The USMCA Is Here: What to Know | J.B. Hunt
On July 1st, a new era began when the United States-Mexico-Canada-Agreement (USMCA) went into effect between the three countries.
The new USMCA expands, updates, and clarifies the North American Free Trade Agreement, which was signed into law in 1993. It focuses on categories like agriculture, automotive, digital trade, energy, environment, intellectual property, labor, non-market economies, small and medium enterprises, and textiles.
When it comes to physical goods, below are a few of the categories that will be affected. These are only summaries of the new USMCA regulations, which are laid out in full here.
The USMCA provides new access for U.S. exports of dairy products, poultry meat, eggs and eggs-related products to Canada. Other changes are expected to increase U.S. exports of alcoholic beverages and wheat to Canada, according to a report by the U.S. International Trade Commission.
Cheese and other milk and cream products are expected to see the biggest upticks among dairy exports to Canada. New tariff-rate quotas in Canada will also create additional business opportunities for U.S. exports of milk, milk powder and butter, the report added. The new deal will increase U.S. market share in Canadian dairy goods from 3 percent to 3.59 percent before tariffs kick in, according to Brookings Institution research.
In general, new regulations are projected to increase trade of dairy products between the two nations, the trade commission report states.
Under NAFTA, seven percent or less of the foreign inputs in a qualifying good could originate from outside of North America with the entire product still qualifying as originating within North America (and thus subject to duty-free treatment). Under USMCA, that’s up to 10 percent.
This is meant to discourage reliance on low-cost fabrics from Asia and increase protections for the U.S. textile industry, according to a report from the Center for the United States and Mexico at Rice University’s Baker Institute for Public Policy.
With the revised rules, all parties are required to source sewing thread, elastic fibers, pocketing and coated fabrics from within North America in order for those products to receive duty-free treatment. However, textile inputs not generally found in North America (like rayon) can still be sought from other countries.
The USMCA also restructures NAFTA Tariff Preference Levels (TPLs) to rebalance textile trade between the three nations. An increase of TPLs for U.S. exports of apparel and other finished textile goods to Canada, for instance, should lead to more export opportunities for U.S. manufacturers, according to this U.S. Trade Representative fact sheet.
As one of the largest trade categories in the region, automotive usually generates the most headlines. New provisions and regulations will impact automotive trade dynamics between all three nations. In Canada, “Ontario supplies a lot of the subsystems and parts and supplies to the automotive industry, just like Mexico does,” says Mark Hall, a senior director of transportation with J.B. Hunt.
In general, the USMCA is expected to spark big business opportunities. The 2019 U.S. International Trade Commission report projected annual U.S. exports to Canada and Mexico to increase by a combined $33.3 billion above the current NAFTA baseline. “I think it’s going to be one of those rising tide lifts all boats kind of deals, where there’s increased trade overall,” Hall adds.
Those projections were made, of course, before the COVID-19 pandemic. How North American businesses will adjust to the USCMA in this pandemic and its aftermath will depend on multiple factors, many of which are rapidly evolving or aren’t yet known.
What is known is that the supply chain will play a huge role in making USMCA-era economies roll. As Chris Spear, the American Trucking Association president, put it: “Trade is central to the trucking industry — 76% of all surface freight between the U.S. and our nearest neighbors moves by truck.” He continued: “This agreement will boost both U.S. exports and gross domestic product, meaning more truck movements and delivering measurable returns for our industry.”
For questions about cross-border transportation, consult proven providers and professionals. Founded in the United States, J.B. Hunt has a proven track record with decades of experience operating in Canada and Mexico, as well. We specialize in custom logistics solutions, whether by truck, rail, ship, or plane, that solve your most pressing problems.
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