‘CUSMA’ and ‘USMCA’ are acronyms for the new trade agreement between the United States, Canada, and Mexico–NAFTA 2.0. ‘NAFTA’ stands for the North American Free Trade Agreement, which eliminates barriers for trade and investments between the three countries.
While the agreement is between the three countries, each refers to it differently, with the US calling it ‘USMCA.’ In Canada, this trade agreement is commonly referred to as ‘CUSMA,’ while in Mexico it is known as ‘T-MEC.’
Irrespective of the country you reside in, these acronyms refer to the same thing. Aside from the varying acronyms, is there any difference between CUSMA and USMCA? Read on to find out.
What Is CUSMA?
‘CUSMA’ is short for the ‘Canada-United States-Mexico Agreement.’ This trade agreement came into force in July 2020 after three years of negotiations. These negotiations revolved around new tariffs and the existing trade disputes between the three countries.
The creation of CUSMA was informed by the trading hurdles experienced by the three countries under NAFTA. For instance, CUSMA offers new rules of origin that simplify the import-export strategy adopted by the three countries.
Rules and Regulations Under CUSMA
Under CUSMA, each manufacturing input must qualify under its specific rule of origin. Some of the rules of origin contained in CUSMA are completely new while others are revised. These rules have directly impacted those in the manufacturing sector, particularly in the automotive industry.
There are two main rules of origin in CUSMA that have directly affected the automotive industry: the regional value content and the labour value content.
The regional value content rule of origin stipulates that at least 75% of all inputs used in the manufacturing of an automobile or automobile components should be produced in any of the three-party countries for the product to qualify as ‘made in’ the region.
Any product that qualifies for the regional value content is exempt from duty at the border. Under NAFTA, the regional value content condition was 62.5%. This treaty has also raised the minimum requirement of automobiles being traded between the three countries to be manufactured using at least 70% of steel and aluminum produced in North America.
The labour value content rule stipulates that 40% of an automobile’s overall value should be produced by workers earning a minimum of $16 an hour. Manufacturers who fail to comply with these rules of origin will suffer losses because their automobile products will lose their duty-free status at the border.
Do you need a CUSMA form? Under NAFTA, it was mandatory to use a specific format when claiming preferential tariff treatment, but CUSMA has eliminated this requirement. However, you need a certification of origin to file this claim.
CUSMA’s Longevity
Unless it’s extended, CUSMA is expected to expire in the year 2036. However, the party nations agreed to review the trade agreement every six years for continued relevance. This review will ensure that the treaty is properly aligned with the ever-changing trade environment.
What Is USMCA?
USMCA was established in July 2020 as a substitute for NAFTA. This treaty is an equally beneficial agreement for North American traders and workers as it creates a balanced and reciprocal trade environment.
This trade agreement is aimed at supporting high-paying employment opportunities for North American workers and ensuring there is continuous growth of the economy in the region. The US considers USMCA as a major milestone in its efforts to protect its intellectual property and secure trade opportunities for its citizens.
USMCA introduces new chapters on Digital Trade, Anti-Corruption, Good Regulatory Practices, and the inclusion of Small and Medium-Sized Enterprises in the trade agreement.
In Summary
As noted above, both CUSMA and USMCA refer to the same trade agreement. So, the only difference is in the characterization. The two agreements contain similar rules of origin. However, the new agreement offers some new rules of origin and revised some that existed in NAFTA, so you should review the new rules to know if your product qualifies for duty-free claims under the new treaty, even if it previously qualified under NAFTA.
Lastly, both CUSMA and USMCA agreements were created to level the playing field by offering favorable rules of origin and discipline in handling different currencies from the three member countries.
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