What is the NAFTA/ CUSMA Agreement?

There are many agreements and regulations that determine taxes and tariffs on items you ship for your small business. You might be familiar with NAFTA or CUSMA, but what does that really mean for you when you’re shipping products and goods across borders?

We created this guide to walk you through the NAFTA/CUSMA agreement and what it means for your small business. 

First of all, what does NAFTA/CUSMA stand for?

NAFTA stands for North American Free Trade Agreement. This agreement was made in 1994 to allow Canada, the USA, and Mexico to freely import and export between the 3 countries. NAFTA provides coverage for many basic trade operations between the 3 countries in terms of ground transport. This means that you wouldn’t have to pay duties or taxes on these goods. 

However, NAFTA didn’t include air and water transport, and many of the rules needed to be updated for the modern day, such as digital trade and accessibility for small businesses. 

In 2020, the Canada-United States-Mexico Agreement (CUSMA) was formed as a revision of NAFTA. CUSMA addressed some of the imbalances and issues with NAFTA.

What changed when CUSMA was enacted?

Changing from NAFTA to CUSMA allowed for increased support to small and medium-sized businesses. CUSMA established committees and information sharing tools for small businesses. They removed red tape and some of the requirements for small businesses across all industries, to make trade more accessible. The agreement reduced paperwork requirements for smaller shipments. 

This included changes like using new technologies to improve agricultural and food imports, such as reduced regulations on wheat, wine, and other foods.CUSMA also modernized the agreement by adding digital trade and intellectual property clauses. 

The CUSMA also requires the regulations to be the same at all 3 borders, which means if you are transporting goods between Canada, Mexico, and the USA and you know the rules, you won’t face any surprises. All 3 countries are required to publish trade information online including fees and penalties, so you can now research regulations ahead of time. This is another way the agreement allows small businesses to avoid hurdles.

Do my products qualify for tax-free shipping under the new agreement?

The CUSMA includes a set of rules and regulations to determine which products were covered under the agreement. These rules are called Rules of Origin. This includes things like where the product was made, where and how it was shipped, and which parts of the product are interchangeable for other products vs which are not. 

If you are not sure about whether or not your product will qualify to be shipped tax and duty free, talk to your customs broker. They will know exactly what type of shipping you qualify for and what paperwork is required. 

Now you understand the basics of the NAFTA/CUSMA agreements and what changed in 2020 when the USMCA came into effect. If you are still feeling uncertain, don’t worry. Your customs broker will walk you through the process.

Ready to ship your goods but need an extra hand? Get a quote from Welke.