The United States Mexico Canada Agreement (USMCA) goes into force in less than two weeks and is adding to an already challenging supply chain environment, as companies continue to deal with disruptions from the coronavirus pandemic. Logistics and transportation companies are at the forefront of helping shippers navigate the free trade agreement’s (FTA) rules, and they say bumps along the road are inevitable, but that the longer term outlook calls for smooth sailing thanks to the modernized deal, which replaces the 26-year-old North American Free Trade Agreement (NAFTA).
“Adjusting to any new regulations can be challenging,” said David Henry, head of operations in Mexico for freight broker and third-party logistics services provider (3PL) GlobalTranz. “Most shippers have had to make adjustments recently, due to the pandemic—and now with the clarification of USMCA requirements, they are making additional changes. However, looking to the future, once shippers have met the compliance standards, we anticipate more effective supply chain operations that will benefit companies throughout North America.”
USMCA—or CUSMA (Canada-United States-Mexico Agreement) as it’s known in Canada and T-Mex (Tratado entre México, Estados Unidos y Canadáin) in Mexico—takes effect July 1 and is designed to improve and increase trade flow among North America’s three largest trading partners. The deal raises the amount of content that must be made or sourced in North America in order to achieve zero-tariff levels for some items (the “rules of origin” requirement) and also addresses environmental, labor, and enforcement issues. Rules governing e-commerce and the digital economy are also key, experts say, as they were not addressed under NAFTA.
Looking ahead to July 1, Henry and others say compliance, documentation, and navigating an already complex supply chain are the main issues facing shippers engaged in cross-border trade.
Working toward USMCA compliance requires communication and a thorough review of the rule of origin that applies to a firm’s particular goods, according to Jeff Simpson, trade policy manager for transportation and 3PL C.H. Robinson. Because content rules have changed, companies can’t assume that what they were shipping on June 30 still meets tariff requirements on July 1.
“It is important that companies review the rule of origination for their goods under USMCA and don’t make the mistake of assuming it will qualify for USMCA if it qualified for NAFTA,” Simpson explained. “Companies need to actively communicate both internally and externally to ensure all affected parties will be ready on July 1… Talk to your broker to develop a collaborative SOP [standard operating procedure] to handle the new FTA and ensure they are ready to go as well.”
Henry points out that USMCA includes important changes to the rules of origin for specific industries, including automobiles, pharmaceuticals, chemicals, and cosmetics. He adds that businesses had been lacking final guidance on many issues until earlier this month, when the federal government published information detailing how the transition to USMCA will take place. The situation exacerbated an already challenging environment many companies were facing due to the Covid-19 pandemic, which created closures across supply chains.
“That is something that many industry leaders and private organizations were waiting on,” Henry said of the updated guidance. “[This tells us], specifically, how all this will take place. Having this now really allows for planning at a high level.”
The difference is in the documents
Kevin Doucette, director of North American trade policy and compliance at C.H. Robinson, says the transport of goods across borders should look relatively the same on July 1 as it does today. The key difference is in the documentation companies will use to claim USMCA compliance. The USMCA does not require a specific compliance form, as NAFTA does, and instead allows companies to make a claim in multiple formats, including electronically.
“Since this is not a formalized form … customs brokerage departments could have a difficult time determining where this information resides,” he explained, adding that “brokerage departments and customers should be collaborating on a [procedure] to ensure that a process is in place for a smooth transition. If not, you could see missed opportunities where a certification was present but a claim was not made or, conversely, a claim being made by a brokerage department with no certification in hand, [creating] a compliance issue.”
Henry agrees that initial disruptions may occur as companies work through the new processes and shift their supply base as needed based on sourcing requirements. He also agrees that communication and careful preparation will help ensure success amid the many other challenges facing the logistics sector.
“... shippers that are working proactively to address these challenges will be better suited for effective, compliant processes across their supply chains,” Henry said. “The pandemic continues to present challenges for shippers, especially now as the U.S. continues to reopen. We’re already seeing disruptions created by a combination of pent-up demand and the industry slowly coming back online. We’re working with customers right now to share daily market updates, and how market volatility is affecting capacity. We’re also navigating new routing guides to find opportunities in volume that didn’t exist before.”