9 FAQs About the USMCA
It has already been a month since one of the most competitive regions in the world, which together generated more than 25% of the world’s GDP in 2019, finally entered into the United States-Mexico-Canada Agreement (USMCA). Considering the complexity and scope of the agreement, we are still receiving a lot of questions from the business community. Here are 9 most frequently asked questions and answers related to the USMCA. Please reach out with questions or if we can help guide your plans.
- What is the USMCA?
- The United States-Mexico-Canada Agreement (USMCA) is a trade agreement between the three named countries. When implemented, it will replace the North American Free Trade Agreement (NAFTA).
- When did the USMCA enter into force?
- July 1, 2020. NAFTA preferential treatment cannot be claimed on July 1, 2020, or afterward.
- What are the main changes in the auto industry?
- The USMCA has impacted the auto industry in several different ways.
- One of these changes is an increase in Regional Value Content from 62.5% to 75%, which increases in stages over a period of three years.
- Another change involves Labor Value Content where 40-45% of the value of the imported automobile must be sourced from manufacturing facilities where workers earn at least $16 USD per hour. The U.S. Department of Labor performs the assessment of manufacturing facility eligibility, and the U.S. Customs and Border Protection (CBP) determines the value of the parts, the overall automobile, and the overall Labor Value Content.
- The third main change for the auto industry requires at least 70% of a vehicle producer’s annual steel and aluminum procurement must originate from North America.
- Will the USMCA impact end customers in the U.S.?
- If the automotive OEM is not able to comply with the Regional Value Content or Labor Value Content, they may be subject to a 2.5% tariff which will most likely be a pass-through for the end customer.
- What have OEMs done to prepare for the USMCA?
- OEMs have been revisiting their supply chain and asking for the net value content of each of the part numbers of their suppliers. This allows OEMs to calculate the regional value content and analyze shifting part of their supply chain in order to be compliant.
- Are there changes to the NAFTA Certificate of Origin?
- Yes, the USMCA does not require a specific Certificate of Origin as does the North American Free Trade Agreement. CBP Form 434 is not mandatory under the USMCA.
- How long will the USMCA remain in force?
- The USMCA will remain in force for 16 years; however, the USMCA requires a “joint review” of the agreement six years after entry-into-force. At this joint review, the parties will review the operation of this agreement, review any recommendations for action submitted by a party, and decide on any appropriate actions.
- Which industries will have the most impact due to changes from the NAFTA to the USMCA?
- The auto industry will have the most impact since the USMCA contains new criteria for rules of origin along with provisions related to Regional Value Content, Labor Value Content, and Steel, and Aluminum. Other impacted industries include manufactured goods, textiles, and apparel.
- How can I obtain my USMCA Certificate of Origin form?
- There is no official Certificate of Origin for the USMCA, as there was for NAFTA. USMCA requires a “Certification of Origin.” Any format is acceptable, provided it contains the following nine minimum data elements set out in USMCA, Annex 5-A:
- Importer, Exporter, or Producer Certification of Origin
- Description and HS Classification of the Good
- Origin Criteria
- Blanket Period (if applicable)
- Authorized Signature and Date
If you need help navigating the new USMCA or have any unanswered questions, click here to contact us. You can also view our recent Coffee & Conversation: Mexico video for more information about the USMCA and its impact on OEMs.