A Quick Guide To the USMCA Trade Deal

How Will the Newly Signed USMCA Deal Benefit Your Business? Get Key Points Now.

On January 29, 2020, President Donald Trump signed the U.S.-Mexico-Canada Agreement (USMCA), a bipartisan agreement that has already been ratified by Mexico. It’s expected that the Canadian government will ratify the deal in the upcoming weeks. 

USMCA was passed by the U.S. House of Representatives in December 2019 with a vote of 385-41 and then by the Senate, with a vote of 89-10 on January 16, 2020.

This agreement replaces the North American Free Trade Agreement (NAFTA), which was signed into law some 25 years ago. This bipartisan accomplishment has been praised by Republicans and Democrats alike as legislation that will benefit American workers and businesses. 

Three Major Benefits of the USMCA Agreement

At a high level, the USMCA deal will help consumers and independent businesses in the United States by:

• Expanding access to duty-free markets in Canada and Mexico, specifically in agriculture, manufacturing, and technology
• Providing “more robust enforcement mechanisms” in numerous areas, including:
  • environmental issues
  • labor rights
  • pharmaceutical issues
• Enhancing protections associated with digital trade

Here are a few highlights of the the USMCA trade deal:

De Minimis Threshold, or a Win for Shippers

During recent years, the number of e-commerce purchases has increased, significantly boosting the number of small- to medium-sized packages delivered across North American borders. 

USMCA contains language that will help to reduce the costs that shippers must pay for these cross-border deliveries—with the goal being to facilitate more trade across borders. 

This includes thresholds that were either unchanged (the $800 threshold set by the U.S. in 2016 will stay the same) or were raised in this agreement (for Canada and Mexico), which will be beneficial for both consumers and small businesses.

Officially, the topic is referred to as the “De Minimis Threshold,” which in general, allows packages below a certain value to be shipped across North American borders with lower rates on taxes (or even tax/duty free), plus easier customs clearance. 

Off the top, benefits for independent businesses include:

• Tax-free shipments
• Duty-free shipments
• Simplified customs forms

Canada will:

• Allow duty-free shipments for packages valued:
  • Up to C$150—currently equivalent to $194.66 in USD
• Raise the de minimis level from C$20 to C$40; this is equivalent to an increase of $15.29 in USD to $30.59, USD, and is the first time that Canada has raised these amounts in decades
• Give importers a 90-day grace period, post-entry, to make their tax payments

Mexico will:

• Have a duty-free limit of $117 USD
• Keep the country’s de minimis level at $50 USD

A document from the United States government notes how increasing de minimis levels is a “significant outcome for United States small- and medium-sized enterprises (SMEs),” adding how, “These SMEs often lack resources to pay customs duties and taxes, and bear the increased compliance costs that low, trade-restrictive de minimis levels place on lower-value shipments, which SMEs often have due to their smaller trade volumes.”

The document notes that traders just entering markets in Mexico or Canada will also benefit by having a lower-cost opportunity to reach consumers. Another group that will benefit is express delivery carriers in the United States, who will enjoy lowered costs and boosted efficiencies. In addition, the USMCA has maintained the free trade provisions found in NAFTA. 

Focus on the Environment

The U.S. government describes this agreement as the “most advanced, most comprehensive, highest-standard chapter on the Environment of any trade agreement.” It includes what’s being described as the first articles to improve air quality while supporting sustainable forest management, preventing and reducing marine litter and, overall, ensuring quality procedures to assess environmental impacts of actions. 

Digital Issues Addressed

Digital trade protections will apply to e-books, software, movies, digital music, and other products that use electronic distribution. This will prohibit custom duties and related measures from being applied in relation to them. 

The agreement also helps to ensure a more seamless supply chain experience when electronic authentications and/or signatures are used. USMCA is also promoting open access to public data that’s government generated, to boost opportunities for commercial innovation. This agreement also focuses on collaborative efforts to address cybersecurity challenges, promoting the use of best practices to keep networks and services secure.

As you consider the benefits of the USMCA, explore Shippo to help simplify your business’s shipping needs.