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USMCA TRADE AGREEMENT UPDATES AND CHANGES

 * Ben Thompson
 * September 29, 2020

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HOW THE USMCA TRADE AGREEMENT WILL AFFECT SHIPMENTS BETWEEN THE USA, CANADA AND
MEXICO.

The USMCA trade agreement came into effect on the 1st of July 2020, replacing
the old NAFTA agreement.  The new agreement brings updates and changes to Origin
requirements and classification for goods being shipped between the USA, Canada
and Mexico.

In this episode Christopher Wall from Zeus Logics gives insight into the USMCA
trade agreement pros and cons and other important information that shippers must
be aware of.  Chris explains how the trade agreement has affected the Origin
Criterion requirements and how products are classified under the new deal.

Under the new USMCA deal, the old NAFTA Certificate of Origin document is not
required, however shippers must provide key data elements which can be provided
in different formats.  Details are evolving over time and Chris explains how the
US Customs & Border Protection (CBP) have created chatbots to help provide
answers and information.



TOPICS COVERED:

 * Updates and changes to tariffs and de minimis threshold for USMCA trade
   agreement
 * No new tariffs on zero-tariff goods
 * Changes to Origin Criteria when determining country of origin of products and
   increased percentage of originating components
 * The old NAFTA Certificate of Origin document no longer required, Chris
   explains the key data elements that must be provided
 * How Zeus Logics are providing insight and visibility into the shipping and
   customs clearance process

The USMCA will affect shipments between the USA, Canada and Mexico.



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ARE YOU WORKING ON INNOVATIVE SOLUTIONS FOR THE SUPPLY CHAIN? CONTACT US TO
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READ FULL INTERVIEW HERE:


BEN: 00:07

Hi, everybody. It’s Ben Thompson here, and welcome to the Import Export podcast.
Today, we’re talking about the new USMCA Trade Agreement. If you’re involved in
shipping goods between USA, Canada, and Mexico, then you’v eprobably already
heard of the new USMCA Trade Agreement that has replaced the old NAFTA trade
deal.

On today’s show, we’re joined by Chris from Zeus Logics. Chris is a specialist
in American customs brokering and customs clearance and today, we’re going to
discuss what the new USMCA agreement means and important things that shippers
should be aware of. Chris, welcome to the show.


CHRIS: 00:43

Thanks, Ben, nice to be here.


BEN: 00:46


So, before we get started, Chris, can you tell me a bit about the experience
you’ve had in the shipping industry and how that’s led to the work that you’re
doing at Zeus Logics?


CHRIS: 00:56

Let’s see. I started out being essentially an investor into several 3PLs and
freight forwarders. And, along that entire time just noticed that technology had
not been keeping a pace in the logistics world with what you could find in even
the most basic consumer-grade applications.

This sort of all came to a head when I went to go take a look at one company we
were doing due diligence on and found an employee who was hunched over a
photocopier trying to arrange three pieces of carbon copy paper, that at one
point in time had been a bill of lading. The carbon copy was missing little
chunks in it, and it was impossible to figure out what some of the important
numbers were on the document.

I didn’t know much about the document myself. And, when I asked that employee, I
said, “Well, maybe, is this an important document?” She said, “Oh, very
important.” And the employee tried to fax it, fax a carbon copy paper through an
old fax machine without putting it in the sleeve. And, I don’t know, maybe five
percent of the document was missing and, looking at this, it just occurred to me
that there was a lot that needed to be done if we’re going to bring the
logistics and supply chain management world up to the 21st century. So, that’s
sort of been my start, mostly dealing with forwarders, technology, and process
improvement.


BEN: 02:27


Yeah, and I guess, nobody misses the days of faxing bill of lading. I think the
industry has come quite a long way since then, but obviously, has quite a lot
more potential as well to improve even more processes. So, by now, obviously the
USMCA agreement has just come into effect as of the 1st of July in 2020. So
today, I wanted to give listeners an overview of some of the important changes,
and how that will actually affect shippers and their shipments.

Can you start by letting us know what are some of the key changes and that
shippers should be aware of with this new trade agreement?


CHRIS: 03:15

So, a couple of things. You may see slightly different names for this agreement.
In Canada, it’s called CUSMA. And in Mexico, it’s called T-MEC, T-MEC. So,
sometimes, you’ll hear of slightly different names being used. In terms of the
context in which the USMCA fits within current sort of norms in global trade
agreement structuring, it borrows heavily from the TPP agreement into which the
U.S. was originally a sponsor of, but did not enter into following the election
of President Trump.

And, a lot of the methodology, rules, and techniques applied in evaluating
things are likely to find themselves into future trade agreements. So, becoming
familiar with the mindset that has been used in this could be helpful in
understanding future trade agreements.

One new thing that will be a relief to many people is that there are no new
tariff items specifically being done. Most of the substantive changes have to do
with rules that define how different items are evaluated, assessed, and
categorized. That obviously leaves, they say the devil is in the details, and
this really gets into a lot of details.

So, there are a great many things that have changed, and it’s also important to
note that this is still an agreement. It’s a bit of a work in progress, so you
can expect to see a lot of things that are ill-defined right now that will be
defined over the next few years. I guess, if we can look at– If I would divide
up the changes that have occurred, I’d say most of them are rule-based and not
tariff-based would be one key takeaway.

So,you might, for example, find that there have been rules that have increased
access for dairy farmers and poultry farmers in the U.S. into the Canadian
market based on how things are categorized or classified. But, you’ve also
had,on the other hand, restrictions placed on certain kinds of goods that used
to be imported tariff-free, now have to have a higher percentage of
manufacturing or value-added done in North America. So, it used to be that goods
that were imported tariff-free into the trade zone could have had up to 62.5% of
the work or the value that was done added in outside of the NAFTA zone.

The new regulation states that 75% of the changes, additions, or
transformations, and also to some extent, the raw materials, must originate from
within the treaty zone. This also is going to change a fair number of things in
how you have to source goods where the materials are coming from, where they’re
processed, and will actually be fairly meaningful in its change in supply
chains. What might appear to be a mere 7.5% increase in the North American
content of the goods might invalidate a very, very large number of previous
products that were exempt from duties.

So,another change that’s occurring is that in an automobile, for example, 40% of
the parts need to be manufactured by employees who are making north of $16 per
hour. This will obviously be raising the cost, and is obviously designed to
favor countries that have higher labor costs against those that have lower labor
costs to reduce the value of that arbitrage in global trade. Again, these aren’t
specifically new tariffs but the rules in which things are being interpreted are
quite important. Any questions so far?


BEN: 07:39

That’s good. That’s a good insight into a few things. Are there any other points
that shippers should understand when it comes to determining the origin
criteria?


CHRIS: 07:53

So, you tapped on one of the other really, really big changes. Previously, under
NAFTA, only exporters and the producers or manufacturers could complete the
official certification of origin forms.

And, this defined whether good was eligible for the preferential treatment and
duty exemption based on where it was from, where the manufacturing work was
done. Under the new rules, importers can also provide that data and that means
that you, as a party receiving product, can certify that the information is good
and that it qualifies.

This opens up possibilities for certification based on a company that may be
importing things from several different manufacturers and certifying that each
of them are valid. It facilitates the process a little bit on the importer’s
part. The old forms are no longer being used, and the new way of bringing in
data is much more flexible.

For example, you can now certify data using information gleaned from commercial
invoices, packing list, bills of material, and other less formal documents than
official government documents and forms you have to fill in. Do note that you do
have to keep that documentation for five years. So, if you’re using a packing
list to certify where something came from, make sure you hold on to that packing
list or that you have some organization that’s taking care of that for you, as
you wouldn’t want to have your vendor go out of business or lose contact with
them and receive a customs audit four years later and end up having to reimburse
or pay additional duties because you weren’t able to document this.

As with many things as customs becomes more and more electronic, you can expect
to see additional and further inspection of items in a more targeted way. So,
it’s going to be important to make sure that you have strong in-house processes,
at the same time as you benefit from more flexibility on who can submit
information.

One of the other sort of changes that we’re seeing that is particularly
applicable to e-commerce is that the de minimis thresholds for the point at
which you are exempt from duty has been increased almost universally across the
board. These days in Canada, you have up to a 40% duty and tax-free exemption.
So, that means that from up to CAD$40 import value, you pay no duties. From
CAD$40 to CAD$150, the items are duty-free, but the value-added taxes, both the
provincial and federal will still apply. And, above CAD$150, both duty and taxes
will apply. But, this is still nevertheless erasing from previous amounts and
should greatly facilitate things for people who are doing e-commerce shipments.

Mexico also has an increase in their de minimis standards. So, up to $50, U.S.
is duty and tax-free into Mexico. And, from $50 to $117, U.S., is duty-free, but
taxes will apply. And above $117, U.S., duties and taxes will apply for packages
coming into Mexico. If, for example, you’re importing fairly small value items
via parcel, this obviously opens up and allows you to import additional things
at low cost without running through the customs clearing process or having to
worry about how you’re going to pay duties.

In the U.S. now, the amount at which goods can be brought in duty-free and
tax-free is $800. Which is a fairly substantial amount and should open up a
potential for a lot of people to bring in goods into the U.S. parcel goods.
Whether it be from almost globally for fairly high-value goods, and probably
reaching the limit of the great majority of e-commerce type shipments. So, we
think overall, a great facilitation and what can be done and a big boost
toe-commerce which is seen, obviously, a big upsurge in the past six months if
you will.


BEN: 12:19

Yeah, there’s quite a few changes there by the sounds of it. And, back to your
point on, there’s more flexibility now around shippers, around the documentation
for these certificates of origin. So, the NAFTA certificate of origin document
is no longer required. But as you said, the data elements can be shared in
different formats, whether that be commercial invoices, or packing lists, or
other documentation. What are the key data elements that are required by
shippers to include in their documentation to ensure that they’re meeting these
requirements of the trade agreement?


CHRIS: 13:05

So, yes, it’s true that any format is acceptable for submission and we still
need to see what their preferred format will be. I suspect that sooner or later
there will be a few methods of submission that are always more expedited if you
will and others that are drawing more attention. But, whatever format you use,
you need to provide nine points of information.

You need to provide who the certifying authority is. In other words, is it an
importer? Is it the exporter? Is it the producer or manufacturer? You need to
certify who the certifying party is. Then, you need to provide the certifier’s
information, identity information. Their name, a copy of their signature on
whatever document is being offered for certification, their title, their email,
their phone. Basic contact information, such that if customs authorities want to
reach the person for clarification, they know who to go back and speak with.

You also assuming that the exporter is different than the certifier, you also
need to provide all the contact information that you would typically provide for
customs information on an exporter. Namely, what the name of the company is,
what their address is, who the responsible person is for signing documents, and
anything that would allow the government to go back and try and make sure that
they understand who the exporter is and make sure that their party that they
believe is acting in good faith.

You also need to come up with information on who produced or manufactured the
goods. Again, similar information, name, signature, title, addresses,eventually
tax ID numbers. That could also be a helpful way to triangulate information in
there.

Then, you need to specify who the importer is. Where’s the merchandise going to
end up? Who’s going to be the end-user? And then, as often in the customs world,
you need to provide a basic description and harmonized system classification or
HTS code, information on the good being imported. And then, this is a little bit
new. You need to provide the origin of the raw materials, as well as where the
transformative labor was done. In the past, the origin of the raw materials was
not looked into nearly as much as the transformative value of it. So, we’re not
100% sure yet how this is going to work. But, if your materials were sourced
outside of North America, outside of the USMCA trade zone, this will also impact
whether goods are eligible for preferential treatment or not.

Then, if you’re the certifier, you also need to provide a date for the period at
which you certify that these goods are being imported and subject to the
exemption. This is referred to as the blanket period. And, the use of
identifying a blanket period that goes beyond one shipment is, you may be
sourcing goods from the same provider or the same group of providers and you may
want to state that you’ve made sure that the origins of the goods make them
compliant with the USMCA preferential treatment. So, if you say, for example,
that [IV importers certify that I know that these shipment of bowling balls
coming from this company in Canada is, in fact, valid and suitable for
preferential treatment. And, I know that this will be the case for six months
because I have an ongoing contract with them, or we have an agreement about
where all the sourcing is coming from, you need to state that period for which
you’re certifying that it’s correct.

And also, you will need to provide an authorized signature and date of all the
for the authorizer and make sure that you identify yourself as being a person
who’s authorized to sign on behalf of the certifying company. Typically, this
person will be a person who’s been either officially designated by a company
board, an officer of the board, I’m sorry, a director of the company and
basically aboard member, or an officer of the company that’s certifying.


BEN: 17:25

Okay, great. So, a few changes there. And, some have said that the USMCA may
just be a rebrand of NAFTA, but it sounds like there’s quite a few changes that
have already come into place and that even more changes over time will keep
being introduced. Do you see any surprises coming up down the road or any other
changes that maybe are in discussions now that could come up in future?


CHRIS: 17:54

Well, I think that, again, that we’re dealing with an evolving treaty, an
evolving agreement, and there are a lot of things that have been left
undetermined. When laws are written, no matter how many pages of text to go into
the law, there are always areas that have to be tested out in the real world,
some of them have to be tested through courts.

For example, right now, there’s a case between the Mexican Supreme Court to try
and determine whether Mexican companies can be forced to disclose the price of
labor for purposes of making sure that automotive parts are 40% produced by
workers making $16 an hour. This is the kind of thing, that ultimately, has to
run its way through the courts, and is very, very difficult to put in place
ahead of time just by the sheer nature of the complexity in dealing with
multilateral trade agreements.

Already dealing with one country’s laws is complex enough. If the complexity of
dealing with a single country’s laws is one to the power of one, and then now
you have to add in one bilateral trade partner, so it’s not one to the power– n
to the power of one. You add another one’s n to the power of two,and then you
add in the third person, now it’s n to the party of three.

And then, you start adding in any other number of regulations that could apply.
So, there’s going to inherently be a lot of complexity in administering this
process. So, there’s a lot of areas in flux. And again,there’s no new tariffs
per se, but the rule changes mean that we’re going to have to adapt how we
evaluate goods, the processes we put into place. And eventually, we’ll have to
learn about what the new enforcement mechanisms will be, as these will also
evolve over time.

It’s sort of interesting to note that the U.S. Customs and Border Patrol was
receiving so many questions about this very topic. What are the new rules that
they put in place a chat bot to be able to answer the questions. And it appears
that they’re putting in place quite a few more chat bots to answer questions
about other things as they were quite successful with having some of the more
basic and simple questions explained. It’s nice to see positive change when it
comes to customer service in that way.

Trying to understand other areas that are still in flux. Let’s just say, Mexico,
decides that it is unconstitutional in Mexico to require companies to state what
their price of labor is. Well then, companies in the U.S. might say the same
thing, and companies in Canada might say the same thing. So, you could have,
based on the outcome of this case in Mexico, there could be a whole bunch of new
rule-making that is put into place.

One other area where there’s a little bit of uncertainty surrounds, for example,
the new aluminum tariffs that were recently announced. There was a national
security-driven imposition of a 10% tariff on Canadian aluminum into the U.S.
for a little while. Invoking national security is a somewhat new thing when it
comes to raw materials imports, or base, or metals imports. But, it’s been done
now, it could be done again, it’s a big precedent and we have to be prepared for
tactics like this being used again.

We don’t know if it will be used. It could just as easily be invoked by Canada
or by Mexico, and we have to be prepared for somewhat unusual and new ways of
dealing with trade negotiations that seem to be a little bit the hallmarks of
our times. Another area I would be paying attention to try and understand how
things have changed really relate to the origin of material. This is a bit of a
new place for us to try and understand what the impacts maybe and is obviously
very, very different from NAFTA.

So, I guess to sum things up, there are the idea of a North American trade zone
carries over the idea that there is incentive for three countries that share
borders and share high degrees of industrialization. To work together is carried
over, but the rules are being rewritten to try and reflect the new aims of the
administration and the negotiators in place. So, I’d say that we’re dealing with
a substantively new treaty, rather than just a rebrand.


BEN: 22:41

Yeah, absolutely. That sounds to be already quite a lot that’s been done, a lot
of changes. And, as you said, moving forward, there’s a lot of variables there,
there’s a lot of countries involved, there’s obviously International law and
people wanting to question different rules and laws. And,maybe those things will
change over time. It’s definitely something that shippers need to be aware of
because as things change, if a regulation or a requirement changes when it comes
to you being the company that’s shipping the goods between these countries and
you’re not aware of them or you’re not supplying the right information or
paperwork or communications, well then, you could be faced with higher import
duties or delays and things like that. So, it sounds like there’s still a lot
more to come, and hopefully it’s communicated well, as you say that it sounds
like the CBP are doing a bit better job at communicating these changes and
hopefully that keeps coming to keep the whole industry aware. So, tell me a bit
about the work that you guys are doing at Zeus Logics in the customs clearance
process?


CHRIS: 24:06

So, our approach has been to look at the world of global trade starting with
imports into the U.S.  Primarily, it’s a large market and the rules are rather
complex. And, the information collection process is rather difficult. Our work
is towards giving importers and their business partners in the supply chain
clear visibility on what’s going on into their customs process, rather than
having everything be in the hands of a customs broker or a freight forwarder.

Customers that come and work with us, have single-point visibility into their
processes, they can see which documents are required, which documents have been
uploaded, they can view the actual documents that have been uploaded. They can
see when they’ve been uploaded, what the status of processes is.

And, when something goes wrong with the customs clearance process, if something
goes wrong on a Friday right before the weekend, the customer, the importer
might not be find out about it from their customs broker until midday Monday.
That hold arrived right as goods were coming in, whether it be by air freight or
even by ocean, and you’ve already burned through like through two days of
storage before you even found out you had a problem to solve. It’s going to
generate delays in your supply chain as well as additional fees and expenses.
And nobody really likes having their goods delayed.

So, most of our work goes towards providing visibility and understanding into
your supply chain, so that you can avoid problems in advance. And, rest assured
that all the documents you need and all the forms you need have been properly
submitted.


BEN: 25:50

Yeah, absolutely. It’s definitely a part of the supply chain which needs more
visibility. As you said, if there’s nothing worse than being aware of a problem
late or not at all. And, racking up quite a lot of demurrage charges or whatever
it may be, and just having absolutely no idea that these things are going on or
where the problems happen within the process along the supply chain. So any work
that’s done in that process is only going to be great for the industry. So, it
sounds like you guys are working hard in that area, and I hope it comes along
quite strongly, and shippers should embrace it I think.

Well look, thanks very much for the chat today Chris. I think you’ve given us
quite a good insight into the new trade agreement. And as you said, it’s new and
it is ongoing, and it’s important that shippers keep up to date with any of
these changes that may come up in future so that they avoid those issues. So, I
think you’ve given us quite a lot of insight and appreciate your time today,
thanks for joining us.











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