Whether you produce, import, or export goods or services in Canada, the United States, or Mexico, you can take advantage of the Canada-United States-Mexico Agreement (CUSMA) to seek new markets and business partners within your supply chain.
Also referred to as the ‘United States-Mexico-Canada Agreement’ (USMCA) or ‘Tratado entre México, Estados Unidos y Canadá’ (T-MEC), CUSMA is a great opportunity for you to grow your international sales.
Every manufacturer, exporter, and importer in Canada is looking for ideas on how to get a CUSMA certification of origin and begin filing for preferential tariff treatment for their goods and services. In this post, we’ll explore how CUSMA works.
What Does CUSMA Do?
In 2018, the United States, Canada, and Mexico agreed to replace the North American Free Trade Agreement (NAFTA) with a new agreement that reinforces the robust economic relations between the three nations. The replacement was CUSMA.
CUSMA took effect in July 2020 for all member countries. This treaty contains many new and revised rules that are aimed at improving economic conditions for countries in the region. Like NAFTA, CUSMA retains access to the tariff-free market.
It also contains new and updated chapters aimed at addressing modern trade barriers and business opportunities. For instance, it offers key outcomes in different sectors, including:
- Labour
- Agriculture
- The automotive industry
- The environment
- Energy
- Agri-food
- Dispute resolution
Additionally, CUSMA contains information about gender and native people’s rights.
How Does CUSMA Work?
CUSMA facilitates trade in goods and services between the three member countries. This treaty introduces a new chapter on trade facilitation and customs administration, which standardizes and streamlines all customs procedures in the region to allow importers and exporters to more easily move their goods across borders.
The technical barriers experienced under NAFTA have also been improved, making it easier for businesses in Canada, the US, and Mexico to export their goods within the region.
Impacts on Agriculture
In the agriculture sector, CUSMA maintains the existing commitments between the three countries, bringing together a highly integrated industry in the region. Farmers in Canada can enjoy free access to new markets in the US and Mexico thanks to the new tariff rate allocations for products containing sugar, refined sugar, and specific dairy products.
CUSMA has also established a modernized committee on agriculture trade that’s mandated to provide parties involved with a platform where they can address different issues affecting the agricultural sector, including trade barriers.
To balance the agreement, Canada agreed to allow the US access to its market through tariff rate quotas for eggs, poultry, and dairy products. It also agreed to remove the existing milk classes six and seven, as well as estimate constituent prices for dairy products like skim milk powder, baby formula, and milk protein concentrates based on the US reference prices.
Impacts on the Automotive Industry
CUSMA contains revised rules of origin that particularly affect the automotive industry. These rules are set to incentivize the manufacturing and sourcing of automotive products in the region by eliminating the red tape to increase the use of locally available raw materials, like steel and aluminum.
For instance, this treaty has increased the regional value content threshold for automotive products like vehicles from the previous 62.5% to 75%. It has made the regional value content requisites for engines, transmissions, and other core auto parts stronger. For any automotive product to qualify for preferential tariff treatment, it must be produced using 70% of steel or aluminum sourced from North America.
Criticisms of CUSMA
What are the cons of CUSMA? One of the main drawbacks of CUSMA is that some partner countries, namely the US, complain that most of the steel passing through Canada does not qualify for CUSMA benefits but still receives them.
Furthermore, the new treaty didn’t eliminate the 10% aluminum and 25% steel tariffs imposed by former President Donald Trump’s administration, causing the cost of mining equipment and infrastructure to skyrocket. But in general, CUSMA offers better trading terms than NAFTA.
References:
- https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cusma-aceum/summary-sommaire.aspx?lang=eng
- https://www.canadianminingjournal.com/featured-article/pros-and-cons-of-the-usmca/
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