Nearly two years after it was finalized, the Canada-United States-Mexico Agreement (CUSMA) came into force July 1, 2020, replacing the former North American Free Trade Agreement (NAFTA).
“CUSMA has taken the Canada-U.S.-Mexico trade relationship into the 21st century and is expected to provide trading stability for many years to come,” said Robert Pelletier, EDC’s Chief Representative to the U.S. “CUSMA will help Canadian companies of all sizes access the U.S. and Mexican markets, while supporting growth and innovation in all three of countries.”
The new agreement provides key outcomes for Canadian businesses, workers and communities in areas such as labour and environment rights, automotive market access, dispute resolution, cultural rights preservations, energy, intellectual property and agriculture.
There’s no transition period for companies when they can use either agreement to claim preferential duty rates for qualifying goods. Effective July 1, all companies in Canada, the U.S. and Mexico must follow the new CUSMA rules. To ensure your company is compliant and getting the optimum benefits from the new trade deal, it’s time to do an assessment of your business and the management of your imports and exports within the participating countries.
To get started:
- Analyze the new agreement footprint on your imports-exports and identify products that benefited from preferential duty treatment under NAFTA;
- Analyze new product-specific rules of origin under CUSMA to confirm that your products meet the new rules and will continue to benefit from preferential duty treatment;
- Evaluate potential changes to internal procedures related to the issuance of certificates of origin, origin qualification and certification.
CUSMA’s rules of origin
Rules of origin are the criteria needed to determine the country source of a product or service destined for export. They allow customs officials to determine whether goods are entitled to preferential tariff treatment under the applicable free trade agreement (FTA). They also ensure that FTA benefits aren’t extended to goods exported from non-FTA countries. The definition of “origin” can differ substantially between FTAs, depending on the negotiations between the countries involved.
If your products qualified under NAFTA, that doesn’t automatically mean they qualify under CUSMA. You’ll need to review the new rules of origin to be considered a “Canadian” product and to find out what’s changed and how your products may be impacted.
While the new rules of origin for autos and auto parts, selected steel products and chemicals are more robust—e.g. regional value content threshold for cars increased from 62.5% to 75%—for many products, transition to the new compliance requirements shouldn’t be difficult because the changes aren’t significant.
The new rules of origin requirements are listed in Chapter 4: Rules of Origin of the CUSMA agreement. The product-specific rules of origin (by product’s harmonized system (HS) code) are listed in Annex 4-B of Chapter 4.
Proving origin under CUSMA
In order to claim preferential tariff treatment under CUSMA, a certification of origin (COO) will be required effective July 1, 2020, for imported shipments valued above low-value shipment (LVS) threshold established by the importing party (e.g. In Canada, the LVS threshold is CAD$3,300). Unlike NAFTA, the new agreement doesn’t require a specific format for the COO. Any format is acceptable, provided it contains minimum data elements, which are set out in Annex 5-A of the Origin Procedures Chapter (Chapter 5 of the CUSMA). These elements include:
- identification and address of the certifier
- description of the good
- the rule of origin (e.g. criterion “B”)
The COO may be completed by either the exporter, producer or importer of the goods for the purpose of certifying that a good being exported from the territory of another party qualifies as an originating good. It may be provided on a commercial invoice or any other document; it may also be completed and submitted electronically with an electronic or digital signature.
Post-importation claims and duty-refund
Importers must have the origin certification in their possession at the time they make the claim for the CUSMA preferential tariff treatment. However, if you don’t have it at the time of importation and are unable to claim duty-free entry for your goods, the new trade deal gives importers up to a year to submit a post-importation claim to request a refund of the duties paid at entry. Each importing country can choose to extend this one-year period should they wish to do so in their customs law. For example, Canadian customs has extended the one-year period to four years to provide more flexibility to importers to claim refunds. In other words, if you weren’t ready on Canada Day, you have at least a year to claim CUSMA preferential duty rates retroactively.
Analyzing compliance with the rules of origin under free trade agreements, especially in sectors, like automotive, can be technical and complex. An importer may also be penalized for making a false or incorrect claim for preferential CUSMA treatment on the customs import documentation.
Companies that need to manage their transition to the new CUSMA rules should consider consulting with a qualified trade professional such as a customs broker or a global trade advisor who can help proactively manage the potential impacts of this change.
Many large customs brokerage and compliance firms provide international trade consulting services on topics, including trade compliance free trade agreements, as well as customs brokerage services.
Visit the Customs Broker Search Directory of the Canadian Society of Customs Brokers (CBSB) to find a customs broker in your province and city. Many Canadian brokerage companies also offer services for America and Mexico.
For brokers south of the border, the U.S. customs’ Find a Broker by Port directory allows you to identify customs brokers based on your point of entry into the U.S..
For more technical information on CUSMA compliance, visit:
- The Canada-United States-Mexico Agreement: What importers need to know page by Canada Border Services Agency;
- Prepare for USMCA: Information to be aware of on day one of USMCA implementation by U.S. Department of Commerce;
- USMCA Interim Implementation Instructions by U.S. customs provide guidance with respect to preferential tariff claims under the new trade agreement and related customs procedures.
- Don’t miss EDC’s live webinar on Sept. 4: The new NAFTA: How to leverage CUSMA to enter new markets. You can also watch it on-demand after that date.
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