In September 2018, The United States, Canadian, and Mexican governments announced a new trilateral free trade agreement. As of March 2020, the agreement, known as USMCA or CUSMA, is approved by all three nations and is set to effectively replace the previous agreement, NAFTA.

The USMCA’s main goal is to implement a free-trade system that accommodates for the digital era. The agreement features several key changes that make it different from and a notable improvement to NAFTA.

What Is NAFTA and What Does It Stand for?

Prior to the introduction of the USMCA/CUSMA, the North American Free Trade Agreement (NAFTA) was in place to help reduce trade costs, increase investment opportunities, and enable North American nations to play a more integral role in the global marketplace. The agreement came into effect in 1994.

Like the newly approved USMCA, NAFTA is an agreement between Canada, the U.S., and Mexico, with the goal of liberalizing trade between the three countries.

What Is USMCA/CUSMA and What Does It Stand for?

The new agreement is known in the U.S. as the United States-Mexico-Canada Agreement (USMCA) and worldwide as the Canada-United States-Mexico Agreement (CUSMA). The main goal of the USMCA/CUSMA is to modernize free trade between the three countries and make some necessary updates to rules of origin and processes around North American trade.

How Are NAFTA and USMCA Different?

There are some main differences between the USMCA and NAFTA that will make the USMCA a more ideal replacement for NAFTA.

De Minimis

One big change was the threshold for duty-free entry of low-value goods into each of the three countries. The new de minimis include:

•  Canada: $40 CAD for taxes and $150 CAD for customs

•  U.S. – $800 USD

•  Mexico – $50 USD for taxes and $117 USD for customs

Certificate of Origin

Unlike NAFTA, the USMCA won’t require importers to complete a formal certification document. Instead, importers, exporters, or producers can use informal documentation including commercial invoices. However, under the USMCA, previous NAFTA certification documentation and certificates will need to be kept for at least five years.

Improved Dairy Market Access

The U.S. dairy market will benefit from access to another 3.6 percent of the Canadian dairy market. The USMCA also removed restrictions on imports of ultra-filtered milk into Canada from the U.S. Canada further benefits from keeping the dairy supply management system currently in place, which maintains limits on imports of foreign dairy products.

Automotive Changes

The North American auto industry will also benefit from the changes made in the USMCA. For example, the agreement requires 75 percent of a vehicle’s parts to come from North America, an increase from the 62.5 percent rule in NAFTA. In addition, 70 percent of all glass, aluminum, and steel automotive fabrication materials must come from North America. Workers who help produce 40 percent of automobiles and 45 percent of light trucks will also be required to make at least $16 per hour.

There are several other areas that the USMCA will affect, making it a considerable improvement over NAFTA. Ultimately, the ratification of the new agreement will lead to several major changes in North American trade. 

For up-to-date information regarding USMCA, visit our CUSMA page. If you need help understanding these changes, or navigating their impact, Carson International can walk you through these updates every step of the way.

To help facilitate trade between countries, international trade agreements have been put in place to maintain efficient operations, comply with each nation’s standards, and avoid certain non-tariff and tariff barriers, among other benefits.

What Are the Different Types of International Trade Agreements? 

There are two central types of international trade agreements: bilateral and multilateral. Agreements could pertain to certain types of goods and services or specific market entry barrier types.

Bilateral International Trade Agreements

Bilateral agreements facilitate trade between two countries. Some bilateral agreements include Canada-Israel., U.S.-Mexico, and E.U.-South Africa, among others.

Multilateral International Trade Agreements

Also known as regional agreements, multilateral agreements form certain international trade unions, including the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO). For example, multiple treaties including the Treaty of Rome help regulate the European Union, while the General Agreement on Trade and Tariffs shapes the WTO.

How Do They Affect Trade?

Having international trade agreements in place can benefit international imports and exports in several ways, including:

• Better access to a larger customer base

• Optimized supply chain operations through dealing with foreign suppliers via the agreement

• Reduced cost of penetrating foreign markets because of more efficient and simplified customs processes, duties, and regulatory compliance

• More efficient production through partially or completely relocated operations

• Easier access to foreign financial institutions and investors along with foreign workforces and customers

Examples of International Trade Agreements

Ever since the General Agreement on Tariffs and Trade (GATT) was implemented, the world has seen an increase in multilateral trade agreements along with local trade agreements.

One important trade agreement that helped pave the way for multilateral regionalism was the 1944 Bretton Woods Agreement, which gave rise to the International Trade Organization (ITO), the International Monetary Fund (IMF), and the World Bank. The Bretton Woods Agreement began when both the U.S. and Britain came out of World War II as the world’s foremost economic leaders, which led them to develop a more liberated and cooperative trade system.

The GATT came along in 1947 as the ITO dissolved following the Bretton Woods Agreement. The GATT would help reduce tariffs for member nations, allowing for expanding multilateral trade, but a growing number of regional trade agreements also came out of it. Part of what would develop from the GATT just five years after its implementation would be the European Union.

Another key trade agreement to come about in the early 1990s would be the North American Free Trade Agreement (NAFTA), which formed in the U.S. between Mexico and Canada. By 1995, the GATT would be replaced by the World Trade Organization (WTO), which would work to develop and implement policies on far more than goods, covering services, investment, and intellectual property.

Another major recent development is the development and implementation of the United States-Mexico-Canada Agreement (USMCA), which is set to replace NAFTA. The USMCA will boost auto manufacturing, strengthen labor laws, provide more market access for dairy farmers, upgrade NAFTA to accommodate the technology sector, and more.

Understanding the ins and outs of international trade, particularly the impacts of international trade agreements, will help you stay up to date with trade law and keep your operations running as smoothly as possible. If you’re finding it difficult to keep up with trade laws or navigate the different agreements–let us do it for you. The knowledgeable trade experts at Carson International can provide reliable assistance on all things trade, from start to finish.