On July 1, 2020, the United States-Mexico-Canada Agreement (USMCA) came into force. The agreement replaces the previous North American Free Trade Agreement (NAFTA) which had been in place since 1994.
USMCA is intended to support trade between the participating countries, encourage free and fair trade, and drive economic growth in North America.
The pact is significant since Canada and Mexico are two of the U.S.’ biggest trading partners. In 2019, U.S. companies sold $292.6 billion in goods to Canada and $256.5 billion to Mexico.
This is big news for small business, since Canada or Mexico are the first places that growing American businesses export to. Here are a few ways in which USMCA can benefit your small business’s exports.
Fewer obstacles to doing business
A key ruling of the USMCA is that it eliminates the local presence requirement for businesses that provide cross-border services. This means that if your business is looking to export it won’t be required to have a physical presence or office in that country.
USMCA also makes it easier to conduct trade between the U.S., Mexico, and Canada by cutting red tape at the border. New procedures such as e-signatures, self-certification of origin, and others streamline trade for busy small businesses.
Reduced cost of moving goods internationally
USMCA introduces several changes that increase de minimis values. De minimis is a threshold under which customs duties or taxes are not applied to internationally shipped goods. When that threshold is set high, goods are subject to less paperwork and can clear customs faster.
Here’s what you need to know about the new de minimis values:
- The USMCA has created a new informal shipment level of U.S.$2,500 or C$3,300.
- Canada has raised its de minimis level for taxes from C$20 to C$40. This all but eliminates duties and taxes for all orders below C$40.
- The new threshold set for duty-free shipments by Canada is C$150. Although taxes are still payable where applicable.
- The de minimis level for Mexico has risen to the U.S.$50 for exemption from duties and taxes.
- The de minimis level for duty-free express shipments is raised to U.S.$117.
These changes benefit small businesses who otherwise lacked the resources to pay customs and duties under NAFTA and were unfairly burdened by the compliance costs associated with low de minimis levels on low-value and low-volume exports.
In addition, small businesses will also benefit from lower costs and greater efficiencies that U.S. express delivery carriers will realize under the USMCA.
Note: Digital products – such as eBooks, videos, and music – are exempt from customs fees.
Greater protection for intellectual property
USMCA provides several strong intellectual property protections to reduce counterfeiting and piracy. Under the agreement; violators of patents, trademarks, copyright, and certificates of origin – even digital formats – will be subject to criminal penalties.
Furthermore, copyright protections are extended to 70 years beyond the life of the author (under NAFTA it was 50 years).
Support for e-commerce
USMCA boosts e-commerce and the digital economy in several ways.
As mentioned above, the agreement exempts digital products from customs duties and other discriminatory measures.
It also prevents any country from imposing data-localization requirements. This means that Canada and Mexico can’t force U.S. companies to store data on their in-country servers or sue a U.S. platform provider for third-party content posted on their sites. The former is important because it ensures that data can move freely across borders from local data centers. This matters for businesses that conduct e-commerce and need to transfer customer and commercial data across borders to track orders and product shipments.
In addition to promoting e-commerce best practices, USMCA also emphasizes increased collaboration in tackling cybersecurity challenges.
Resources aimed at small businesses
To help small businesses learn more and take advantage of the USMCA, the U.S. Small Business Administration (SBA) has launched a new International Sales resource site.
The International Trade Administration also provides USCMA resources trade.gov/usmca including how it differs from NAFTA, what’s new, fact sheets, and contact information for a new Customs and Border Protection USMCA Center staffed with experts.