCA in English-language Canadian media) and the Accord Canada–États-Unis–Mexique (ACEUM) in French; and in Mexico, it is called the Tratado entre México, Estados Unidos y Canadá (T-MEC). This Insight will use USMCA.

The takeaway

USCMA contains traps for the unwary, and there are significant overall changes as well as many country-specific changes. It is important to remember that free trade agreements like USMCA create a conditionally free outcome; to take advantage of its benefits, specified requirements must be followed. Just as with NAFTA for the past 26 years, companies will have to analyze the new procedures and follow the guiding regulations to obtain the benefits that USMCA offers. This process will start on July 1, 2020, but will continue for weeks and months as both companies and the various customs agencies become more familiar with the new processes.  

Significantly, USMCA’s entry into force represents a major victory for the North American market. Since January 2017, the threat that NAFTA simply would come to an end was a real and pervasive concern. The US International Trade Commission projects that USMCA by itself will raise US gross domestic product by 0.35% in coming years.  

Finally, USMCA passed the US House (385 to 41) and the US Senate (89 to 10) by large margins, giving it a potential political stability that its predecessor lacked. Whether that strong foundation lasts will depend in large measure on the extent to which it is seen as a success, which in the first few months will depend on ease of compliance. Governmental agencies and companies alike will have a stake in establishing and employing USMCA’s new rules and regulations to best effect.

Contact us

Anthony Tennariello

Customs and International Trade Co-leader, PwC US

Maytee Pereira

Managing Director, PwC's Customs and International Trade Practice Co-Leader, PwC US

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