Customs Language in USMCA Seen as 'Platinum Standard'; Confusion Remains Around de Minimis Language

Changes to de minimis is the most significant change from NAFTA in customs administration and trade facilitation under the rewritten agreement, practitioners say, but exactly how that will work in practice is still unknown. Shipments from the U.S. or Canada into Mexico will not face duties if they are valued at less than $117, and will not have to pay tax if they are valued at less than $50. Shipments into Canada from NAFTA partner countries will be tax-free if valued under 40 Canadian dollars, and duty-free at under 150 Canadian. (Mexico's $117 limit matches C$150 at current exchange rates.)

"At the end of the day the common-sense approach is we should have one de minimis in North America," said Dan Ujczo, Dickinson Wright's U.S.-Canada practice chair. "What is somewhat of a bizarre result, we’ve ended up with three different de minimis levels."

The U.S. has a $800 global de minimis level, and that is in the U.S.-Mexico-Canada Agreement text as well, but there's a footnote that says that figure notwithstanding, "a Party may impose a reciprocal amount that is lower for shipments from another Party if the amount provided for under that other Party’s domestic law is lower than that of the Party."

Will the U.S. lower its de minimis for NAFTA trading partners? Some in the trade community worry it will drop to $200, the previous level. A high-level Republican trade staffer in the House of Representatives told International Trade Today the footnote doesn't require a change, and said there was some confusion about the meaning of the footnote.

Ujczo considers it a placeholder, and thinks there is little danger that USMCA implementing legislation would lower the de minimis level for our neighbors. While he said there's a debate among customs brokers about the wisdom of the $800 level, the lobbying power of express carriers is not insignificant in Congress. "I would be shocked to see it at $200 dollars on that issue alone," he said.

He said he'll be looking to the text language after the legal scrub to see how the taxes could be collected for Canadian and Mexican consumers. He thinks it's most likely consumers would pay the tax at checkout on the e-commerce platform, and the express carriers would remit the payments once a month in a block. But he said some are arguing that UPS should take your credit card information at the door. "I think the jury is still out on what the implications will be," he said.

Jean-Rene Broussard, counsel in the international trade practice at Akin Gump, says de minimis is the single biggest change. "The rest of the changes, with the customs chapter, while they’re dramatically different from the previous customs chapter in NAFTA, they’re not (that different) from TPP."

Ujczo called the customs and trade facilitation language "the platinum standard for customs and trade facilitation around the world right now. It incorporates most of what we’ve seen in the WTO trade facilitation agreement and then some. I think it particularly clears up many of the red tape issues our companies complained about in Mexico."

One example he gave of red tape involves fees charged by individual Mexican states in addition to national customs fees. Those will be outlawed when the agreement comes into force. Another issue is that customs brokers aren't allowed at every port of entry, and some licensed customs brokers are only authorized to work at a couple of ports, not all the ports that have customs broker access. Those kind of restrictions could open up room for corruption, he said. Most ports will allow any licensed customs broker to operate once USMCA is in effect.

Ujczo said the way Mexico decides which exporters to audit is supposed to be based on risk analysis in the future. He said he doesn't know if that will reduce the number of audits, but that U.S. companies hope the basis will be more transparent and not random. Importers also frequently have to show an original document, with handwritten signatures and the stamp of a Mexican notary, and the officials to inspect those documents are only available at certain hours. He said the language that addresses those issues is more aspirational than proscriptive, but he still thinks it's progress.

For both Canada and Mexico, the text talks about working toward joint inspections and shared border management, something that's being tested in Mexico in pilots, and has been happening for years on the northern border with Canada. "It’s not as explicit as personally I would have hoped," he said. Yet "clearly the concepts are there."

"It sounds like mundane things, but it’s really the death to competitiveness by a thousand cuts when you cross the border," he said.