The new trade agreement—referred to in the US as the United States-Mexico-Canada Agreement or USMCA, in Canada as the Canada-United States-Mexico Agreement or CUSMA, and in Mexico as the T-MEC (it’s acronym in Spanish)—will officially enter into force on July 1, 2020. It replaces and updates the North American Free Trade Agreement or NAFTA from 1994, which had become outdated and restrictive to the cross-border flow of goods, money and information. The new agreement offers many benefits to all three countries and will play a key role in the economic recovery taking place as the effects of the Coronavirus pandemic subside.

Though it took over two years to negotiate, the parties were able to establish a number of provisions that will promote cross-border investment and production by providing greater certainty and security to investors, services providers, consumers and producers. Some of the most important provisions in the agreement are aimed at promoting trade by reducing paperwork and red tape at the border and making customs regulations available online, consequently lowering costs and increasing predictability for cross-border transactions. It also raises the “de minimis” customs thresholds, which will help companies, especially small and medium-sized ones, by allowing small shipments to pass through customs with reduced paperwork and free of duties or taxes.

International companies in Mexico

Other key provisions are related to guaranteeing and ensuring enforcement of environmental regulations and the rights of workers and unions. Part of this includes a system for monitoring and expediting enforcement of labor rights to guarantee effective implementation of Mexico’s historic labor reform. Similarly, it contains the most progressive, broad, and highest-standard chapter on the environment of any trade agreement. The agreement places both of these issues at the center of the agreement and makes them enforceable.

Another key provision is the dispute settlement chapter, which establishes a binational, impartial and equitable mechanism for resolving trade issues. This aspect in particular is a great improvement from NAFTA, which had an ineffective system for resolving disputes as it allowed any of the three parties to block the process.

The agreement also modifies the rules of origin offering important advantages to the automotive industry, including increases in North American content requirement for vehicles and auto parts. Passenger vehicles and light trucks will now need to contain 70% of steel originating in North American, creating new opportunities, especially for Mexico.

Automotice industry Mexico

It will also provide a boost for tech companies by implementing new rules for the digital economy and developing tools to promote competitiveness, training and increased participation of businesses, entrepreneurs and small businesses in value chains along with enhanced intellectual property protection.

 Overall, the agreement will help to not only bring the three countries out of the economic slowdown of the last few quarters but also remove barriers for the establishment and development of manufacturing, auto makers, and tech and financial companies, making trade flows and investment more secure, reinforcing regional competitiveness and supply chain integration.


By Alejandro Lara Cruz | Board Member | American Industries Group®
Did you find this content interesting? Sign up for our monthly newsletter to receive more articles and infographics.

Subscribe

* indicates required

If you would like to find out more about this topic or are interested in receiving a complimentary business case analysis for your operation in Mexico, please fill out this form or contact us at:

US toll-free: +1 (877) 698 3905

CAN toll-free: +1 (844) 422 4922

start@americanindustriesgroup.com



Related posts

April 9, 2021
Guadalajara: Pillar for IT Industry in Latin America
Located in central western Mexico’s state of Jalisco, the cosmopolitan city of Guadalajara plays a major role in the country’s economic expansion. It is also the […]
April 6, 2021
How the USMCA is Spurring Investment in Key Industries in Mexico
With current global economic restructuring and years of US-China trade tensions, the USMCA comes at a critical time, offering significant opportunities for international companies in Mexico […]
March 26, 2021
Canadian Company Finds a Stable And Non-Slip Foundation For Growth in Silao, Mexico
When Jim Scott, President of Ground Effects Ltd., first shared his plan to start up operations in Mexico to provide his spray-on bed liner services for […]
March 22, 2021
Guanajuato State: Home to One of the World’s Most Economically Dynamic Regions
When considering relocating or expanding operations to Mexico, choosing the right area for your company is an important and sometimes overwhelming decision. Each city and region […]
March 17, 2021
Why Manufacturing in Guanajuato State Can Increase Productivity and Supply Chain Resilience
Guanajuato State is situated in Mexico’s geographic center, in the heart of the Bajío area that is home to a number of industrial cities and several […]
March 9, 2021
Logistics Benefits of Nearshoring in Mexico: Free Up Time and Money
Economic disruptions and shifts in consumer behavior resulting from our new normal have highlighted the importance of logistics, and specifically innovation in logistics and supply chains, […]