In July, 2020, the United States-Mexico-Canada Agreement (USMCA) went into effect, replacing NAFTA. This agreement provides a framework for trade between the three countries, reducing barriers to trade and promoting economic growth. The USMCA benefits US companies by allowing them to manufacture goods in Mexico for export to the US duty-free in most cases.
While it’s true there are some duties and tariffs that US companies are sometimes liable for when manufacturing in Mexico for export under the USMCA, these cases are very limited and minor. There are several USMCA provisions US companies should be aware of to take full advantage of these benefits and to avoid paying any unnecessary fees or fines.
In this article, we will discuss the specific duties and tariffs that US companies must be aware of and the key provisions that most benefit US manufacturers in Mexico. The USMCA eliminates tariffs on many goods traded between the United States, Mexico, and Canada, which benefits US companies manufacturing in Mexico because by making it easier and cheaper for them to import raw materials and export finished products. Still, it is advisable to understand relevant USMCA provisions for maximum benefit.
First and foremost, it is important to understand the rules of origin under the USMCA. In order for goods to qualify for duty-free treatment under the USMCA, they must meet certain requirements regarding their origin. Generally speaking, this means that the goods must be produced in one or more of the three member countries, using a certain percentage of materials that are also sourced from one or more of the member countries.
The specific rules of origin vary depending on the product, and can be quite complex. US companies that are manufacturing in Mexico for export to the US should ensure that their goods meet the appropriate rules of origin in order to qualify for duty-free treatment under the USMCA. This is especially true for the automotive industry.
If the goods meet the appropriate rules of origin, there may still be certain duties and tariffs when importing goods manufactured in Mexico into the US. However, the USMCA provides for the gradual elimination of tariffs on many goods like dairy and poultry traded between the three member countries. Because the new rules of origin require a higher percentage of North American content in automobiles and other manufactured goods, this benefits US companies manufacturing in Mexico by encouraging the use of North American-made parts.
US companies in Mexico should be aware of the potential for anti-dumping and countervailing duties. Intended to counteract unfair trade practices, these can be imposed if the US government determines that a foreign company is engaging in such practices.
There are also various regulatory requirements your products or manufacturing operations may fall under. For example, certain products may be subject to safety and environmental regulations that must be met in order to be sold in the US. US companies should ensure that their products comply with all relevant regulations in order to avoid potential penalties and delays in customs clearance.
The USMCA has provisions that require Mexico to improve its labor standards and practices, which resulted in labor law changes this year. This is beneficial for US companies manufacturing in Mexico because it helps ensure that their workers are treated fairly and have better working conditions.
Manufacturing in Mexico for export to the US under the USMCA comes with the risk of potential for labor violations and associated penalties. The USMCA includes provisions aimed at improving labor conditions in Mexico, but it remains to be seen how effective these provisions will be in practice. US companies that are manufacturing in Mexico for export to the US should be aware of the potential for labor violations and take steps to ensure that their operations in Mexico are in compliance with applicable labor laws and standards.
The USMCA benefits US manufacturers in Mexico by strengthening intellectual property protections. This includes stronger patent and copyright protections, which help protect US companies’ intellectual property rights.
As a result, Mexico has solid IP protections codified in federal law. This provides a security for US manufacturers in the Latin American country, in knowing their proprietary processes and equipment will remain their own the entire time they operate in the country and beyond. Infringements on trade secrets, trademarks, and inventions are punishable to around $1 million USD per unit.
Typically, when we think of the USMCA or trade between Mexico and the US, we envision trucks crossing a physical border. But there is also a digital trade aspect to the USMCA. The trilateral trade agreement contains provisions to promote digital trade between the United States, Mexico, and Canada. This benefits US companies manufacturing in Mexico because it makes it easier for them to sell their products online and reach customers in other countries.
The USMCA reduces trade barriers by facilitating cross-border data flows that allow companies of all sizes and in all industries to access digital services at affordable prices. This adds new value to customers by offering or creating new services using data and leveraging data to create new products or services that can transform ideas into businesses, guaranteeing the freedom to move data across borders and prohibiting the forced localization of data. This benefits US manufacturers by ensuring continued growth of digital trade between the countries.
The new USMCA benefits US companies in several significant ways. But there are still various duties, tariffs, and regulatory requirements that must be considered. US companies must ensure that their products meet the appropriate rules of origin, comply with all relevant regulations, and avoid potential labor violations in order to take full advantage of these opportunities. Manufacturing in Mexico can be quite profitable thanks to these free-trade provisions. And by better understanding them, US companies can more effectively navigate the complex landscape of manufacturing in Mexico for export to the US under the USMCA.
