Companies that conduct business across borders in North America have likely heard of the CUSMA agreement. ‘CUSMA’ is an acronym for the ‘Canada-United States-Mexico Agreement’ that came into force in Canada during July of 2020. It is the largest free-trade region in the world, according to Global Affairs Canada. CUSMA generates economic growth and aims to raise the standard of living for citizens in all three member countries.
Before CUSMA, Canada, the United States, and Mexico abided by the North American Free Trade Agreement (NAFTA). This agreement allowed companies to ship qualifying goods to customers in the member countries duty-free, lifting tariffs on the majority of goods produced by these nations.
NAFTA increased trade, economic output, foreign investments, and better consumer prices for all three countries. However, this agreement was not without criticism. NAFTA critics expressed concern over the loss of manufacturing jobs in the U.S. and Canada.
CUSMA is essentially a revision of NAFTA, addressing some weaknesses and consequences from NAFTA that left critics, citizens, and employers concerned. In this article, we’ll discuss CUSMA’s origins, intentions, how it works, and what industry CUSMA affects the most.
What Is CUSMA?
Just like NAFTA, CUSMA aims to stimulate the economy of the three member countries by removing the red tape and obstacles that made foreign trading inaccessible or difficult. According to the Canadian Government, CUSMA liberalizes trade between the U.S., Mexico, and Canada by abolishing tariffs and other trade barriers.
This allows the markets in each of these countries to open up and ensure future laws will not create barriers for business. Unlike NAFTA, CUSMA provides key outcomes for Canadian businesses, workers, and communities regarding:
- Labour
- Environment
- Dispute resolution
- Agriculture
- Indigenous peoples’ rights
- Gender-related rights
- Automotive trade
What Does CUSMA Do?
Removing tariffs and limiting barriers for businesses to operate internationally amongst the three North American countries sounds attractive on the surface-level, but what does it look like in practice?
CUSMA facilitates temporary entry for business persons who are citizens of the U.S., Mexico, and Canada who are involved in the trade of goods or services or in investment activities. It also removes the need for a Labour Market Impact Assessment (LMIA) for business persons covered by the agreement.
For example, if you run a Canadian skincare company and employ account managers or representatives, your employee does not need a work permit or visa to enter the U.S. or Mexico if they are visiting for short-term work purposes. However, there are situations where professionals may be exempt from a temporary resident visa (TRV). CUSMA expedites the application process by ensuring applications can be made at the port-of-entry (POE).
CUSMA doesn’t apply to permanent residents of the three countries and does not assist in permanent admission. For more details about CUSMA and traveling between the countries, research what the origin criteria on CUSMA are, as they relate to you and your business.
Goals of CUSMA
At its core, CUSMA maintains all of the benefits of NAFTA. CUSMA adds new chapters on customs administration and trade facilitation that modernizes customs procedures throughout North America.
This allows for the free-flow of goods between these three nations. Many of these revisions target the agricultural and automotive industries, particularly in Canada.
Previously, the U.S. held certain security measures in place that made it difficult for Canada to ship or sell automobiles or their parts in the U.S. Canada was able to negotiate with the U.S. in the CUSMA agreement to see more flexibility in this area, which is a benefit to Canadian businesses.
CUSMA also includes a comprehensive chapter on labour, but that is currently subject to dispute settlement. Currently, this chapter aims to ‘level the playing field’ regarding labour standards and working conditions in the CUSMA region by ensuring all parties do not lower their levels of protection in order to attract trade or investment–something that NAFTA critics have been concerned about.
Other goals for CUSMA include:
- Environmental protections
- Protection of culture and Canadian identity
- Policy flexibility for Indigenous peoples and Indigenous-owned businesses
- Gender equality and women’s economic empowerment
- Protections on intellectual property
- Procurement market access retention
- Provisions governing trade in energy
CUSMA is a revised version of NAFTA, maintaining all of the benefits and perks businesses and citizens from involved countries and seeks to remedy issues with NAFTA.
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