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Tax Alert

New Trade Agreement to replace NAFTA


The Canada-United States-Mexico Agreement (CUSMA) passed through its final stages to become law with unprecedented speed.

In just three hours on March 13, 2020, CUSMA was adopted by the Canadian House of Commons and the Senate, and received Royal Assent. These final steps to ratify the agreement all took place as the Canadian parliament announced it will close its doors until April 20, 2020, part of measures to contain the global COVID-19 pandemic.

Now that all three party countries have enacted the new agreement, the North American Free Trade Agreement (NAFTA) will cease to exist and CUSMA will take its place. The agreement will officially enter into force later this year.

CUSMA differs from NAFTA in many areas. These changes will impact the Canadian economy, with much more detailed information to come in the next few months. The immediate question for Canadian manufacturers and importers: how to prepare right now based on the information available. Below is an overview of the two primary areas of change and suggestions for preparation.

Rules of origin: General and specific

Like NAFTA, CUSMA uses the concept of rules of origin that must be met in order to qualify for preferential treatment.

CUSMA has introduced changes to the product specific rules of origin for certain products like automotive goods, chemicals, steel-intensive products, and textiles. The new agreement also includes new provisions for things such as recovered materials, kits or sets, and updates to the de minimis threshold.

Certification procedures

As with most free trade agreements entered into post-NAFTA, CUSMA does not require companies to use a specific form. Instead, certain data elements and a certification statement will need to appear on invoicing and shipping documentation.

How to prepare for CUSMA

Canadian importers should immediately reach out to their U.S. and Mexican suppliers and ensure they will be able to certify their goods under CUSMA and continue duty-free importation.

Canadian manufacturers should review the new specific rules of origin for their manufactured goods. This will ensure they can provide certification to their current customers and win new customers when competing against companies whose products do qualify for CUSMA.

Canadian importers should provide instructions to their customs brokers on when to apply CUSMA to shipments once the agreement enters into force.

CUSMA requires Canadian manufacturers and importers to take immediate action in mitigating the impact to their bottom line before it takes effect. The already challenging customs and trade landscape continues to change at a record pace. BDO can provide concise answers to questions your company has about these changes in order to mitigate duty exposure while remaining a compliant importer. Check your inbox for ongoing communication about upcoming webinars and in-depth analysis on CUSMA as new information becomes available.

The information in this publication is current as of March 13, 2020.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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