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USMCA Impact on the Manufacturing Industry

The United States, Mexico, and Canada USMCA have reached an agreement to modernize the 25-year-old NAFTA into a 21st century, high-standard agreement. The new United States-Mexico-Canada Agreement (USMCA) will support mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth and impact on the manufacturing industry in North America.

The USMCA will enter into force on July 1, 2020. It is very important to consider that as of July 1, 2020, all NAFTA certificates of origin will no longer be valid for any preferential tariff rates under the new USMCA.

It is mandatory for all companies that currently use the NAFTA preferential tariff benefit to verify that their products qualify as originating under the new requirements established as per Annex 5-A, Chapter 5 of the USMCA. Therefore, assuring that preferential tariffs can continue to be applied once the agreement enters into force.

There is no official USMCA format for the certification of origin. Such certification can be done on the commercial invoice or any other document, as long as the minimum information requirements detailed in Annex 5-A of the USMCA are met.

In this regard, according to our experts Manuel Ponce, International Trade Compliance Director, and Maria Elena Sierra, Director of Operations of Grupo Prodensa, these are some key insights of the USMCA Impact on the manufacturing industry.

KEY INSIGHTS

  • The certificate of origin format is eliminated.
  • Certification is permitted on the commercial invoice or any other commercial document declaring the minimum required information. (Only for commercial invoices generated within USMCA countries).
  • Filled out and sent electronically, electronic or digital signature is accepted.
  • English, Spanish or French.
  • Valid for four years from the date of issue.
  • Operates under a certification outline.
  • Applicable for a single or multiple shipments of identical goods within any period specified, not to exceed 12 months.

AUTOMOTIVE SECTOR

  • Regional Value Content (RVC)
    – Up to 75% For Passenger Cars and Light Trucks
    – Up to 70% for Heavy Trucks
  • Labor Value Content: 40% of vehicles must be produced in an area of high wages (minimum of US $ 16 per hour).
  • Steel & Aluminum: at least 70% must originate in North America.

Otherwise, vehicles that do not meet the ROO may be exported by paying the 2.5% Most Favored Nation tariff, currently applied by the US.

  • Progressive over the next three years.

IMPACT TO THE COMPANIES

SUPPLY CHAIN

  • Reshape of your supply chain, optimizing operations through USMCA and any other Trade Agreement applicable.
  • Possible need to develop Suppliers that are compliant with USMCA.
  • Supply Chain transformation (beware of a probable increase in costs and administrative burden for a certain period of time).

INTERNATIONAL TRADE COMPLIANCE

The USMCA aims to facilitate trade but is also raising awareness for auditing and compliance processes:

  • Evaluate recordkeeping practices to ensure you are able to provide evidence of full USMCA compliance in the event of an audit.
  • Not only regarding rules of origin but all trade and customs regulations.
  • Use Advanced Rulings for the certainty of your trade operations.

INFORMATION TECHNOLOGIES / DIGITAL TRANSFORMATION

  • MRP Systems aligned and unified to trade compliance procedures.
  • Development of Interfaces for procedures and formalities of import/export.

USMCA is now a real thing; we must be ready and take immediate action to support our procedures and processes to avoid any risk from the Trade Compliance standpoint and strengthen the supply chain capabilities and infrastructure.

For further information on the manufacturing footprint, you can contact us here.

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