A Perspective by Adrienne Braumiller, Partner and Founder, Braumiller Law Group

The United States-Mexico-Canada Agreement

Just before the September 30, 2018 deadline to submit the full text of a new US-MX trade pact to Congress, Canada was able to agree to updated terms and sign on to the deal, narrowly preserving the tri-lateral trade agreement that will replace the North American Free Trade Agreement. The new agreement, as of now, is to be named the United States-Mexico-Canada Agreement. (USMCA)

Canada joined the agreement hours before the deadline set by President Trump’s notice to Congress in early September 2018 that the United States and Mexico had reached a deal on a new trade agreement. That started the clock for Canada to join the new deal before the United States and Mexico needed to provide Congress with full text of the new agreement. After much merry-go-round on American access to Canada’s dairy sector, and a state dispute resolution system, the three North American countries finally agreed on terms.

Highlights of the new agreement include:

  • The U.S. will gain greater access to the Canadian dairy sector: 3.6%, up from the previous 1%. This will allow U.S. dairy farmers more ability to sell “Class 7” milk products such as milk protein concentrate, skim milk powder, and infant formula.
  • 30% of autos must be made by workers earning at least $16/hour. By 2023, this rises to at least 40%. Mexico must make it easier for their auto workers to form labor unions, as well.
  • For autos to qualify as duty-free, member countries must have produced 75% of content, up from 62.5%.
  • Canada will give the United States more access to its poultry market, and Mexico agreed to allow increased importation of certain American cheeses.
  • The copyright period in Canada will increase to 70 years after the creator’s death, up from 50 years, previously.
  • The de minimis level to transport U.S. goods across the U.S.-Canadian border will increase to 40 Canadian dollars, up from 20, and commercial shipments will increase to 150 Canadian dollars. U.S. goods traveling across the U.S.-Mexican border will increase to $50 and $117, respectively.
  • The agreement has a sunset clause such that it will last 16 years and will be reviewed every 6 years.
  • The antidumping and countervailing duty dispute resolution mechanism from the old NAFTA will remain intact.
  • The company and investor dispute resolution chapter is gone. Companies and investors must now go through the court system to dispute member-country action, minus a few key industries like energy and telecommunications.

Canada and Mexico will push to resolve the Section 232 metal tariffs next, and hope to resolve the steel and aluminum tariffs before the USMCA is signed. The USMCA must be signed by each country’s leader, then approved by each country’s respective government bodies.  The agreement would potentially take effect as early as Jan. 1, 2020.

Perspective

Many new technologies have erupted in the last 24 years, so NAFTA was due for an update. Ecommerce has certainly also sparked the need for a facelift, but modernized provisions for certification of origin (which is how countries determine which shipments qualify for duty-free status) may lead to more forgery and fraud than previously dealt with.

Under the new Chapter 5 Origin Procedures, certification of origin has become more flexible and lenient under the newly rebranded NAFTA, now known as the United States-Mexico-Canada Agreement (USMCA).  A major change is the elimination of the required use of the NAFTA Certificate of Origin, a form with several fields that must be completed for the Certificate to be valid.  Not only is there no more prescribed format for the certification of origin to take, but the USMCA certificate may be completed and signed electronically with a digital signature, rather than a hard copy executed first and then a soft copy retained for records. This could potentially allow for fraud or gross negligence as anyone could insert a digital signature with the name of an authorized representative.  Presumably, there would be controls in place for authorized signatures, but there is room for rampant errors.

These declaration procedures are like the more recent FTAs, such as Korea, Australia, etc., which place more burden and responsibility on the importer to ensure that the goods qualify, rather than placing the burden primarily on the exporter, as is presently the case. A certification of origin may be completed by the importer of the goods based on the importer having information, including documents, that demonstrate the origin of the goods.  The certification may be provided on an invoice or any other document that specifies that the good is both originating and meets the requirements of the agreement,  and must describe the originating good in sufficient detail to enable its identification.  While this flexibility appears attractive on the surface, it may open the door for more confusion, insufficient information to properly certify, and an increase in improper or invalid claims.  At least with the current NAFTA Certificate of Origin an importer could facially review the document, and with some basic training, could spot tale-tale signs of incorrect claims.

Not all of the changes are to be dreaded. New in the USMCA is a section dealing with errors or discrepancies. It provides that a Party shall not reject a certification of origin due to minor errors or discrepancies that do not create doubts concerning the correctness of the import documentation.   This should provide needed flexibility when technical or minor errors would invalidate a Certificate under NAFTA. However, “minor errors or discrepancies,” are terms that are left undefined. Even so, the USMCA also provides that if a customs administration into whose territory a good is imported determines that a certification of origin is illegible, defective on its face, or has not been completed correctly, the importer shall be granted a period of not less than five working days to provide the customs administration with a copy of the corrected certification of origin.

Gone are the days of instant rejection. Now, importers may be able to push the envelope with little to no consequences, as they will be a given an automatic chance to correct their mistakes within 5 working days.  This is a major victory given that many NAFTA Certificates are invalid on the face of the document.

Only time will tell whether these changes lead to better accuracy in the issuance of certificates of origin,  we can certainly hope so, but many of the NAFTA certificates that look facially valid are improperly issued because there has not been a rules of origin analysis. Importers were not previously burdened with this effort, but now more than ever, they will need to gather detailed information to ensure that they can legitimately make a USMCA claim.