With the U.S.-Mexico-Canada Agreement (USMCA) in place effective July 1, 2020, many U.S. small- and medium-sized enterprises (SMEs) are questioning how the new agreement can or will impact their business. This article will explain the USMCA changes on the regulations for exports of web sales into Mexico and Canada (also known as de minimis). De minimis changes present new opportunities for some U.S. SMEs to take advantage of Canada and Mexico trade.
The USMCA is a free trade agreement between the United States, Canada, and Mexico and it maintains the guidelines for trade between the United States, Canada, and Mexico. The USMCA that took affect on July 1, is an updated version of the North American Free Trade Agreement (NAFTA), which came into effect on January 1, 1994. Other names for the USMCA are “NAFTA 2.0” or “New NAFTA.”. The goal of the USMCA was to create a more free trade environment between the United States, Canada, and Mexico, by creating more balanced, reciprocal trade between the partners.
There have been many changes to North American trade due to the USMCA. De minimis changes, specifically, may have the most impact on some U.S. SMEs.
Duty and tax is placed on goods imported from a foreign country that exceed a certain value. The value threshold for this duty and tax is called de minimis. USCMA increases the NAFTA de minimis threshold from 7%, to 10%. As a result, a good shall be considered of USMCA origin even when it fails to qualify as such under the relevant Rule of Origin, as long as the value of all non-originating materials used in the production of the good does not exceed 10% of either the transaction value or the total cost of the end product.. The primary reason for this increase in de minimis is due to the recent growth of e-commerce trade. These changes only apply to express shipments. Shipments handled by the U.S. Postal Service remain unchanged.
Many U.S. SMEs often lack the funds necessary to pay customs duties and taxes that low de minimis levels enforce due to their smaller trade volumes and lower-value shipments. The increase of de minimis thresholds makes importing goods from Canada and Mexico much more affordable for U.S. SMEs with shipments that do not exceed these levels. U.S. SMEs who are currently utilizing overseas suppliers and absorbing tariff costs may stand to benefit from utilizing Canada and Mexico suppliers due to this change.
In addition to eliminated duties and taxes, imported goods from Canada and Mexico that do not exceed de minimis thresholds have reduced compliance costs and complexity at customs. These imported goods now have a reduced probability of being held at the border, which will result in fewer delays and more on-time deliveries. Imported goods must still satisfy all regional content requirements and all other applicable regulations, to qualify as originating.
De minimis thresholds are just one of many changes from the previous NAFTA agreement. U.S. SMEs should review all provisions of the agreement given the changes to the U.S.-Mexico-Canada trade as a result of the new USMCA in place. U.S. SMEs should perform cost-benefit analyses to determine if they can benefit from the provisions of the USMCA, as it may be more cost efficient to begin utilizing Canada or Mexico suppliers in place of absorbing tariff costs from overseas suppliers. If U.S. SMEs are currently utilizing Canada or Mexico suppliers, companies should ensure that the goods they are currently receiving have maintained their qualification under the USMCA provisions in order to be eligible for the benefits.
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