What the New USMCA Means for the Logistics Industry

Logistics Industry July 2, 2020

The new North American Free Trade Agreement (NAFTA) is here with a vengeance, and it’s called the United States Mexico Canada Agreement (USMCA).

First established in 1994, NAFTA went down in history as the world’s largest free trade agreement, between Canada, Mexico, and the United States, that eradicated tariffs on imports and exports between the countries.

NAFTA was successful at increasing trade, but many experts argued that an abundance of U.S. manufacturing jobs moved to Mexico, thus resulting in a renegotiation of the agreement and the birth of the USMCA on July 1, 2020.

Illustration of Canada, USA and Mexico flags

What are the 3 most significant differences between NAFTA and the USMCA?

1. Auto Manufacturing

In order to qualify for zero tariffs, 75% of vehicle parts must be made in Canada, Mexico or the United States.

Another qualification is that vehicle parts must be made by workers making over $16 an hour. This was implemented to boost manufacturing in the United States.

2. Agricultural Products

In essence, dairy farmers are receiving more market access. Tariffs will be kept at 0, which opens up the Canadian market to U.S dairy, eggs and poultry.

Also, the United States will generate more Canadian dairy and peanut products and reduce the amount of sugar that crosses the border.

3. Digital Trade

Since NAFTA was created in 1994, there needed to be an update for the digital era. The USMCA ensures stronger protection of trademarks and patents in areas like domain names, financial services and biotech, just to name a few.

What does this mean for the logistics industry?

If you’re looking for a number, it’s 33 billion. According to the U.S International Trade Commission, that is how much the USMCA is going to increase the annual U.S exports to Canada and Mexico. More goods crossing the border will mean the need for more supply chain management and cross-border logistics.

Isometric illustration of North America, depicting logistics shipping across the continent

What are the main clauses that will affect the shipping and logistics industry?

1. Online Documentation Processing

The new deal requires trade partners to submit all the necessary documents to a digital platform that all parties can access.

2. Digitalizing Regulations

All country’s rules and procedures will be easily accessible to ensure all parties are aware of the documents they need for cross-border trade.

3. Increase in De Minimis

The de minimis threshold determines which low-value parcels can be shipped across international borders tax-free, tariff-free, and with simple custom forms. Before the USMCA, Canada’s de minimis threshold was $20, so any international goods purchased by Canadians valued more than $20 were subject to customs taxes.

One of the biggest changes in the last 20 years is the surge in online shopping cross borders. Under the USMCA, Canada has agreed on a de minimis increase to C$150 and a maximum tax-free threshold of C$40. This helps transporters and small businesses increase trade without having to carry the load of additional taxes and duties.

4. Streamlining Compliances

Canada, Mexico and the United States must create import and export rules and regulations.

Due to the increased amount of freight transportation projected to happen under the new USMCA, this action to process goods through customs will become more efficient.

A major goal of the USMCA is to streamline how trade is conducted across all three borders. Canada, the United States and Mexico have agreed to use technology to release goods effectively and to integrate guidelines and procedures at all borders to process freight quicker. In the end, this should allow trucks to get across the border faster and more efficiently.

Canadian Logistics Partners You Can Trust

Are you looking for a trusted logistics partner? At Mckenna, our years of experience show through our performance. Our experts have studied the new USMCA agreement and can help you map out a strategy for all of your warehousing and distribution needs, across Canada and beyond.