Goodbye NAFTA – Hello USMCA
June 25, 2020
The topic of COVID-19 and how it has affected worldwide shipping has overshadowed a major change coming to cross-border shipping in North America, The United States–Mexico–Canada Agreement (USMCA) officially replaces the North American Free Trade Agreement (NAFTA) on July 1, 2020.
The USMCA includes a number of changes to NAFTA, across a variety of issues, including Intellectual Property protections and enforcement, trade secrets, digital trade, financial services, currency practices, labor, environmental obligations, and of course, cross-border shipping regulations.
For how it affects cross-border shipping, we first need to understand the term de minimis. In Latin, de minimis loosely translates into ‘the law does not concern itself with trifles’, which will help to understand the application of the term.
In international shipping, de minimis is the threshold set by countries under which no customs duties or taxes are applied to goods. Essentially the government has decided not to impose import duties or taxes on goods below a certain value, because it would be too small and not worth the effort
Being aware of the de minimis levels of each country, and the goods it applies to is critical when shipping globally, especially when shipping DDP , as it will determine the duties and taxes portion of the total landed cost presented to customers at checkout.
So now you must be asking how does this change from NAFTA to USMCA affect my business? For goods being imported into the USA the de minimis will remain the same at a threshold of $800, but for goods being exported, there is a dramatic change.
- Canada will raise its de minimis level from C$20 to C$40 for taxes, essentially eliminating duties and taxes for almost all orders below C$40.
- Canada will provide duty free shipments up to C$150
- Mexico de minimis level is set for up to US$50 exempt from duties and taxes.
- Mexico will provide duty free shipments up to $117
The higher threshold for duties and taxes will lower the overall cost for consumers and merchants when shipping from the US to Canada and Mexico. The lower cost should increase conversion rates and increase the volume of international shipments.
Regardless of whether or not your shipments are below the de minimis threshold, FlavorCloud advises merchants to choose DDP for a better customer and merchant experience. Tracking de minimis levels on a country level is a daunting task and expecting your customers to understand them is a whole other matter. Working with FlavorCloud Cross-Border Network allows merchants to collect the correct duties and taxes at checkout leading to faster customs clearance, lower customs brokerage fee, fewer refused orders as well as a complete managed service.