USMCA Approval Process Underway in Canada; Uniform Regulations Highly Anticipated

The legislative process for U.S.-Mexico-Canada Agreement approval “has just started in Canada” and the final ratification is expected to occur in March, said Joy Nott, a partner in KPMG's Canada Indirect Tax Practice, during a Feb. 5 webinar. “If it does happen at any point in the month of March,” the agreement would then come into force in July (see 2001300009), she said. “The one thing that is sort of up in the air is -- in Canada, it goes through a debate period, and we're not expecting any undue delays or whatever else, but like all politics, there is a debate period that as long as the debate is going on, it could drag the ratification into April,” she said. Still, ratification in March seems likely, she said.

The uniform regulations “is the piece that I think, personally, as a practitioner in the area, is where the real rubber hits the road.” Those regulations are yet to be released and will “finalize the agreement on the wording in certain areas,” she said. The uniform regulations will be identical for all three countries and can be seen as a “how-to manual of how to take this complex piece of legislation” and “actually operationalize it,” she said. For example, those regulations should explain exactly how to calculate certain percentage requirements of the deal, Nott said. It's not exactly clear when those regulations will be released, but Nott expects them out “shortly.” The USMCA implementing legislation requires the uniform regulations to be issued “not later than the date on which the USMCA enters into force.”

One difference from NAFTA will be how marking requirements are treated, Nott said. “The NAFTA marking rules are still going to exist in domestic law, so there's still going to be a rule for how goods are supposed to need to be marked, but they're not going to be linked to a tariff treatment anymore,” she said. “That's a little bit technical, but just to say that that's different than compared to the old NAFTA, where there were very specific rules around marking. There are specific rules around marking. They are not linked to the legislation in the same way."

Another major change will be the end to the NAFTA certificate of origin, she said. Under USMCA, "they've taken away a prescribed format," and there is "no longer a specific form that needs to be filled out," Nott said. That "sounds great," except the change may add some complexity in practice, she said. Without a specific form to attest origin qualifications, the "statements can be made on commercial invoices, separate pieces of paper" or other versions of the old form, she said.

Companies should be sure to consider the lack of standardization that is likely to result from the change, she said. "Now, you need to talk to those in your supply chain and ask them or instruct them of how you want this information to come into you." Otherwise, such information may be missed by accounting if it is contained in the body of an invoice, for example, Nott said.