CUSMA takes effect on July 1, 2020 – are you prepared?

  • May 22, 2020
  • Cyndee Todgham Cherniak

On April 24, 2020, the United States publicly announced that the Canada-United States- Mexico Agreement (CUSMA) – USMCA under US terminology – will enter into effect to replace the North America Free Trade Agreement on July 1, 2020. It is time to get prepared and ensure that your business processes are in place to comply with the new CUSMA rules.

It is important to note that Canada, United States and Mexico must now negotiate and publish uniform regulations relating to customs matters. There will be additional regulatory changes announcements over the next few weeks that may require further adjustments to business practices. That being said, do not leave your consideration of the necessary changes and steps that should be taken until the last minute.

Timeline

  • July 1, 2020: CUSMA / USMCA / NAFTA 2.0 enters into effect;
  • April 24, 2020: The United States took the last step of the ratification process;
  • April 3, 2020: Canada notified the United States and Mexico that it completed its domestic ratification process of CUSMA;
  • April 3, 2020: Mexico announced it was ready to implement the agreement;
  • March 13, 2020: Bill C-4, An Act to implement the Agreement between Canada, the United States of America and the United Mexican States, received Royal Assent;
  • January 29, 2020: President Trump signed Public Law No: 116–113 allowing USMCA to be ratified;
  • January 16, 2020: The United States Senate passed the USMCA;
  • December 19, 2019: The United States House of Representatives passed the USMCA with bipartisan support;
  • December 19. 2019: Canada, the United States and Mexico signed a revised CUSMA;
  • December 12, 2019: Mexico's Senate passed the revised NAFTA 2.0 allowing it to be signed;
  • June 19, 2019: The Senate of Mexico ratified NAFTA 2.0; and
  • November 30, 2018: In Buenos Aires, Argentina, Canada, the United States, and Mexico signed the first version of NAFTA 2.0.

What you might need to do to prepare for CUSMA?

Canadian businesses, exporters, and importers have a couple of months to get ready and the clock is ticking. What a company must do will depend upon the particular circumstances of the company. We cannot list all the steps to get ready. However, we set out a number of suggestions below:

  1. Inform your customs broker that they should update their customs tariff codes to be used with respect to imports from United States (UST) and Mexico (MXT) and to stop using the MUST tariff code.
  2. Contact exporters from Mexico and the United States to ensure that they have reviewed the new rules of origin and have applied the NAFTA 2.0 rules of origin to the goods and have verified that preferential treatment is appropriate. Review the rules of origin to determine whether the test for preferential treatment (duty free treatment or reduced customs duties) under CUSMA have changed.
  3. Contact exporters from Mexico and the United States and ask that they update their computerized systems to ensure that all invoices contain the appropriate Certification of Origin (the blanket NAFTA Certificates of Origin cannot be used).
  4. Update your computerized systems to ensure that all invoices contain the appropriate Certification of Origin (the blanket NAFTA Certificates of Origin cannot be used).
  5. Seek updated advanced rulings relating to origin issues;(when CUSMA enters into effect, NAFTA advance rulings will no longer be valid).
  6. Review the rules of origin (some rules are very complex) to determine whether goods that you export that were subject to customs duties under NAFTA are no longer subject to customs duties under CUSMA:
    1. ensure you start with the right tariff classification for the good;
    2. review the rule of origin for that good to determine if the rule is a tariff shift rule or a regional value content rule or another rule;
    3. review your Bill of Materials and update them if the components or ingredients have changed;
    4. list the origin of each item in the Bill of Materials;
    5. list the tariff classification number for each item that was not manufactured in Canada;
    6. if you must a apply a tariff shift rule of origin, ensure that the tariff shift has occurred for each item in the Bill of Materials; and
    7. if you must apply a regional value content rule, perform the calculations to determine if the rule of origin is satisfied.
  7. If you will be importing or exporting vehicles or parts, review the new CUSMA/USMCA/NAFTA 2.0 Auto Rules of Origin.
  8. Determine whether the changes to transshipment rules affect your imports into Canada-see Article 4.18 of Chapter 4 of the CUSMA and the associated documentation requirements which are contained in Article 5.4(3) of Chapter 5 of the CUSMA.
  9. If you import "specially defined mixtures", determine if the changes to the definition affect your imports and/or exports – See Customs Notice 20-13.
  10. Importers of record in Canada might be entitled to duty savings as the low value shipment thresholds increase. The CBSA announced new LVS thresholds for use after CUSMA implementation.
  11. Direct selling companies and other e-tailers (stores that sell over the internet) should update their computerized records to reflect that the online shopping duty-free threshold for Canadian consumers buying U.S. origin goods will be increased from $20 to $150 when the goods are shipped by mail or courier.
  12. Importers of U.S. dairy, poultry and egg products should watch Global Affairs website for information about applying for new quota – more U.S. dairy, poultry and eggs will be entitled to enter Canada and you will need quota to take advantage of this benefit.

Cyndee Todgham Cherniak is the founder of LexSage.