NAFTA’s change to USMCA in July of last year was an event that we can consider not a bang but a whimper. The U.S. International Trade Commission estimates that USMCA will likely have a positive impact on trade. U.S. exports to Mexico would increase by $14.2 billion, while U.S. imports from Mexico would increase by $12.4 billion.
With the previous information in mind, there is no doubt that the agreement has been projected to result in a positive outcome for our countries’ economies. Nevertheless, every party has obligations, which USMCA members often forget.
We will discuss USMCA’s three primary obligations, which its members should follow without exception: origin, labor, and environment.
However, these obligations are falling on deaf ears, and companies should focus on USMCA compliance to avoid possible audits and reviews.
1. Regarding the Origin, upon completion of phase 1 of the implementation within the first six months of entering into force - (July 1, 2020, to December 31, 2020) - which acted as a sort of grace period by U.S. Customs and Border Protection (CBP) - audits may be carried out, without exception. Audits can differ from case to case, whether it has to do with the Tax Administration Service (SAT-Mexico) or the CBP . They can verify whether a good, entered with a claim for preferential tariff treatment, qualifies as originating by one or more of the following:
(1) A written request or questionnaire,
(2) A verification visit to the premises of the good’s exporter or producer to request information, including documents, and to observe the production process,
(3) Verification of compliance for a textile or apparel good.
The information and documentation should be thoroughly analyzed by the audited company and in compliance with the complete USMCA legislation, in which the rules and customs consist of:
a) Technical specifications and other documents explaining the manufacturing process.
b) How the good meets the specific rule of origin.
c) A bill of materials
d) Certifications or affidavits.
e) Purchase orders and proof of payment to substantiate values.
f) Documentation pertaining to assists, inventory management methods, indirect materials, etc.
g) Raw materials’ invoices.
h) Production records.
i) Export documents.
2. On the government’s part, three parties from the U.S. Embassy will monitor the implementation of USMCA’s labor obligations3 and support bilateral cooperation on labor and employment matters, which include:
a) Forced labor indicators:
o Vulnerability, restriction of movement, withholding wages, deception, isolation, physical & sexual violence, intimidation & threats, retention of identity documents, debt bondage, abusive working, living conditions, and excessive overtime.
b) Accurate worker representation in collective bargaining in Mexico:
o Registering unions and collective bargaining agreements
c) Requiring the parties to adopt and remain within the law and practice labor rights as recognized by the International Labor Organization (ILO).
3. Regarding the environmental theme, each country’s authorities can request customs revisions, to provide relevant information concerning a particular shipment’s legality to determine whether an importer has provided adequate and accurate information, including documents and other records, especially on shipments deemed too risky in their environmental effects.
What are some of the penalties received when in violation of said obligations?
1. Origin: Denial of preferential tariff treatment
2. Labor: Penalties may include suspension of preferential tariff treatment for manufactured goods or the imposition of fines on manufactured goods or services.
3. Environmental: Every party shall provide appropriate sanctions:
o In Mexico’s case, the Federal Penal Code establishes that environmental crime is punishable by up to 9 years of prison.
Companies are highly recommended to carry out preventive audits in origin, labor, and environmental matters to avoid possible sanctions linked to the USMCA. An appropriate measure is to have a USMCA health check performed to preventively correct errors and ensuring full compliance. An ounce of prevention is worth a pound of cure!
JOSE ANTONIO AVILA NUÑEZ
Foreign Trade Director
JA Del Rio
antonio.avila@jadelrio.com
Sources:
1. United States-Mexico-Canada Agreement: Likely Impact on the U.S. Economy and Specific Industry Sectors (Investigation No. TPA-105-003, USITC Publication 4889, April 2019): https://www.usitc.gov/publications/332/pub4889.pdf
2. U.S. Customs and Border Protection, USMCA Implementation Instructions: https://www.cbp.gov/document/guidance/usmca-implementation-instructions
3. U.S. Department of Labor, Labor Rights and the United States-Mexico-Canada Agreement (USMCA): https://www.dol.gov/agencies/ilab/our-work/trade/labor-rights-usmca
4. The Office of the U.S. Trade Representative (USTR), Agreement between the United States of America, the United Mexican States, and Canada 7/1/20 Text: https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between
5. Federal Attorney for Environmental Protection, Environmental Crimes: http://www.profepa.gob.mx/innovaportal/v/535/1/mx/delitos_ambientales.html
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