What’s changed for ecommerce retailers since the USMCA agreement went live on July 1, 2020? What’s the difference between the old NAFTA and the USMCA? What are the benefits of USMCA for ecommerce? The disadvantages? And most importantly, will USMCA impact the brand promise you make to your cross-border customers to ship your product to their doorstep quickly with no hidden fees?
We’ll try to answer these questions and more about the USMCA and your cross-border business here.
What is the USMCA?
The United States-Mexico-Canada Agreement, aka the USMCA, aka the New NAFTA, is a free trade agreement between the United States, Mexico and Canada. It details new regulatory changes to labor, the environment, macroeconomics, digital trade and, most importantly for ecommerce, the fees and paperwork associated with shipping cross-border.
Trade analysts have plenty to say about both the advantages and disadvantages USMCA, but most agree it could be a boon for ecommerce and the digital economy—once its agreed-upon policies are followed by all parties.
What’s the difference between NAFTA and the USMCA?
The original North American Free Trade Agreement (NAFTA) was introduced in 1993 to open trade between the United States, Mexico and Canada by reducing tariffs between the three countries. Little did they know that within a few short years Amazon and eBay would come online and transform retail, trade and commerce as we know it, pushing us into an age of online buying and selling.
NAFTA made no mention of digital goods, digital platforms or the sharing of digital information. It didn’t foresee the exponential growth of e-services, ecommerce or e-anything. Within just a few years of passing, NAFTA was an analog agreement living in a digital world.
The USMCA aims to change that by becoming the first major trade agreement to address the digital trade of products, services and data. The USMCA includes other critical updates to NAFTA related to labor and the environment, but for our purposes we’ll stay focused on the elements most relevant to cross-border ecommerce retailers.
USMCA advantages and disadvantages for ecommerce
The USMCA benefits established global ecommerce retailers and removes barriers for those who are ready to make the cross-border leap. The agreement’s advantages are numerous, but there are disadvantages to consider as well. We’ll try to lay out the unvarnished pros and cons of the USMCA that specifically impact ecommerce.
The USMCA advantages
More transparency and clarity: The USMCA provisions requiring an online searchable database of customs information makes it easier to access the regulations, tariffs, taxes and duties needed to get cross-border business done. The agreement goes even further by encouraging regulations to be written in plain language so that even those of us without a degree in international trade understand them.
Less paperwork: The USMCA not only requires that customs regulations are made available online, it reduces the overall amount of paperwork needed. Customs agencies require a lot of information about the goods crossing their borders.
The USMCA increased de minimis thresholds (discussed below), meaning more shipments will be exempt from the lengthy documentation required for clearance. This results in reduced administrative costs, quicker clearance of shipments and increased customer satisfaction.
Higher de minimis thresholds: De minimis thresholds are intended to make cross-border transactions fast, easy and predictable for lower-value shipments. Under the USMCA, Canada raised its de minimis level from $20 to $40 for tax-free status and allows duty-free shipments up to $150. Mexico continues to offer $50 tax-free de minimis and now allows duty-free shipments up to $117. This means less paperwork and all-around lower costs for cross-border ecommerce retailers.
The USMCA disadvantages
Carrier confusion: The USMCA treats private and postal carriers differently. For example, Canada’s $40 de minimis is only for goods shipped through an express carrier like FedEx® or UPS®. Anything sent through the USPS® must still abide by the old $20 de minimis.
Partner cooperation: Mexico has not yet fully met its customs obligations under the USMCA. The Office of the United States Trade Representative (USTR), the US Embassy in Mexico and the National Foreign Trade Council are working diligently to bring Mexico into compliance with its USMCA customs obligations. Together, these bodies are encouraging the Mexican government to deliver on its commitments concerning informal entry and other agreed-upon customs policy.
Make the most of the USMCA’s benefits
Don’t have an international customs expert in house? Although the USMCA goes a long way toward simplifying the complexities of cross-border ecommerce, it’s still a lot to take in, much less take care of.
Pitney Bowes is an active member of the National Foreign Trade Council and has decades of experience in international delivery service. We can help your organization navigate the USMCA reforms and regulations, so all you need to worry about is introducing your wares to a new market and creating a loyal customer base without borders.